Rule requires CUs in mergers to disclose more – including compensation for execs, board members

A final rule revising the procedures a federally insured credit union (FICU) must follow to merge voluntarily with another such institution – including how members are notified and what disclosures are necessary about compensation for executives involved in the merger – was approved by the federal credit union regulator Thursday.

In a unanimous vote, the two-member board of the National Credit Union Administration (NCUA) approved the final rule, which has been in development since last year. The final rule applies to all FICUs (both those chartered by NCUA and those chartered by the various states that are federally insured, or FISCUs).

The rule takes effect Oct. 1; agency staff said the three-month period between then and now was chosen “to allow time for FISCUs to comply with the final rule.” Currently, the NCUA rule in this area does not apply to the state-chartered credit unions. The agency also said the final rule will apply only to new merger applications submitted after the rule’s effective date.

Essentially, the final rule:

  • Revises and clarifies the contents and format of the notice to members about a merger of their credit union with another (which also now requires information in the member notice about the effect of a merger on ATM access, and clarifies that the notice and ballot for a member vote should not be combined with other types of notices).
  • Requires merging credit unions to disclose certain “merger-related financial arrangements” for “covered persons” (including the credit union’s chief executive, the four most highly compensated employees other than the CEO, and board members and supervisory committee members). The “merger-related financial arrangements” disclosure requirement is now narrowed, no longer requiring employer-provided medical insurance, retirement, and other benefits offered on a non-discriminatory basis to all employees of the continuing credit union to be disclosed. However, the final rule retains the current threshold disclosure for the value of other merger-related financial arrangements that exceed the greater of $10,000 or 15% of compensation. (Those include: supplemental retirement plans for high-ranking employees, additional life insurance for certain employees, additional paid leave time, bonuses, severance payment agreements, etc.)
  • Increases the minimum member notice period of a merger before it occurs (from seven days to at least 45 days but no more than 90 days). In addition, the board made no change to the notice period for mergers where a FICU is proposing to terminate federal insurance coverage by merging with a non-federally insured credit union. For terminations of NCUSIF coverage, the Federal Credit Union (FCU) Act specifies a notice period of at least seven days, but no more than 30 days. The board noted that, as that period is specified by statute, it could not adopt a regulation changing it.
  • Provides a method for credit union members and others to submit comments to the agency regarding the proposed merger. In a change from the proposal (which would have established procedures to allow for member-to-member communication in advance of a member vote on the merger), the final rule requires the notice to members to include information about the NCUA website where merger information and member comments are posted, as well as the email and physical addresses where members may submit their comments for posting.

In comments before voting, Board Chairman J. Mark McWatters said some might argue that the rule’s disclosure requirements present a regulatory burden to credit unions. “It think it is a modest burden if anything,” McWatters said. “I also think there is a great deal of regulatory relief when you tell members of a credit union all of the material information that they need in order to make a decision.”

Board Member Rick Metsger echoed McWatters’ remarks about the final rule, which he called “significantly modified” from that proposed last year. The final rule, he said, “places little burden on credit unions, member-to-member discussions (about mergers) will be hosted and moderated by NCUA – and most importantly, when merger compensation is provided, the the members will receive notification and can make an informed choice on whether the merger is in their best interests.”

Federal Register notice of final rule