In July, the NCUA passed (2-1) a proposed rule on succession planning which would require the board of every federally insured credit union to “establish and adhere to processes for succession planning.” This new proposed rule was an updated version of the same rule that was proposed in February of 2022, which was then altered after reviewing credit unions’ comments.

While many feel the rule is unnecessary, the NCUA claims that many credit unions—especially smaller ones under $10 million in assets—lack proper succession plans and are therefore more likely to either 1) merge or 2) become insolvent. The rule cited the declining number of credit unions overall and the rising number of mergers as grounds for developing the rule.

“Accordingly, the failure to adequately plan for changes in leadership can jeopardize the continued viability of a FICU, potentially resulting in the unplanned merger of the FICU or other disruptions to safe and sound operations upon the departure of key personnel,” the rule stated, going on to later note that, “An NCUA analysis found that poor succession planning was either a primary or secondary reason for almost a third (32 percent) of FICU consolidations.”

However, America’s Credit Unions are now pushing back against the rule, arguing that added regulation on the topic was not only redundant, thanks to the CAMELS rating system which includes succession planning in the management segment of the review, meaning credit unions are all rated for their succession planning system already—but that the one-size-fits-all approach will only harm credit unions instead of helping them.

In a letter sent on September 23rd to the NCUA, ACU’s Regulatory Advocacy Senior Counsel Luke Martone agreed that succession planning was crucial for credit unions but stated that “the provisions included in the proposed rulemaking are wholly inappropriate as regulation; though, they may be helpful to some credit unions in the form of guidance.”

ACU also denied the NCUA’s claim that a lack of succession planning—and therefore increased mergers and potential insolvency—is a risk to the credit union system and argued their concerns are unfounded. Additionally, ACU believes that despite the wording of the rule which notes that regulation will be aligned with the credit union’s size, the application of the rule will end up failing to do so.

“We vigorously push back against the need for and appropriateness of a succession planning mandate by the NCUA,” Martone wrote. “Despite the proposed language that the complexity of a succession plan be commensurate with the federally insured credit union’s size, complexity, and risk of operations, the mere mandate for a succession plan will result in an unworkable one-size-fits-all approach that simply will be of no benefit to some federally insured credit unions while introducing additional risk to others. It is necessary to understand that the systemic risk established by a lack of a succession planning mandate—as proffered by the NCUA—simply does not exist.”

Considering the assumed “redundancy” of the rule, America’s Credit Unions argued it was unnecessary and that the NCUA should reconsider implementing it. However, if the NCUA plans to move forward with the rule regardless, ACU asked that they clarify specific wording used, provide clear and concrete steps they expect board members to take, and ensure the confidentiality of the succession plans of each credit union.