WASHINGTON – The top leaders of the National Credit Union Administration said Tuesday that they support an alternative option that would allow credit unions to merge some operations.
The agency's general counsel issued a legal opinion last week that said credit unions are allowed under the Federal Credit Union Act to merge by forming a Network Credit Union.
Under the concept, credit unions could achieve economies of scale by merging some functions such as IT or a call center while maintaining their own names and some level of autonomy.
Speaking at the Credit Union National Association's Government Affairs Conference, NCUA Vice Chairman Richard Metsger said giving credit unions that option was one of his 2016 priorities.
"Building on the Network Credit Union concept…I will work to remove roadblocks to credit unions who wish to come together under the umbrella of one stronger charter, but who continue to operate under their own identities in their communities, seamless to their members, but now with added resources and reduced compliance and regulatory burden at the local level," Metsger said.
Speaking to Credit Union Journal at the conference, NCUA Chair Debbie Matz said "it is something that can be tried, so now the ball is in the court of the credit unions that are interested."
"It took a while, it took research…to really make sure that we were getting it right but [the legal opinion] did give [credit unions] the legal authority, so it is certainly an option for credit unions that are interested," Matz added.
Metsger described the concept as a way to "stem the cascading loss of small credit unions to mergers because they don't have the resources to stay viable in the marketplace."
"Merging into a larger credit union and losing its local identity should not be the price a credit union has to pay to remain viable in their community," Metsger said. "The time to move from rhetoric to reality is now. Death of the small credit union does not have to be a pre-ordained conclusion."
George McNichols, president and chief executive officer of the $430 million Hoosier Hills Credit Union in Bedford, Ind., who has been one of the masterminds behind the concept, said "the current option…doesn't provide for the merging credit union to have any real say in the credit union going forward."
Mergers are often viewed through the lens of winners and losers – making it even more difficult when two credit unions of similar size consider mergers - but a Network Credit Union would offer a strategic alternative, McNichols said.
"It is really an opportunity for credit unions to take a look at joining forces with other credit unions," he noted, adding that the NCUA legal opinion that the structure fits within the Federal Credit Union Act was a "big" step.
McNichols also said it was crucial to put together a model that didn't require going back and amending the FCA, which could be an insurmountable challenge. "That was a primary focus or first goal of getting that done and getting the agency's approval letter."
While McNichols and the Indiana Credit Union League have worked on the concept for years, it has really started to gain momentum with the help of CUNA and the credit union think tank Filene Research Institute.
"We are currently working on bylaws and the merger agreement and we are talking to NCUA about those items to see if we can't get to a place where they are good with the footprint foundation documents that we are putting together," McNichols said.
However, such a plan could suffer push back from banks who are already protesting proposed changes to credit union field of membership rules.
"Congress specifically encouraged the formation of separately chartered credit unions," said Brittany Kleinpaste, director of research at the American Bankers Association. "It was never Congress' intent to allow such a massive field-of-membership."
Paul Merski, chief economist at the Independent Community Bankers of America said "It is an ongoing concern that the tax-exempt credit unions keep pushing the envelope on their field-of-membership requirements."
But McNichols said "It doesn't not change any of the field-of-membership rules or any of the rules that NCUA currently uses when they make a decision regarding a merger request." He added that "I don't see this as being a hot button for banks."
In his remarks, Metsger said "While a great deal of additional work remains to be done to bring this concept to fruition, neither the Act nor our rules will be a bar to eligible small credit unions that want to band together to support one another."
