ARLINGTON, Va.–NASCUS has filed a comment letter with NCUA saying that it opposes applying to federally insured, state-chartered credit unions the proposed changes to Part 708b regarding voluntary mergers of federally insured credit unions that call for greater disclosures.
Moreover, the state regulators’ group says it believes that the proposal should have been published as an Advanced Notice of Proposed Rulemaking (ANPR) rather than as a proposed rule given the uncertainty of the proposal’s applicability to FISCUs.
As CUToday.info reported here, the NCUA board has put out for comment a proposed rule aimed at providing greater transparency to members of federal credit unions that are seeking a voluntary merger when it comes to benefits and compensation that may be paid to executives and board members of the CU that is being acquired.
The proposal also provides for better opportunities for members of a CU considering a merger to communicate with each other.
The NCUA proposal follows reports in CUToday.info and from other analysts of large compensation packages paid to some members of management teams—and even board members—at CUs being acquired in mergers.
“Since January of 2014, there have been over 700 voluntary mergers of federally insured credit unions,” NASCUS wrote in its letter. “It is unclear from the proposed rule how many of those voluntary mergers involved problematic conduct requiring additional rulemaking. There is certainly no evidence offered to support the proposition that past conduct with respect to mergers presents so high a risk as to justify the preemption of state merger rules.”
Instead, wrote NASCUS, when it comes to FISCUs NCUA’s “sole concern should be mitigating risk to the National Credit Union Share Insurance Fund (NCUSIF). In the absence of any clear and compelling nexus between the activity being regulated and risk to the NCUSIF, NCUA should defer to state law. Nowhere in the preamble to the proposed rule does NCUA articulate a NCUSIF risk that would compel extension of this proposal to FISCUs.”
Among the other “problems” NASCUS said it sees in the proposal:
- Proposed 708b.2 would expand the definition of covered persons to include the four most highly compensated officials after the credit union’s CEO. “There is no asset size threshold proposed, therefore this provision could lead to the disclosure of all the employees of some modest sized credit unions,” NASCUS said. “Whether the benefits to governance outweigh the invasive nature of a result are dubious.”
- NCUA also proposes dramatically expanding the scope of compensation that must be disclosed. NASCUS noted, “The text of the proposed rule requires ‘any increase in compensation or benefits that any covered person of a merging credit union has received during the 24 months prior to the date of the approval of the merger plan by the boards of directors of both credit unions. It also means any increase in compensation or benefits that any covered person of a merging credit union will receive in the future because of the merger.’ As a result, only compensation received after the merger is subject to the limiting “but for the merger” test. All compensation increases, whether related to the merger or not, received in the 24 months prior to the merger is required to be disclosed. This is too broad.”
- Proposed 708b.105 amends the current merger disclosure provisions to require submission of the previous 24 months’ board minutes that reference the merger, NASCUS noted. NCUA asserts the submission of the board minutes helps NCUA understand “the types of alternatives considered by the credit unions in addition to the merger proposal.” NASCUS said of that proposal, “NCUA, and state regulators, have unlimited access to a credit union’s books and records, including board minutes. Should specific facts or events so warrant, both NCUA and the state may require submission of additional information. Using that approach is more targeted supervision than an overly broad requirement that all mergers submit the minutes going back 24 months.”
- Noting the proposal includes a member-to-member communication mechanism to empower dissenting members wishing to persuade their fellow members to oppose the proposed merger, NASCUS said, “Even a casual perusal of social media in today’s environment would indicate the potential problems that could ensue by mandating credit unions send communications on behalf of members.”