ALEXANDRIA, Va. - Credit union executives overwhelmingly oppose NCUA's recent efforts to increase transparency for members, putting the federal regulator at odds with the industry.
The two proposals-one that would set clear standards for member access to internal books and records; the other would require disclosure of material executive compensation tied to credit union mergers-are the hallmarks of NCUA Chairman JoAnn Johnson's initiative to increase the transparency of credit union operations for members.
Despite a concerted post-Enron campaign to open up publicly owned corporations to more investor scrutiny, credit unions have been slow to embrace the move toward greater transparency. But recent member fights over attempts to convert credit unions to mutual savings banks prompted Johnson to act.
Comments submitted on the two proposals indicate broad opposition to the proposals.
"NAFCU, in general, thought that these two rules needed refinement and that NCUA had not demonstrated why the two rules were needed at this time," Carrie Hunt, regulatory counsel for the trade association, said last week, of NAFCU's opposition to the two proposals.
"Rather than regulate in a comprehensive way, NCUA should just focus on disputes," Mary Dunn, regulatory counsel for CUNA, said in summarizing the trade group's opposition to the proposal that would increase member access to credit union books and records.
Credit union executives overwhelmingly agreed with the two lobby groups, saying the two proposals would be intrusive and potentially disruptive, and could even expose confidential member information to public scrutiny.
"We think the proposed rule is a terrible idea as a mechanism to accomplish concepts which we endorse strongly," Orange County Teachers FCU President Rudy Hanley wrote in a comment letter on the proposal granting access to internal access to petitioning members. Instead, Hanley suggested a uniform bylaw that provides for member access upon a demonstration of a proper purpose. He noted NCUA is also proposing a regulation allowing it to enforce credit union bylaws.
Hanley suggested the member access proposal could contribute to potential mischief such as the recent attempted hostile takeover of Continental FCU by Wings Financial FCU, in which members favoring the ill-fated takeover could have obtained information to further the hostile bid.
Inadequate Privacy Protection
James Moore, a vice president with Ent FCU, summarized many of the industry concerns when he said the scope of the proposed member access rule does not provide adequate protection of personal information about both members and employees.
"The proposed regulation overreaches prudent federal authority on issues we believe Congress intended to be determined by democratically elected FCU boards of directors," Navy FCU CEO Cutler Dawson wrote. "The extent of information disclosure mandated by the proposed regulation is unnecessary, unjustified and ill-advised."
But the only rank-and-file credit union members to comment on the proposal, including a group that fought successfully to thwart the conversion to bank of Columbia CU, applauded the proposal.
Lloyd Marbet, an Oregon activist who helped organize opposition to the conversion, recounted how his group, the self-styled Save Columbia CU, fought for three years-even after the conversion bid was abandoned-to gain access to internal records regarding the ill-fated charter switch, only to be thwarted by the well-funded legal resources of the credit union. "To this day all CCU members, except for the conversion board of directors, have been effectively blocked from reviewing how such costly decisions were reached," wrote Marbet.
"Credit unions assert that transparency and member participation in credit union affairs is not only a value, but stands as the fundamental difference between credit unions and all other financial institutions," Marbet commented. "What we painfully discovered in practice, however, is that the fundamental values of transparency, member participation and member-owner rights can become mere public-relations tools that are easily manipulated and blocked by credit union boards when members-owners actually take these rights seriously and attempt to exercise them."
Ironically, the banking lobby joined the credit union executives in urging NCUA to recall the member access proposal, calling it a veiled attempt to thwart conversions to mutual savings banks.
"We are concerned that the proposal would be used by well-funded outside interest groups that do not have meaningful ties to the credit union involved," wrote Krista Shonk, regulatory counsel for America's Community Bankers. "We are aware that such groups exist and that they philosophically oppose any credit union conversion to a mutual savings bank. We believe that the proposed rule would enable these groups to disrupt preliminary discussions and due diligence about this charter alternative and would discourage a credit union board from fully exploring all strategic charter options." In a separate comment letter, Rose Oswald Poels, vice president of the Wisconsin Bankers Association, said her group "believes NCUA's purpose is to create a heavier burden on an FCU to deter its conversion to a mutual savings bank."
Executive Compensation At Issue
Credit union executives also overwhelmingly panned the proposal requiring disclosure of material executive compensation agreements during credit unions mergers, calling it unnecessary and obtrusive. The proposal would require state-chartered credit unions, whose members must vote on a merger, to disclose golden parachutes and other bonuses provided to executives of credit unions that are being merged out of existence. Federal charters would have to provide the disclosures to NCUA. It is common practice for top executives of credit unions being merged into larger ones to be awarded retirement benefits, some amounting to hundreds of thousands of dollars, as part of the merger.
But those commenting on the transparency proposal insisted that there has been no evidence of abuse in the process and that public disclosure could deter future mergers.
"I continue to be mystified at NCUA's propensity to produce regulatory requests in areas of no importance to the ultimate goals of making credit unions successful," wrote Roger Michaelis, president of iQ CU. He said "compensation flexibility is a tool to facilitate a merger."
"Once the existence and public knowledge of a proposed merger occurs, delays in the completion of the merger causes deterioration in membership and sometimes asset quality of the merging credit union," Michaelis wrote. "These compensation agreements can help prevent some of the deterioration and maintain a positive approach to the completion of the complexity of merging a credit union."
Kirk Kordeleski, president of Bethpage FCU, said the thousands of credit union combinations over the past decade have shown a predilection in the industry to merge and NCUA's proposal would only add roadblocks to additional mergers.
"Furthermore, there has been no credible evidence presented to date to suggest that, among these thousands of voluntary mergers among federal credit unions, there has been an erosion of member rights, benefits or services," wrote Kordeleski. "Therefore, with no scandal or outcry arising from the large numbers of voluntary mergers that have occurred over recent years, we find the proposed rule to be, while perhaps well-intentioned, unnecessary in view of the proven integrity of the current rule."
(c) 2007
