Credit Union Regulatory Guidance Including: NCUA, CFPB, FDIC, OCC, FFIEC

Samantha: 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.

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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

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 neglected to address
the need for membership approval,

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

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

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

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

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

and the public deserve transparency.

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

to better align the interests
of credit union leaders, credit

union members, and the public.

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

executive compensation transparency for
federal credit unions and incorporate

additional transparency requirements
for credit unions acquiring banks.

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

accountability across the
credit union industry.

Thank you for considering our
recommendations and for your

efforts to improve transparency
within our financial system.

This concludes the A B A’s letter.

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

on LinkedIn, or at mark Treichel dot com.

This is Samantha Shares and
we Thank you for listening.