Compliance Blog

Written by Michael Emancipator, Senior Regulatory Affairs Counsel

Although it doesn't feel like it here in Washington, DC, the un-official start of summer has started (official start is June 21). That means pool parties, BBQs, and…proposed rules from NCUA! That's right – this summer will be chockfull of opportunities to write comment letters to NCUA. To provide you with a bit of poolside reading, I thought I'd give you a brief rundown of NCUA rules with open comment periods so that you feel empowered to write your own comment letter to the agency. After all, they hear from us all the time – the most impactful letters come directly from members.

Merger Rule

We had been expecting this proposal for quite some time, given Acting Chairman McWatters' statements in early February expressing interest in reevaluating NCUA's merger process.  With comments likely due in late July or early August, the proposed merger rule was just approved by the NCUA Board last week. On the surface, the proposed amendments seem more like a complicated instruction manual on how to send disclosures, and when notifications must be sent. However, we have concerns that the added delays will start to stack upon one another, which holds the potential for adverse impacts. At a high level, the proposal:

1. Revises and clarifies the contents and format of the required member notice for voluntary mergers.
2. Requires merging credit unions to disclose all "merger-related financial arrangements" payed to their CEO, the next four highest payed employees after the CEO, and any member of the Board of Directors or the supervisory committee.
3. Increases the minimum time period before the member vote that the emerging FCU must give notice to its members. The proposal requires notices be mailed at least 45 days, but no more than 90 days, before the meeting to vote on the merger.
4. Adds procedures to enable members to communicate with each other on a large scale regarding the merger.
5. Conforming amendments to other provisions the regulations regarding termination of federal share insurance when the continuing credit union is not a federal credit union.

Of the changes proposed, a few stand out that are worth mentioning. Regarding the second proposal, it would change in a new definition of "covered person," which will replace the existing definition of "senior management official" from section 708b.2. The proposal explains that this change is required because in some recent voluntary mergers involving smaller credit unions, the current definition of "senior management official" was under-inclusive and did not cover some individuals who perform significant managerial duties despite not having an executive officer title.

Also, where the merging credit union is a FCU, the proposal requires the following in the submission of the merger proposal to NCUA: (1) all board minutes for the merging and continuing credit union that reference the merger during the 24 months before the approval date of the merger plan by the board of directors of both credit unions; and (2) a certification from the merging credit union and the continuing credit union that there are no "merger-related financial arrangements" other than those disclosed in the required notice to members.

Potentially the most novel component of the proposal is the fourth proposed change – the creation of a member-to-member communications process. Already required for credit unions converting to banks, the proposal would require FCUs to inform members that they can provide their opinions about the proposed merger to other members. Members can submit their opinions in writing to the merging FCU within 30 calendar days of receipt of the merger notice, and the FCU will forward those opinions to other members. The merging credit union must ensure that all member-to-member communications are received at least 15 calendar days before a vote. Of note, the minimum time requirements seem like they could allow for disgruntled members to gum-up the process, not to mention the logistical nightmare of potentially facilitating several dozen member-to-member communications.

Appeals Process and Supervisory Review Committee

The Board also issued two other proposals last week, both regarding credit union processes for appealing exams. The first would standardize the appeals process for regulations that currently have their own review and appeals procedures. The other would expand the number of supervisory determinations appealable to the agency's Supervisory Review Committee (SRC) and provide credit unions the opportunity for additional review by the director of the Office of Examination and Insurance.

Changes in the appeals process under the proposed rule include:

• Expanding the number of material supervisory determinations that can be appealed to the agency’s Supervisory Review Committee;
• Creating an optional intermediate level of review before an appeal goes to the Committee; and
• Changing the nature and composition of the Committee.

Under the proposed rule, an appeal at any level would not affect, delay, or impede any formal or informal supervisory or enforcement action in progress. Likewise, it would not affect NCUA’s authority to take any supervisory or enforcement action against a federally insured credit union.

Changes to the SRC process could create a more uniform process for appealing certain program office decisions to the Board. Several existing NCUA regulations provide a right of appeal, but these generally lack uniformity and may be confusing to parties who might seek to appeal an adverse decision to the Board. The proposed rule would bring these under a uniform set of procedures.

Subject matters affected by the new rule would include:

• chartering and field of membership;
• investment authority;
• conversions and mergers;
• creditor claims in liquidations; and
• share insurance determinations.

As he stated during last week's Board meeting, both these issues are "near and dear" to Chairman McWatters. NAFCU is certainly pleased to see the agency taking the next step on this issue. Since examinations are often the only time that credit unions have face-time with agency personnel, a well-oiled exam process, as well as a speedy appeal, is of paramount importance.

NAFCU welcomes both these proposals, and we encourage you to take the opportunity to let NCUA know how you feel. If you have nightmare exam stories to share, but don't feel comfortable putting your name out there, use us as an intermediary. The example will serve as great evidence as to why exam appeals reform is necessary.

2017 Regulation Review

Every summer, NCUA reviews one-third of its regulations and solicits industry feedback on ways to reduce burdens or administrative hurdles. This year, the NCUA is reviewing mainly administrative procedural rules. 

So here's my cheesy appeal: this summer, whether you're enjoying your beach vacation or stay-cation, or when you're watching the fireworks on the Fourth of July or at a baseball game, be productive and plan to comment on at least one of these proposals. If you want to talk it over, give us a call at Reg Affairs. We can walk you through it, and then you can be the expert at your credit union. 

Otherwise, have a great summer!

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Upcoming NAFCU Risk Management Seminar:

If your job duties include ERM for your credit union, next week is the final chance to save $200 on our Risk Management Seminar coming up in July in beautiful Denver. Learn strategies to effectively identify and manage your credit union's risk at an enterprise level. Plus, you'll have the chance to earn the NAFCU Certified Risk Manager (NCRM) designation or renew your current certification without having to retake the exam. 

Upcoming Webcast:

Fair Credit Reporting Act (FCRA) Fundamentals and Current Trends

Wednesday, June 7 | 2:00 p.m. – 3:30 p.m. EST