Less choice, higher costs and witch trial-like expulsion votes.
Those are among the red flags raised in the early comment letters filed with the NCUA on the proposed corporate credit union rules that the NCUA sent out for comment last month.
Many comments focused on the proposal to limit natural person credit unions to membership in one corporate.
"Our country is built on competition because it breeds innovation. Competition did not cause the corporate meltdown because there are corporates remaining that are healthy. The problem was greed and complacency. Unfortunately, regulations don't fix that kind of problem," wrote Tuscaloosa Credit Union President/CEO Tommy Cobb.
Actors FCU belongs to four corporate credit unions and if they were required to consolidate their deposits into one it would be "an unacceptable choice" that would force them to exit the corporate system, wrote Actors FCU President/CEO Jeff Rodman.
He recommended that the NCUA change the rule to allow credit unions to join multiple credit unions but only be allowed purchase capital in one.
Queen of Peace Arlington FCU Treasurer/CEO Dan Morrissey expressed concern that his credit union wouldn't have access to the services it needs if it were limited to one corporate credit union. He wrote that this situation could arise if it wants a service offered by another corporate credit union, but it couldn't exit its current corporate credit union because the capital it has there is permanent.
The proposed rule would also require the setting up of a systemwide risk mitigation committee, requires each corporate to form a risk management committee.
It would also allow corporates to assess annual membership fees and increase the amount of retained earnings and would mandate that the corporate prepare an annual management report that assesses how well it is in compliance with NCUA regulations and an assessment of its internal auditing and control structure.
The rule would also request that corporate credit union members that are not federally insured be requested to make a voluntary payment to the Temporary Corporate Credit Union Stabilization Fund. If the organization doesn't make a payment, the corporate must call a meeting to determine if it should be expelled from the corporate.
As of press time, the NCUA had posted six comment letters on the proposed rule. Comments are due by Jan. 28, 2011.
Credit union consultant Marvin Umholtz expressed outrage about the mandatory vote to expel entities that choose not to make payments to the Temporary Corporate Credit Union Stabilization Fund.
He wrote that the vote "borders on a public pillorying characteristic of puritanical colonial times-more suitable for drunkards and witches than for responsibly governed financial institutions," Umholtz said.
He called that provision a "thinly disguised attempt to demonize non-FICUs."
Umholtz added that this is an attempt to punish credit unions that have private deposit insurance. He noted that those credit unions chose American Share Insurance because "they did not trust the NCUA board to make appropriate judgments affecting their businesses-a belief confirmed by this jaw-dropping voluntary payment concept."
He noted that the proposed rules indicate that the agency plans to micromanage the operations of the remaining corporates.
Instead, he recommended that the agency focus on statutory and regulatory reforms to remove the interconnectivity and systemic risks inherent in the credit union industry's structure and business model.