ALEXANDRIA, Va. - NCUA began the process last week of writing rules to govern new and emerging kinds of credit union transactions, including hostile credit union takeovers and the acquisition of a credit union by a commercial bank or other entity.
The proposal, included in an advanced notice of proposed rulemaking, was prompted by growing concerns of member rights in such transactions, especially last year’s unsuccessful hostile takeover of Continental FCU by Wings Financial FCU.
“This is one of the most important ANPRs we’ve put out since I’ve been here,” said NCUA Chairman JoAnn Johnson. “It goes to the heart of the issues of members’ rights and their ownership interests.”
Seeking Guidance
As part of the ANPR, NCUA is collecting public comments on what should guide the regulatory process on the proposal by one credit union to acquire another whose board has rejected the merger offer, as was the case in the Continental/Wings controversy. In that case, the board of Wings had suggested several times that the two credit unions merge, but the Continental board had rejected the offer, prompting Wings to publicly solicit members of the much smaller credit union to convince them to petition the Continental board in favor of the merger.
Among the issues NCUA is seeking comment on are how communications from a credit union to another credit union’s members ought to be regulated and what may or may not be offered by a bidding credit union as an inducement to another credit union’s members.
As part of the Wings/Continental controversy, Wings offered members of Continental $200 each if the proposed hostile takeover was successful.
But NCUA is also seeking to write regulations on a broader range of potential transactions, including the merger of a credit union into a non-credit union.
NCUA already has comprehensive rules governing conversions to mutual savings banks, but these other types of transactions are so far unregulated.
Reviewing Northeast Merger
The proposal comes as the agency and state regulators in Massachusetts are reviewing the merger of Northeast Community CU into nearby Haverhill Bank.
In addition, NCUA is seeking to develop some regulatory guidelines for some transactions that have not yet occured, but may be tried in the future, such as the acquisition of a credit union by a publicly traded commercial bank or other financial institution, such as an insurance company.
Clarifying Voting Rules
The federal regulator is also seeking to clarify rules for voting in these kinds of transactions. Among the issues being probed are: members’ rights to request a recount; whether management should be allowed to obtain interim vote counts durng the balloting; whether credit union employees should be able to solicit votes on behalf of the management’s stance; and whether employees should be able to handle ballots.
Other issues to be reviewed are guidelines on management’s and directors’ duties during such unusual transactions and whether there needs to be new standards guarding against insider enrichment from these deals.
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