Most credit unions, leagues, industry leaders and other organizations oppose the NCUA's proposed merger rule changes.

Among the 81 cooperative organizations and individuals who submitted response letters to the federal agency's call for comments, 51 said they mostly oppose the federal agency's proposals – although well intended – that would require more transparency, more information and more communication for members about merger deals. Opponents argue there is rare or little evidence to support one of the central issues that continuing credit unions are looking to influence merging credit unions by making big payouts to executives to support the consolidation of their federal credit union.

“In the last three years of the 716 mergers, how many credit unions have you found to get egregious amounts of compensation for its management for merging?” Vicki McIntosh, president/CEO of the $20 million Belle River Community Credit Union in Casco, Mich., asked in her letter to the NCUA. “The proposal on its surface appears that the NCUA is overreacting to a couple of complaints.”

Only 12 credit unions, leagues and others mostly favored the federal agency's new merger proposals to preserve the essence of the credit union movement.

“I fear that we are losing our soul as a movement,” Daryl E. Empen, president/CEO of the $74 million Gas & Electric Credit Union in Rock Island, Ill., wrote “I recognize the need for growth to remain sustainable. But the insatiable appetite for growth at all costs, with a common field of membership all but obliterated, is making our unique structure disappear. When we are no longer transparent with our member-owners, then we lose one more defining trait as a movement.”

An additional 18 credit unions, leagues and industry leaders both favored and opposed different provisions of the proposed merger rule changes. The NCUA received 89 letters because two credit unions and one organization submitted more than one letter. A CU Times review of all of the letters counted only the number of total responses, which was 81.

Most opponents focused their criticisms on the NCUA's proposed changes that include merger-related financial arrangements, the definition of covered persons, the two-year look back and look forward provision, the member-to-member communications, and whether the proposed mergers rules that would only affect federal credit unions should also include state-chartered credit unions.

In its draft proposal, the NCUA said recent merger trends suggest some credit unions may be offering financial incentives to top executives and other highly compensated employees of merging federal credit unions that should be disclosed to members. Currently, the NCUA merger-related financial arrangement requires disclosure of any material increase in compensation or benefits provided to any board member or senior management official who are currently defined by NCUA regulations as the covered persons. The federal agency defines a senior management officer as the CEO, assistant CEO and CFO. Under its current merger-related financial arrangement rule, any material increase means an increase that is more that 15% or $10,000, whichever is greater.

The federal agency is proposing to expand covered persons to include the CEO and the four most highly compensated employees other than the CEO or manager, and any board member or member of the supervisory committee. However, the federal agency is also considering whether covered persons should include additional employees with management responsibility or who are in a position of influence.

What's more, the NCUA is proposing to drop the 15% or $10,000 threshold and to redefine its merger-related financial arrangement to include all increases in compensation and benefits, including any increases and benefits 24 months before the date of the merger approval by the boards of both credit unions. The NCUA would monitor for any increases in compensation and benefits by reviewing the board minutes. This new definition would also include all future compensation or benefits that would not be received but for the merger taking place, regardless of the amount.

These provisions touched a sensitive nerve with many credit unions, particularly with the NCUA acknowledging in its proposal that many federal credit unions make good faith efforts to comply with disclosing merger-related financial arrangements. Moreover, the federal agency noted it is only aware of a few recent mergers that potentially would have evaded disclosure requirements.

“Your proposed rules suggest that we have to write the new rules because some merging partners may be seeking to influence the merging credit union by offering special incentives to management,” Dennis Moriarity, president/CEO of the $48 million Unity Credit Union in Warren, Mich., wrote. “This comes under the heading of vague and undocumented hearsay. Yet you propose new rules on exactly that. You allude to self-serving motives yet in every case, correct us if we're wrong, you already must approve them. As an active participant in those supposedly questionable deals we must be concerned about your ability and qualification to propose new rules while you seem unwilling to enforce what you have currently available.”

Roger Ballard, president/CEO of the $1.5 billion Nuvision Credit Union in Huntington Beach, Calif., wrote that the proposed rule is seeking to address rare exceptions that can be adequately addressed with the existing regulatory framework.

Indeed, Carrie R. Hunt, NAFCU's EVP of government affairs and general counsel, wrote that in the absence of any compelling evidence indicating widespread trends of problematic mergers, the NCUA should withdraw the proposed rule and instead use its discretionary authority to address the narrow circumstances where enhanced transparency and communication may be necessary.

But Chip Filson, chair of Callahan & Associates in Washington, who wrote four letters to support the NCUA's proposed merger changes, sees it quite differently.

One area that needs greater clarity, he wrote, is the NCUA's role in overseeing the merger process.

“Today that oversight is largely ministerial (were the forms properly completed?), review of the latest Call Reports and the most recent examination,” he wrote. “In the limited cases where we have reviewed the merger files, there appears to be limited documentation of any effort to review the assertions of the merging credit union, its due diligence or even the necessity for giving up its independent operations. We believe that (the) NCUA's oversight role should continue to include reviewing the requirements that CEOs and directors have indeed fulfilled their fiduciary responsibility in this irreversible decision to surrender their credit union charter.”

Filson also supported the 24-month look back of board minutes for any merger-related financial arrangements because it would improve the NCUA's opportunities to review the merger terms.

But John Buckley Jr., president/CEO of the $142 million Gerber Federal Credit Union in Fremont, Mich., disagreed.

“We don't feel like a look back period is needed at all especially when it comes to compensations and benefits,” Buckley wrote. “Increases or decreases to compensation or benefits during the last 24 months may not have had anything to do with the potential merger and could cause confusion and misunderstanding.”

The member-to-member communication proposed rule was also a very big bone of contention among opponents and even with some who favor most of the merger rule changes.

To enable a healthy member debate about the merger, the NCUA said, it is proposing that federal credit unions be required to inform members that if they wish to provide their opinions about the merger to other members, they can submit their opinions in writing to the merging federal credit union within 30 days after receiving the member notice of the consolidation. In addition, the proposed rule would require federal credit unions, among other things, to ensure members receive all appropriate communications from other members no later than 15 days before the member vote on the merger. The proposed rule would also require members to reimburse the credit union's costs of transmitting the communication. And for member communications that the credit union believes to be false or misleading, it would be required to forward the communications to the regional director.

“Frankly, we question (the) NCUA's motivation for proposing this burdensome, onerous and redundant new channel for member-to-member communication,” Gary Grinnell, president/CEO of the $1.3 billion Corning Federal Credit Union in Corning, N.Y., wrote. “The perception is that (the) NCUA is attempting to sabotage all voluntary merger activity, by providing the most extreme and dishonest voices an elevated and costly platform to question the validity of a well-considered and in many cases necessary merger transaction. We urge (the) NCUA to reconsider these proposed procedures as they would allow disgruntled members an unequal and unchecked opportunity to block a merger and would certainly burden credit unions and their members with significant and unnecessary red tape and additional cost.”

Michael J. Parsons, president/CEO of the $498 First Source Federal Credit Union in New Hartford, N.Y., called the member-to-member communication the most troubling aspect of the proposed rule in part because it could create unintended consequences, unnecessary burdens and reputation risks for both credit unions.

Most credit unions also opposed the proposed merger rule changes be applied to state-chartered credit unions.

In its proposal, the agency claimed that offering financial incentives to management and highly compensated employees of a merging credit union – regardless of whether the merging credit union is a federal credit union or state-chartered – to support a merger may present safety and soundness risks as well as member protection issues.

The problem with that statement, however, is that the federal agency did not provide any evidence of safety and soundness risks, executives pointed out.

“Since January of 2014, there have been over 700 voluntary mergers of federally-insured credit unions,” Brian Knight, EVP and general counsel for NASCUS, wrote. “It is unclear from the proposed rule how many of those voluntary mergers involved problematic conduct requiring additional rulemaking. There is certainly no evidence offered to support the proposition that past conduct with respect to mergers presents so high a risk as to justify the preemption of state mergers rules.”