ALEXANDRIA, Va. –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 rule would require disclosure to members of any substantive compensation and benefits changes that would be paid to the five highest-paid employees, as well as members of the board and supervisory committee, that are the result of the merger agreement.
The board indicated it is also open to considering extending the rule to all federally insured credit unions.
The proposed rule follows a developing story that has been closely followed by CUToday.info, which is attractive pay packages and other payouts that have gone to the leadership teams at credit unions—often smaller CUs—that are disappearing as the result of a merger. These pay packages, which have also gone to volunteer board members, are typically not disclosed to members when they are voting on the merger.
“Members whose federal credit unions are seeking a voluntary merger would have better access to information about that merger and a longer period of time to consider their votes under a proposed rule (Parts 701, 708a, and 708b) approved by the NCUA Board,” the agency said in a statement.
What Proposal Includes
The proposed rule would:
- Increase the required time for notice to members before a merger vote to at least 45 days.
- Require the merging credit unions to disclose all merger-related compensation for certain employees and officials of the merging credit union.
- Clarify the contents and format of the members’ notice to provide better information.
- Create a member-to-member communications process similar that found in NCUA’s regulations covering credit union conversions to or mergers with banks.
In presenting the proposal to the NCUA board, agency staff referred to current communications among members of CUs seeking to merge as the equivalent of “radio silence.” It is basing its member-to-member communications rules from rules NCUA put in place related to attempts by CUs to convert to mutual savings banks.
McWatters' View
“I think this rule is important,” said NCUA Chairman Mark McWatters. “To me as a former securities lawyer, this follows an SEC approach to full and fair disclosure of material items. This is information that is material to someone who is engaged in a merger vote. Some may push back and say you don’t understand this payment is being made to the CEO because the CEO has worked long and hard for this credit union and was perhaps underpaid in the past and now is receiving some sort of lump sum. My response, is ‘OK, whatever. Just tell the story. Tell the story of the CEO. Tell the story of why this payment is necessary and appropriate and disclose it. Some say this is regulatory burden. I look at this as regulatory relief, and the members will benefit by having disclosure of this information made public, and also a sufficient period of time to reflect and ask questions of other members of the credit union.”
Metsger's View
NCUA Board Member Rick Metsger said that while the rule is called a voluntary merger rule, in his view it’s more accurately a “member disclosure and transparency rule.” “As I frequently hear when I address CU groups, these dollars belong to the members of the credit union,” said Metsger.
He said credit unions have a fiduciary responsibility to protect the members’ dollars, and the agency has a similar responsibility. “The net worth of the credit union belongs to the member and they deserve a full and transparent accounting,” Metsger said.
Metsger noted the request for comment includes asking for more information on whether the scope of the proposal should be expanded from just federal credit unions to all federally insured CUs, noting the plan could have the effect of motivating acquiring CUs to target just state charters.
Both McWatters and Metsger actively encouraged credit unions to provide feedback and to comment.
The NASCUS View
NASCUS President and CEO Lucy Ito issued the following statement following the expression of interest by the board in expanding the scope of the rule to include federally insured, state chartered credit unions (FISCUs).
“While some state supervisors may share NCUA's concerns over transparency and member interests, states may also view this as a credit union governance issue and business decision as opposed to an insurance matter. Under this view, application of merger rules should properly be left to state supervisors to decide as the chartering agency of state-chartered credit unions. This view, among others, will be reflected in our comments.”