Credit Union Groups Call on the NCUA for Merger Policy Reform

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Credit union mergers are a much-debated trend. Numbers have skyrocketed in recent years, with 2021 seeing 160 credit union mergers and 2022 already on pace to beat that. Many fear these mergers are less out of necessity for failing credit unions and more so out of the desire to grow (and for CEOs and board members to take the hefty sums that come with such a merger). In addition, they further reduce the already dwindling number of credit unions.

However, no merger gets through without intense scrutiny and regulatory burden from the NCUA. But now, credit union groups are fighting this oversight, asking the NCUA to streamline their process and defer to the state officials when necessary. Both the National Association of Federally-Insured Credit Unions (NAFCU) and the National Association of State Credit Union Supervisors (NASCUS) submitted comments to the NCUA to this point, ahead of the August 16th deadline for the agency’s annual policy review.

They argue it is not the NCUA’s right to question the motive behind the merger, as long as the surviving credit union remains in good standing. Meaning, that regardless of whether or not the merger is spearheaded by a board or CEO looking for a payout, the responsibility of investigating this should not fall to the NCUA, but to state regulators, says Sarah Stevenson, Vice President of Regulatory Affairs at NASCUS. 

“When two state-chartered credit unions merge, NCUA’s appropriate role is to ensure the surviving credit union is sufficiently capitalized and managed as to absorb the merged credit union without posing a material risk to the insurance fund…It is for the state regulators, as the prudential regulator, to decide whether the board of directors’ decision to merge was inappropriately influenced.

“As we have noted on numerous occasions, there is abundant transparency in the state credit union system when it comes to compensation. To further add to this point, most states have the ability to collect compensation information, and many, in fact, do collect this information as a requirement in the course of reviewing the merger proposal and application.”

Stevenson went on to state that while the agency supports transparency, the NCUA’s requirements are redundant, as compensation information is readily available already.

NAFCU’s comments stressed that in regard to bank conversions, the NCUA needs to provide a clear timeline of when transactions will be processed. The agency also noted credit union’s frustration with the process of credit union mergers, specifically in regard to credit union mergers with SEGs (Select Employee Groups).

“The Manual prohibits a community credit union from merging into a multi-SEG credit union, except in an emergency merger, so in instances where such a transaction is contemplated, the community credit union must convert its charter to a SEG charter in order to merge,” said Ann C. Petros, Vice President of Regulatory Affairs.

“This process can be quite extensive and time-consuming, sometimes delaying the merger unnecessarily,” Petros continued. “The NCUA also does not allow for conditional approval of a merger pending the charter change and a positive outcome of the required membership vote. This means that if the membership did not vote in favor of the merger, or the merger partner no longer wished to pursue the merger, then the merging credit union would have to potentially again undergo a charter conversion, only further delaying the process and putting the merging credit union at risk.”

At the end of their comments, both groups called for the NCUA to reassess their policies and requirements for mergers of all kinds.

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