ALEXANDRIA, Va. — The NCUA Board approved two proposed regulations that aim to provide procedures to put information into credit union members' hands while still protecting privacy and avoiding business disruptions.
Under one proposal, NCUA would require merging federal credit unions to provide within their merger plan disclosure of "material" executive compensation and disclose to the membership the existence of this arrangement. The rule is designed to inform members of the existence of material compensation–defined as a 15% increase or $10,000, whichever is greater, and including benefits and bonuses–provided to the merging credit union's executives or in retention contracts.
According to NCUA Staff Attorney Ross Kendall, NCUA modeled its proposal after Office of Thrift Supervision requirements. He stated he was confident that the proposal would not interfere with "legitimate" pay increases and retention agreements. Additionally, NCUA did not prescribe how the member disclosures should read, only that it should notify the member of the existence of an agreement, Kendall said. Members would then be able to go to a branch location to "inspect" the documentation on the compensation agreement. Members would not be able to copy or take home the information.
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He added that there might be legitimate compensation agreements that are covered under the proposed disclosures, such as the merging institutions' CEO's salary increasing significantly for taking over the new credit union. However, the Board Action Memorandum reads, "The amendment is designed to address circumstances in which a prospective merger partner seeks to influence deliberations by the directors of a merging credit union…The proposed amendment will help to assure merger decisions are based on the best interests of the members."
Kendall also acknowledged, in answering a question from the board, that sometimes the best compensation package might just happen to come from the best fit for the credit union. NCUA Vice Chairman Rodney Hood asked if that created an extra burden of proof, to which Kendall replied that there is a concern in situations where the interest of the members might not be obvious.
State law governs the merger procedures for state chartered credit unions, including whether members are entitled to vote on a merger. If a state law requires regulator approval, the proposal requires proof of that approval as part of the documentation submitted to the NCUA regional director in the merger package. According to NASCUS' analysis, federally insured state charters would be required to include any 'material' compensation arrangements in its package submitted to NCUA. NCUA Chairman JoAnn Johnson asked whether any state had requirements similar to NCUA's proposal but Kendall did not know.
NCUA Board Member Gigi Hyland stressed that the agency was not in any way trying to substitute the business judgment of the merging credit unions with this proposal.
The proposal was issued for a 60-day comment period.
Also related to member disclosure, the board issued for comment a proposal establishing procedures for members to inspect federal credit union documents in general. The proposal would allow members to petition for non-confidential portions of documents upon petition of 1% of the membership. The group must show it has a proper purpose for the information petitioned for. The petition must be signed by 1% of the membership with a minimum of 20 signatures set and a maximum of 250. The petitioners must agree to pay the search and copy costs. The credit union has 14 days to respond to the information request. Either party should direct disputes to the appropriate NCUA regional director.
The proposal recognizes the confidentiality of certain information and excludes from disclosure information protected by federal law or regulation, personal information such as account numbers or if releasing the information would be an unwarranted invasion of privacy. Again, NCUA adapted the OTS' rule for federal credit unions, according to Staff Attorney Paul Peterson.
Currently, NCUA regulation leaves member inspection of federal credit union records procedures up to state corporation law. However, the BAM states, "The NCUA Board believes regulating members inspection of FCU records is preferable to reliance on state corporation law. Corporation law on shareholder inspection, for example, varies from state to state, and FCUs should have a consistent standard regardless of an FCU's location."
A lot of related questions have arisen out of the recent credit union conversions to mutual savings banks.
Hood said he was "very concerned about perceived or actual regulatory burden" of the proposal. However, NCUA staff pointed out that there were no new inspection rights granted to members, just a procedure in which to do that. –[email protected]
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