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June 22, 2018

NCUA final mergers rule includes state CUs; expands disclosures to members

A final rule revising the procedures a federally insured credit union (FICU) must follow to merge voluntarily with another such institution – including how members are notified and what disclosures are necessary about compensation for executives and board members involved in the merger – was approved by the NCUA Board Thursday.

The board also considered a final rule for federal credit union field of membership, and heard reports about its on-going “Enterprise Solution Modernization (ESM) initiative, and changes made to the agency’s rules on business lending late last month in response to congressional action.

Regarding the mergers regulation, the two-member NCUA Board unanimously approved the final rule, which has been in development since last year. The final rule applies to all FICUs (both those chartered by NCUA and those chartered by the various states that are federally insured, or FISCUs).

The rule takes effect Oct. 1; agency staff said the three-month delay between then and now was made “to allow time for FISCUs to comply with the final rule.” Currently, the NCUA rule in this area does not apply to the state-chartered credit unions. The agency also said the final rule will apply only to new merger applications submitted after the rule’s effective date.

NASCUS President and CEO Lucy Ito, in a statement, expressed disappointment that the rule includes FISCUs under its requirements, noting the agency did not follow the suggestions made in the association’s comment letter. “Instead, the agency is choosing to add more burden to state-chartered credit unions, which already practice full transparency and disclose compensation in Form 990s,” Ito said.

“Voluntary mergers between healthy, well-managed credit unions are business decisions, not insurance nor safety and soundness matters,” she said. “State regulators, as chartering authorities, already set state charters' disclosure requirements. NCUA is duplicating the role of state supervisory agencies, which is counter to efforts to reduce regulatory burden and to limit unnecessary redundancy.”

As adopted, the final rule:

  • Revises and clarifies the contents and format of the notice to members about a merger of their credit union with another (which also now requires information in the member notice about the effect of a merger on ATM access, and clarifies that the notice and ballot for a member vote should not be combined with other types of notices).
  • Requires merging credit unions to disclose certain “merger-related financial arrangements” for “covered persons” (including the credit union’s chief executive, the four most highly compensated employees other than the CEO; and board members and supervisory committee members). The “merger-related financial arrangements” disclosure requirement is now narrowed, no longer requiring employer-provided medical insurance, retirement, and other benefits offered on a non- discriminatory basis to all employees of the continuing credit union to be disclosed. However, the final rule retains the current threshold disclosure for the value of other merger-related financial arrangements that exceed the greater of $10,000 or 15% of compensation. (Those include: supplemental retirement plans for high-ranking employees, additional life insurance for certain employees, additional paid leave time, bonuses, severance payment agreements, etc.)
  • Increases the minimum member notice period of a merger before it occurs (from seven days to at least 45 days but no more than 90 days). In addition, the board made no change to the notice period for mergers where a FICU is proposing to terminate federal insurance coverage by merging with a non-federally insured credit union. For terminations of NCUSIF coverage, the Federal Credit Union (FCU) Act specifies a notice period of at least seven days, but no more than 30 days. The board noted that, as that period is specified by statute, it could not adopt a regulation changing it.
  • Provides a method for credit union members and others to submit comments to the agency regarding the proposed merger. In a change from the proposal (which would have established procedures to allow for member-to-member (MTM) communication in advance of a member vote on the merger), the final rule requires the notice to members to include information about the NCUA website where merger information and member comments are posted, as well as the email and physical addresses where members may submit their comments for posting.

NCUA final rule: Bylaws; Voluntary Mergers of Federally Insured Credit Unions

NASCUS comment letter: Voluntary Mergers of Federally Insured Credit Unions

Ito statement: NCUA mergers rule


In other action, the board heard an update on its Enterprise Solution Modernization (ESM) initiative, designed to modernize and streamline the agency’s processes, technology, and infrastructure. The agency calls the initiative, started two years ago, “the most complex program the NCUA has undertaken.”

“The project is aimed at modernizing technology and procedures to improve the examination process and ease burdens on credit unions and on agency staff by reducing the amount of examination and supervision time spent in credit unions,” staff told the board in the presentation.

However, no mention was made in the update of any partnership or consultation with state supervisory authorities on the project – a point NASCUS’ Ito made in a statement issued after the meeting. “While I applaud NCUA’s efforts to modernize its infrastructure, I am concerned that NCUA did not mention partnership or consultation with SSAs on the ESM project,” she said. “State regulators have valuable experience in examination systems other than AIRES that could inform the initiative.”

Under the timeline unveiled at Thursday’s meeting, the ESM will continue to be designed this year and next; a pilot will be launched next year (and into 2020); and operation and improvements are expected later in 2020.

Also at Thursday’s meeting: the board heard a staff report on the agency’s recently adopted final rule on business lending, which implemented statutory changes enacted last month via the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (S.2155). The rule – which took effect June 5 -- allowed for implementation of S.2155’s provision that federally insured credit unions may exclude loans made on 1-to-4-unit family dwellings from the aggregate member business loan cap.

However, the law and rule changes do not affect the maturity limit on loans secured by the one-to-four family dwellings that are not, or will not be, the borrower’s principal dwelling residence, staff pointed out in the briefing.

Ito statement, NCUA ESM project

Final Rule, Part 723, Member Business Loans

NASCUS Summary: NCUA changes to MBL (commercial lending) rule


In what is a first for NCUA, a final rule approved Thursday by the agency will subject some community-based federal credit union applications to public hearings. The final rule takes effect Sept. 1. The final rule, approved unanimously by the NCUA Board, requires that:

  • An applicant for an original community charter, conversion, or expansion may opt to submit a narrative to establish the existence of a well-defined local community instead of being limited to a presumptive statistical community. (An appendix to the final rule presents 13 criteria applicants can use to support their requests.)
  • The NCUA Board will seek comments from the public and hold a public hearing for narrative applications where the proposed community exceeds a population of 2.5 million people.
  • For communities that are subdivided into metropolitan divisions, the agency board will permit an applicant to designate a portion of the area as its community without regard to division boundaries.

Two of the above provisions were included in a 2016 proposed rule on community chartering. The middle one, addressing the need for a public hearing for applications involving communities exceeding a population of 2.5 million people, is new.

The agency has never held a public hearing where interested parties essentially may testify on a charter, according to NCUA staff.

NCUA final rule: Chartering and Field of Membership (FOM for FCUs)

NASCUS Summary: Proposed rule, FCU Field of Membership


The White House sent to the Senate this week the nomination of Rodney Hood to be a member of the NCUA Board, for a term that ends in 2023. President Donald Trump nominated Hood, a Republican and former member and vice chairman of the board from November 2005 until August 2009, to take the seat now occupied by Board Member (and former Chairman) Rick Metsger (a Democrat), whose term expired last August. The other member of the board, Chairman McWatters, is a Republican.

Hood is now corporate responsibility manager for JPMorgan Chase and Co., according to a biography posted by the White House. The bio states that Hood “manages national partnerships with organizations that serve community development, civil rights, and disability community.” The bio also notes that he also served in the federal senior executive service as associate administrator of the Rural Housing Service at the U.S. Department of Agriculture. He holds a B.A. in business administration, communications and political science from the University of North Carolina at Chapel Hill.

If the Senate confirms Hood, he will be only the second person to serve two, non-consecutive terms as an NCUA Board member (former Board Chairman Debbie Matz, a Democrat, who served in that role from 2009-16, is the other; she previously served as a board member from 2002-05).

NASCUS’ Ito welcomed Hood’s nomination, noting the association and the state system look forward to resuming a productive working relationship with him. “If confirmed, we are confident that Mr. Hood will work with NCUA Board Chairman McWatters to ensure the credit union system remains safe, sound and competitive in the broader market. His return to the NCUA Board would bring a unique combination of insights from both his banking sector experience at JP Morgan Chase and his rural housing background at USDA.” 

Lucy Ito statement on nomination of Rodney Hood to NCUA Board

President Donald J. Trump Announces Intent to Nominate and Appoint Personnel to Key Administration Posts


Also sent to the Senate from the White House this week was the nomination of Kathleen “Kathy” Kraninger to be director of the BCFP. Officially, she would replace Richard Cordray as permanent director; Cordray resigned last November (and is now running for governor of Ohio). Now serving as acting director is Mick Mulvaney, appointed by President Donald Trump immediately following Cordray’s exit. Mulvaney is also director of the White House Office of Management and Budget.

Kraninger’s consideration, and confirmation by the Senate for the five-year term is not assured. Sen. Elizabeth Warren (D-Mass.) said this week she is putting a hold on Kraninger’s nomination until the nominee turns over documents related to her role in the administration's "zero tolerance" policy that has been separating at the border undocumented children from their parents attempting to immigrate to the U.S.

Her 20-year tenure in Washington is rich with experience as a House and Senate staffer (for money-approving Appropriations Committees), and as a federal agency staffer (in the Transportation and Homeland Security Departments, and now as an associate director for the OMB since last March).

However, she has no executive or staff background in financial institution regulation. Nor does she have such experience at the state level. Some have raised that want of financial regulatory credentials as an issue.

In any event, Mulvaney will continue to serve as “acting director” for as long as it takes the Senate in this Congress to confirm her nomination (or for at least the next 210 days), or even through the confirmation process of a second nominee should Kraninger’s not advance.

Both Mulvaney and House Financial Services Committee Chairman Jeb Hensarling (R-Texas) this week issued statements praising Kraninger’s expertise as an attorney, and her management and budget experience.

President Donald J. Trump Announces Intent to Nominate and Appoint Personnel to Key Administration Posts


TODAY is the deadline for Summit hotel reservations!

Attending – or considering attending – the 2018 NASCUS State System Summit next month at the Disney Yacht and Beach Club resort in Orlando, Fla? Reserve your hotel room TODAY, the deadline for the NASCUS room block at our resort headquarters for the conference. It’s a four-day program of mutual exchange and dialog among credit union regulators and practitioners, focusing on the issues for the state system. The Summit includes: Dynamic sessions delivered by experts in strategy, housing finance, cybersecurity and payments processing; dialogue sessions with credit union and league leaders, industry experts and state regulators from around the country; presentation of the 2018 The Pierre Jay Award (see item, below); demonstration of the NASCUSO “Next Big Idea;” and much more. Plus:  Family-friendly entertainment at the award-winning Disney Yacht and Beach Club and in the Orlando metropolitan area.

Summit hotel registration contact information

… and Monday the due date for Pierre Jay Award nominations

Monday is the deadline for submitting nominations for the 2018 Pierre Jay Award, to be bestowed upon the recipient at the 2018 NASCUS State System Summit in Orlando, Fla. The annual award from NASCUS honors an individual, program or organization that has made significant contributions to the state credit union system. The award winner will be an individual, program or organization who or that epitomizes outstanding service, leadership and commitment to the state credit union system. Any one, program or organization making a significant contribution to the state credit union system is eligible; nominees may include credit union regulators, credit union employees or directors, credit union leagues, federal or state lawmakers, trade groups, committees, or others. (However, only NASCUS members may submit a nomination.) For the nomination form, including criteria used in judging the winner of the award, see the link below.

2018 Pierre Jay Award information (including nomination form)

Issues briefing open to all at Summit, July 16

Developing regulatory and legislative issues will be on the agenda when the NASCUS Legislative and Regulatory Affairs Committee meets for an issues briefing, in person, July 16 in conjunction with the NASCUS State System Summit in Orlando, Fla. Held from 11 a.m. to 1:15 p.m. on that Monday – the day before the Summit program gets into full swing (Tuesday, July 17), the briefing is open to all NASCUS members and to all those in attendance at the Summit. The Summit is being held at the Disney Yacht and Beach Club Resort in Orlando; it runs to Friday, July 19 and features a full program focusing solely on issues affecting the state credit union system. For more information about the issues briefing – or to RSVP – contact NASCUS Executive Vice President and General Counsel Brian Knight at

Agenda/registration: NASCUS 2018 State System Summit, July 16-19, Orlando, Fla.

BRIEFLY: Court finds consumer bureau structure unconstitutional; Welcome newest member

Setting up a likely hearing at the Supreme Court of the U.S., a federal court in New York ruled Thursday that the structure of BCFP (formerly known as the CFPB) is unconstitutional. U.S. District Court Judge Loretta Preska of the Southern District of New York ruled that the bureau’s creation as an independent agency with a director that could only be dismissed for wrongdoing was outside of the law. The decision is in conflict with a federal appeals court decision issued in January, setting up a possible showdown in the Supreme Court for a final resolution … NASCUS welcomes HAR-CO Credit Union of Bel Air, Md. as its newest member. The $192 million credit union, counting more than 15,000 members, is led by President and CEO Jim Meehan.

Information Contact:
Patrick Keefe,