By Frank J. Diekmann
The big dues-payers have spoken! And in a tribute to Do As We Say, Not As We Do, in this case they’re not fans of democratically run and member-owned and controlled credit unions exercising too much democracy or member control.
Both CUNA and NAFCU have filed comment letters with NCUA in which they say the red rose should most definitely not be given to an agency proposal aimed at providing greater transparency to members of federal credit unions that are seeking a voluntary merger. The member-owners, the trade groups say, do not need to know about any big bonus packages being paid to executives and even “volunteer” board members of CUs that are being acquired. Nothing to see here, let’s move on.
CUNA and NAFCU also want voted off the island a proposal that provides better opportunities for members of a CU considering a merger to communicate with each other.
Why would two trade groups that Hike the Hill under big banners of cooperative finance and member-ownership take stances on the NCUA proposal that are at odds with that “credit union story” we keep hearing so much about? There’s no need to empanel a grand jury to figure this one out. The biggest CUs pay the biggest portion of the dues to CUNA and NAFCU, and it’s those very same CUs that are doing the acquiring, often by serving up a tasty slice of the acquired CU’s capital cake to its management team/board to close the deal. And what of the people who actually bought the ingredients and baked the cake and who own it? Hey, if they don’t know dessert was served, then they won’t miss it, right?
The Dilemma
The dilemma here for CUNA and NAFCU was how to take a position that contradicts so much of what credit unions are supposed to stand for. They found their cake icing in ye ole “regulatory burden” standby.
In its comment letter on the voluntary merger proposal, CUNA said it does not support additional disclosures “when the disclosures do little to help credit union members decide whether to approve a merger...” It called the proposed rule that members be able to communicate with each other ahead of a merger vote “onerous,” and said credit unions “do not want updates to the merger rule to increase credit unions’ regulatory burden.”
In its letter, meanwhile, NAFCU also said that it does not see how the “proposed rule constitutes anything less than regulatory burden,” and added that it is not aware of any “problematic trends” in voluntary credit union mergers that “warrant such a heavy-handed approach.”
There are a lot of credit unions that seem to disagree. After I wrote here in a column titled “Time to Talk About an Ugly Truth in Credit Unions”–which is now the most-read column I’ve published on CUToday.info–my inbox quickly filled with heart-felt, nervous, and even angry replies from CEOs across the country, which you can read here, over what they see as a great big “problematic trend.”
“Your article said it all,” wrote one person, “but as you are well aware there is little, if any, support for this issue among CUs, CEOs, the trades or the regulators - all demur out of apathy, fear, or self-interest; it's maddening!”
A Troubling Scenario
It will be interesting, or, more likely, troubling, to see how credit unions comment to NCUA on this proposal. As the author above notes, many are fearful of speaking up (and the managers at some small CUs who have a fiduciary responsibility to act in the best interests of their own members are instead counting on a merger as their retirement plan. So, hey, I won’t write a letter if you won’t write a letter).
As if having one foot on a “Full Democracy” ball and the other on a “With Limits” roller skate weren’t enough of a balancing act straight out of CU-irque du Soleil, I’m wondering how the same trade groups can simultaneously chant “We’re Main Street, not Wall Street,” since shareholders in SEC-regulated companies have a lot of rights the credit union groups don’t want the shareholders in credit unions to have.
Indeed, NCUA Chairman Mark McWatters' observed during the board meeting at which the voluntary merger proposal was put out for comment that, “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…Tell the story of why this payment is necessary and appropriate and disclose it.”
Actually, Regulatory 'Relief'
And, months ago, crystal balling the language of the comment letters the agency would be receiving, McWatters added, “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.”
Objections to the proposal don’t seem to be about regulatory burden as much as they do explanatory burden. But when no one is afraid of what will be seen, then no one objects to turning on the light.
That’s the thing about taking pride in and even boasting about wearing the white hat: you don’t get to decide when to put it on and take it off.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info or @FrankCUToday.