Concerns, Complaints Raised With NCUA in Fight to Stop CU Merger

Beginning in early April 2023, Butler Heritage Federal Credit Union members, including a board member, sent several letters to the NCUA that voiced their concerns and complaints about the credit union’s leadership, its proposed merger with MyUSA Credit Union and their related issues to the credit union’s compliance with its charter and bylaws, allegations of falsified votes, conflicts of interest, proxy voting and impermissible annual meeting venues.

“As many of you know, as early as April of 2023, on behalf of the member-owners of Butler Heritage Federal Credit Union, I and other members have contacted you numerous times and filed written complaints with NCUA with detailed information about the illicit actions of our board of directors concerning but not limited to a proposed merger,” Steve Snider wrote to the federal agency at the end of last year.

Snider was one of a group of 15 BHFCU members who successfully sued their credit union that prevented its merger with MyUSA. These members believe that their complaints warranted an NCUA investigation.

“We have concerns that our appeals to NCUA officials since April of 2023 to help the members change the course of our credit union have not been addressed,” Snider continued in his letter. “We have concerns that NCUA had total oversight, was well informed, and fully aware of the incompetency of the board of directors, their illicit actions, and has allowed and therefore contributed to the continual decline of net worth and loss of members over the last three years. NCUA has had the authority and oversight to intervene and force the directors to comply with warning letters, which included specific instructions and NCUA was obligated to do so.”

Snider was referencing the federal agency’s 2021 examination report in which NCUA Principal Examiner Jack Taylor concluded that because of BHFCU’s failure to take appropriate corrective action over the past several years, it was in the best interest of the membership to merge with another credit union.

In addition to his letters, Snider communicated with NCUA officials via email and in phone conversations.

One of the most puzzling aspects of Snider’s communications with the NCUA was when the federal agency gave its conditional approval for the consolidation on May 30. A few days before May 30, however, Snider said he was informed during a phone conversation with an official at the NCUA that the merger application process was placed on hold.

According to Snider, in a call with NCUA Consumer Access Analyst Dong Zhang on May 22, 2023, she told him that her office had been instructed by counsel not to move forward with the merger and not to take any further action concerning BHFCU because the federal agency had been notified of the civil case. On June 2, 2023, members who sued BHFCU were informed through their court case that NCUA Director of Credit Union Resources and Expansion Martha J. Ninichuk had approved the merger and conversion of insurance.

In a June 15 letter to Snider, Ninichuk explained the conditional approval of the merger was not intended to address the substance of any allegation of charter and bylaw violations that Snider included in his email complaint to the NCUA.

“The conditional approval letter is solely intended to state that Butler Heritage FCU complied with NCUA’s share insurance regulation,” she wrote.

In that letter, Ninichuk said the NCUA “specifically considered Snider’s report of the bylaw violation involving the credit union’s failure to amend its bylaws to permit electronic votes before the member votes were cast but determined not to take any further action.

“This bylaw violation did not have any adverse consequences for members. The credit union’s board could have adopted the conforming bylaw amendment at any time by a two-thirds vote without NCUA approval,” she wrote. “In keeping with its policy not to intervene in internal credit union disputes, NCUA will not generally take action against minor or technical bylaw violations but retains discretion to enforce the FCU Bylaws in appropriate cases, such as safety and soundness concerns or threats to fundamental, material credit union member rights. In this case, members were adequately notified of the option to vote electronically and thus the failure of the credit union to formally amend its bylaws did not affect fundamental, material member rights.”

In this letter, Ninichuk also referred to Snider’s complaint that raised several issues with the credit union’s compliance with its charter and bylaws, including allegations of falsified votes, conflicts of interest, proxy voting and impermissible annual meeting locations.

“Bylaws function as a contract between a credit union and its members and NCUA has a long-standing policy to not become involved in internal federal credit union disputes unless they involve a violation of law or regulation or there are safety and soundness concerns,” Ninichuk wrote. “In general, credit union bylaws should be interpreted and enforced according to state law. As such, we defer to local courts to settle these matters.”

But in his follow up letter to NCUA Ombudsmen Shameka L. Sutton and Jasmine D. Harley, Snider argued BHFCU’s decision to allow electronic voting without first amending its bylaws did have adverse consequences for members and did affect the fundamental material member rights.

“Not so much as the notice itself to vote electronically but in the manner that electronic votes were expediently and deceptively pursued, how members were methodically manipulated and induced to vote electronically without full transparency as to why and what they were actually voting for,” Snider wrote.

For example, in March 2023, members received a BHFCU email titled “Member Appreciation Day” that promoted three grand prize giveaways, which included a 50-inch TV and two $500 Visa gift cards. The email also promoted a free food truck and shred truck event for March 17 at BHFCU.

“The email mentioned nothing about voting, but it had caused members to believe a drawing would be on the 17th of March while they were at the event,” BHFCU member Kathy Wright wrote in her complaint letter to the NCUA. “When a member linked to the online electronic process to register, the member was first asked to vote for the merger and private insurance but eventually (I) saw that the drawing would not take place until April the 7th, 2022, three days after the vote ended.”

When Wright drove into the BHFCU parking lot for the March 17 event, she and other members were met at their car windows by employees from MyUSA. Wright said a MyUSA employee named Erica with an iPad approached her in her car and asked if Wright was going to vote.

“I said not yet and Erica asked me at least three more times while in my vehicle and in the parking lot to cast a vote immediately on her electronic device,” Wright wrote. “I felt baited and switched because I thought this was just a Member Appreciation Day as it was advertised. The MyUSA employee said I could vote now and vote again later if I wanted to change my vote and she further said, ‘you can vote as many times as you like and only the last vote will count.’”

Wright said she went inside the BHFCU building to get free food as it was advertised. But Wright was told by a MyUSA employee that in order to get free food and register for prizes, she needed a blue ticket which could only be acquired after she cast a vote.

“At that point I felt I had been taken advantage of in many ways,” Wright wrote. “I observed MyUSA employees taking information from members and casting votes on their iPad for them. I chose not to vote that day because of the numerous unanswered questions I had about the proposed merger, but more so because of the questionable practices I was observing that day. I feel that MyUSA employees should not have been involved or soliciting votes on Butler Heritage Appreciation Day or any other time, primarily because MyUSA is benefiting from the proposed merger. To me this seems very deceptive and an obvious conflict of interest. I understood all votes in a merger are required by NCUA regulations to be made in private and securely by each member.”

What’s more, when MyUSA sent BHFCU members a notice encouraging them to vote on the merger on or before the special meeting date of April 4, 2023, the notice only highlighted the supposed benefits of the consolidation.

“The notice, by omission, deceptively said nothing about any of the true reasons that members would be entitled to know about such as: pressure on the board from the NCUA due to declining net worth caused by the neglect of the board of directors to act on DORs from NCUA and the board of directors failure to act on at least three preliminary warning letters from NCUA to increase earnings by creating an earnings plan,” Snider wrote in another complaint letter to the NCUA in August 2023. “Most of our members are still not aware of any of the true reasons.”

To address BHFCU member concerns about the voting process, the NCUA asked the credit union’s supervisory committee on April 18 to conduct a thorough, independent and impartial investigation into these complaints. By May 2, the supervisory committee responded to the NCUA and said that the voting process was handled properly and facilitated by an independent third party.

But Snider contended the supervisory committee investigation might have been tainted, biased and inaccurate, which, in Snider’s view, should have warranted an investigation by the NCUA before it issued a conditional approval for the proposed merger because the federal agency was aware of the true reason for the consolidation.

In 2020, BHFCU appointed three supervisory members. One was Vince Lovejoy, who already was a board member, and a BHFCU charter provision does not allow a board member to serve on the supervisory committee. The other BHFCU members appointed to the supervisory committee were Jordan Terrill and Rod Hale. These appointments created a conflict of interest, according to the 15 members who sued BHFCU, because Jordan Terrill is the son of BHFCU Board President John Terrill and Rod Hale is the former husband and alleged close friend of Margaret Hale, director of member services for MyUSA. This information was included in the original lawsuit that led to the decision by a Butler County Court magistrate judge to block the merger.

“If the Butler County Court determined a restraining order was justified with the limited evidence before the court, why didn’t NCUA-CURE (Credit Union Resources and Expansion) pay attention to or give credibility to the same evidence & more that had been sent to them over a two-month period,” Snider wrote in an August 2023 complaint letter to the NCUA. “Since NCUA-CURE had sufficient evidence and a virtual road map, why didn’t it investigate all aspects of the supervisory committee and determine if it was legitimate, before or after it was told ‘the voting process was handled properly,’ and before it issued an approval letter based on information that could be proven false if adequately investigated?”

One of the other letters of complaints received by the NCUA was from Robert Fraley, who was vice president of BHFCU’s board of directors.

In his April 11, 2023 letter obtained by CU Times, Fraley made a number of allegations of questionable board actions such as deliberately keeping the number of board members to five instead of seven as required by the credit union’s charter, allegations of board members falsifying votes to satisfy a needed quorum and to keep incumbent board members in power, and taking other alleged dubious steps to ensure the merger with MyUSA.

Fraley wrote that when John Terrill became the board’s president, he tended to be dictatorial and many of the other board members “followed him on many issues without question.”

But Fraley said he didn’t fall in line, and because of that he was “chastised” and treated with suspicion by the other board members.

“I have proof I have been intentionally left out of important meetings concerning the planning of the merger and other decisions only because I became suspect when I asked questions or challenged anything,” he wrote in his letter. “I am willing to help NCUA take whatever corrective action is now required in the interest of our members. The merger needs to be postponed and the members need to be fully informed and have the opportunities to make their credit union viable and remain independent or at least have the opportunity to find a federal insured merger candidate they can have confidence in and trust.”

But Fraley, who served on the board for more than 12 years, will never know whether his efforts helped save his credit union.

Four months after he wrote that letter to the NCUA, Fraley passed away on Aug. 8. He was 65.

“During his term as director he was genuinely concerned for all members and he gave his best to them with integrity, honesty and compassion,” his obituary read.

The third story of this series will explore what may be next for BHFCU. Read the first story of the series here:

Part One: Inside the Fight to Stop the Merger of Butler Heritage FCU

READ MORE: June 4, 2024 Letter to Steve Snider from NCUA’s C. Keith Morton

READ MORE: Aug. 14, 2023 letter to NCUA Ombudsman from Stephen Snider

READ MORE: June 15, 2023 letter to Steve Snider from NCUA’s Martha Ninichuk