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Samantha: Hello, this is Samantha Shares.

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This episode covers The American Bankers
Association Trade group’s letter to N C

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U A Board Chairman Todd Harper on N C U
A’s on the agencies improved transparency.

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This letter demonstrates the challenges
of N C U A’s recent public comments

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that are negative towards credit unions.

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The letter uses these references to
attack N C U A and credit  unions.

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The following is an audio
version of that letter.

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This podcast is educational
and is not legal advice.

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We are sponsored by Credit Union
Exam Solutions Incorporated, whose

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team has over two hundred and
Forty years of National Credit

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Union  Administration experience.

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We assist our clients with N C
U A so they save time and money.

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If you are worried about a recent,
upcoming or in process N C U A

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examination, reach out to learn how they
can assist at Mark Treichel DOT COM.

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Also check out our other podcast called
With Flying Colors where we provide tips

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on how to achieve success with N C U A.

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And now the letter.

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October 15, 2024

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The Honorable Todd.

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Harper Chairman

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National Credit Union Administration

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Dear Chairman Harper:

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The American Bankers Association (A B
A) commends the National Credit Union

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Administration (N C U A) for its renewed
focus on credit union transparency.

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As credit unions grow and become more
complex, proper disclosure of pertinent

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information to credit union member-owners
and the public gains importance.

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In addition to recent reporting
changes for credit unions with more

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than $1 billion in assets regarding
fee practices,1 a new proposal on

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executive compensation transparency
for federal credit unions will

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provide greater accountability
within the credit union system.

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With the White House Office of Management
and Budget indicating that the N C

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U A may issue a Notice of Proposed
Rulemaking as soon as this month,2

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we urge the N C U A to implement
additional transparency requirements

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relating to the increasingly complex and

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concerning activities of some
credit unions, namely merger

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transactions involving banks.

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Specifically, we urge the N C U
A to require such credit unions

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to receive membership approval,
disclose financial terms, and

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demonstrate how combinations with
banks might impact consumers,

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communities, and taxpayers.

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In 2007, the N C U A organized an
Outreach Task Force in response to

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inquiries from Congress3 – and a
subsequent report by the Government

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Accountability Office4 – on credit unions.

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Among other topics, the Task Force
examined N C U A policies and procedures

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on senior executive compensation.

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Although state-chartered

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credit unions disclose compensation
data for key employees through IRS

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Form 990 like most other nonprofit
organizations, federal credit unions

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are exempt from doing so given their
status as federal instrumentalities.

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In its 2008 report to the N C U A Board,
the Task Force concluded that disclosure

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of senior executive compensation
would be “consistent with prevalent

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public policy and should enhance
accountability to the [credit union]

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members,” and align with “federal
credit unions’ member-owned, demoC

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R Atically-controlled status.”5

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Due to their cooperative structure,
credit unions afford their members “the

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right to vote on strategic federal credit
union decisions including the directors,

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mergers, and conversions.”6 Because
the results of such votes can directly

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affect senior executive compensation,
the “Task Force concluded members should

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know or have access to senior executive
officer compensation information when

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deliberating on how to cast their vote.”7

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Given the importance of merger
transactions in the life of an

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organization, transparency about
the possible personal incentives

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of management related to the
transaction is especially important.

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While mergers between credit unions
and the acquisitions of credit unions

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by banks require membership votes, the
acquisitions of banks by credit unions

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do not.8 In December 2023, the N C U A’s
Director of the Office of Examination

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and Insurance stated in a memorandum to
you that “a credit union's purchase of

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a bank is typically a strategic action
to expand its geographic footprint

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or to grow a loan program.”9 The

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memorandum noted that the N C U A approved
64 bank transactions with credit unions

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between 2011 and September 30, 2023, “a
small portion of the overall consolidation

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occurring in the financial services

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marketplace.”10

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However, credit union acquisitions
of banks now represent a much

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larger share of total transactions.

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According to an October 3, 2024
report from the American Banker,

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“about 90 bank sales were announced

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through September,” and “credit
union buyers were involved in nearly

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a fifth of the deals to date this
year.”11 The 18 deals announced so

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far in 2024 have already eclipsed the
record 16 set in 2022, and total bank

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assets targeted by credit unions so
far this year – more than $9 billion

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– have surpassed 2022’s record $5.15

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billion.12 C N B C also reported that
you are aware of “12 more potential

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deals that are in the works.”13

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Credit unions have a statutory mission
to serve those of modest means connected

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through a common bond in a local area.

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That mission of service, and
their not-for-profit structure,

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has justified their exemption
from most taxes and the Community

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Reinvestment Act (C R A) for decades.

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As growth-oriented credit unions
pursue new markets and commercial

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lending via bank acquisitions,
legislators, regulators, and

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even some within the credit union
movement have raised objections.

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To the detriment of credit union
member-owners whose capital is

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used to finance these transactions,
terms are rarely disclosed.

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For the few credit unions that have
publicized such information, cash offers

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to bank shareholders ranged from $26.2
million14 to $231.2 million15 this year.

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In its newly released bank merger
policy statement, the Federal Deposit

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Insurance Corporation (FDIC) acknowledged
that acquisitions of banks by credit

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unions “may have a negative impact on
state and local government budgets and

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communities, which could necessitate an
increase in taxes.”16 The FDIC specified

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that it may require credit unions to
“provide additional information to enable

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the FDIC to evaluate the convenience
and needs statutory factor, as credit

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unions are not subject to the C R A.”17

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Several states have also determined
that credit unions are unable to

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acquire banks under state law.

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Mississippi and Tennessee have
enacted legislation on this

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issue whereas other states have
made regulatory determinations.

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Although the N C U A issued a proposed
rule on combination transactions with

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non-credit unions in January 2020
due to “a desire to add even more

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transparency,”18 it neglected to address
the need for membership approval,

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disclosure of financial terms, or the
possible ramifications for states and

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local communities given the eradication
of certain tax and C R A obligations.

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Consumer protection disparities exist
as well, which you have recognized.19

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As you asserted earlier this year, “the
people who manage the credit union, their

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interest doesn't always align with that of
the members.”20 Credit union member-owners

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and the public deserve transparency.

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By building on the Outreach Task
Force’s work, you have an opportunity

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to better align the interests
of credit union leaders, credit

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union members, and the public.

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Indeed, we urge the N C U A to go beyond
the Task Force’s recommendations on

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executive compensation transparency for
federal credit unions and incorporate

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additional transparency requirements
for credit unions acquiring banks.

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Such measures will help prevent conflicts
of interest and help restore some

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accountability across the
credit union industry.

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Thank you for considering our
recommendations and for your

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efforts to improve transparency
within our financial system.

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This concludes the A B A’s letter.

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If your Credit union could use assistance
with your exam, reach out to Mark Treichel

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on LinkedIn, or at mark Treichel dot com.

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This is Samantha Shares and
we Thank you for listening.