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Hello, this is Samantha Shares. This episode covers The American Bankers Association Trade group’s letter to N C U A Board Chairman Todd Harper on N C U A’s on the agencies improved transparency.  This letter demonstrates the challenges of N C U A’s recent public comments that are negative towards credit unions.  The letter uses these references to attack N C U A and credit  unions.

The following is an audio version of that letter.    This podcast is educational and is not legal advice.  We are sponsored by Credit Union Exam Solutions Incorporated, whose team has over two hundred and Forty years of National Credit Union  Administration experience.  We assist our clients with N C U A so they save time and money.  If you are worried about a recent, upcoming or in process N C U A examination, reach out to learn how they can assist at Mark Treichel DOT COM.  Also check out our other podcast called With Flying Colors where we provide tips on how to achieve success with N C U A.

And now the letter.

October 15, 2024

The Honorable Todd. Harper Chairman

National Credit Union Administration 

Dear Chairman Harper:

The American Bankers Association (A B A) commends the National Credit Union Administration (N C U A) for its renewed focus on credit union transparency. As credit unions grow and become more complex, proper disclosure of pertinent information to credit union member-owners and the public gains importance. In addition to recent reporting changes for credit unions with more than $1 billion in assets regarding fee practices,1 a new proposal on executive compensation transparency for federal credit unions will provide greater accountability within the credit union system. With the White House Office of Management and Budget indicating that the N C U A may issue a Notice of Proposed Rulemaking as soon as this month,2 we urge the N C U A to implement additional transparency requirements relating to the increasingly complex and

concerning activities of some credit unions, namely merger transactions involving banks. Specifically, we urge the N C U A to require such credit unions to receive membership approval, disclose financial terms, and

demonstrate how combinations with banks might impact consumers, communities, and taxpayers.

In 2007, the N C U A organized an Outreach Task Force in response to inquiries from Congress3 – and a subsequent report by the Government Accountability Office4 – on credit unions. Among other topics, the Task Force examined N C U A policies and procedures on senior executive compensation. Although state-chartered

credit unions disclose compensation data for key employees through IRS Form 990 like most other nonprofit organizations, federal credit unions are exempt from doing so given their status as federal instrumentalities. In its 2008 report to the N C U A Board, the Task Force concluded that disclosure of senior executive compensation would be “consistent with prevalent public policy and should enhance accountability to the [credit union]

members,” and align with “federal credit unions’ member-owned, demoC R Atically-controlled status.”5

Due to their cooperative structure, credit unions afford their members “the right to vote on strategic federal credit union decisions including the directors, mergers, and conversions.”6 Because the results of such votes can directly affect senior executive compensation, the “Task Force concluded members should know or have access to senior executive officer compensation information when deliberating on how to cast their vote.”7

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Given the importance of merger transactions in the life of an organization, transparency about the possible personal incentives of management related to the transaction is especially important.

While mergers between credit unions and the acquisitions of credit unions by banks require membership votes, the acquisitions of banks by credit unions do not.8 In December 2023, the N C U A’s Director of the Office of Examination and Insurance stated in a memorandum to you that “a credit union's purchase of a bank is typically a strategic action to expand its geographic footprint or to grow a loan program.”9 The

memorandum noted that the N C U A approved 64 bank transactions with credit unions between 2011 and September 30, 2023, “a small portion of the overall consolidation occurring in the financial services

marketplace.”10

However, credit union acquisitions of banks now represent a much larger share of total transactions.

According to an October 3, 2024 report from the American Banker, “about 90 bank sales were announced

through September,” and “credit union buyers were involved in nearly a fifth of the deals to date this year.”11 The 18 deals announced so far in 2024 have already eclipsed the record 16 set in 2022, and total bank assets targeted by credit unions so far this year – more than $9 billion – have surpassed 2022’s record $5.15

billion.12 C N B C also reported that you are aware of “12 more potential deals that are in the works.”13

Credit unions have a statutory mission to serve those of modest means connected through a common bond in a local area. That mission of service, and their not-for-profit structure, has justified their exemption from most taxes and the Community Reinvestment Act (C R A) for decades. As growth-oriented credit unions pursue new markets and commercial lending via bank acquisitions, legislators, regulators, and even some within the credit union movement have raised objections.

To the detriment of credit union member-owners whose capital is used to finance these transactions, terms are rarely disclosed. For the few credit unions that have publicized such information, cash offers to bank shareholders ranged from $26.2 million14 to $231.2 million15 this year.

In its newly released bank merger policy statement, the Federal Deposit Insurance Corporation (FDIC) acknowledged that acquisitions of banks by credit unions “may have a negative impact on state and local government budgets and communities, which could necessitate an increase in taxes.”16 The FDIC specified that it may require credit unions to “provide additional information to enable the FDIC to evaluate the convenience and needs statutory factor, as credit unions are not subject to the C R A.”17

Several states have also determined that credit unions are unable to acquire banks under state law.

Mississippi and Tennessee have enacted legislation on this issue whereas other states have made regulatory determinations.

Although the N C U A issued a proposed rule on combination transactions with non-credit unions in January 2020 due to “a desire to add even more transparency,”18 it n...