NCUA Board Member Todd M. Harper Statement on Credit Union Combination Transactions

As Prepared for Delivery on January 23, 2020

Elizabeth, Frank, and Kevin, thank you for your presentation and for your hard work on this proposed rule. Because the proposed rule before us today aims to create clear rules of the road, with some appropriate guardrails, for credit unions seeking to acquire the assets of institutions other than credit unions, I will support this proposal.

While the frequency of credit union-bank deals is still relatively small in number, especially compared to the overall level of bank-to-bank mergers, there has been a modest uptick in these transactions in recent years. This increase in deals has led some to suggest that credit unions are “abandoning their founding mission in the name of expansion and risky lending.” These notions are misguided at best and misleading at worst, because we all know that it takes two to tango.

In fact, data on these deals suggests that banks whose assets are acquired by credit unions tend to be smaller institutions, often with limited growth prospects. Additionally, credit unions tend to enter into these deals to take advantage of economies of scale, deepen existing market footprints, enter new regions, or obtain needed expertise in certain products and services, like commercial lending. When done consistent with statutory requirements and following principles of safety and soundness, these transactions support the credit union mission: to meet the credit and savings needs of consumers, including those of modest means.

Over the years, the NCUA has routinely reviewed these deals to ensure that the acquiring credit unions comply with the agency’s regulations and that these deals do not threaten the safety and soundness of the credit unions. In conducting these reviews, each regional office has used its own due diligence procedures, and the Office of General Counsel over time has developed expertise in reviewing these transactions. With this experience now under our belts, the proposal we are considering brings together the best aspects of those procedures. By doing so, it increases the transparency around these deals, and it lays out basic requirements and guardrails for these transactions.

One of the important guardrails in this proposed rule would make sure that conflicts of interest are avoided. As I requested, as part of the board of directors’ certification, the proposal would require a statement that each director signing the certification does not have a pecuniary or personal interest in the transaction. This provision aims to prevent self-dealing, which would not only be a black eye on the credit union system, but would also fly in the face of the credit union mission if a member of the board of directors stood to personally or financially benefit from one of these transactions.

Another important guardrail is the provision that requires the credit union to develop a plan for the disposal of impermissible assets. Because these potentially problematic assets could pose undue risk to the federally insured credit union and potentially the Share Insurance Fund, they must be addressed up-front.

Finally, for the good of the credit union system and its members, I intend to continue the dialogue I started in September about strengthening the NCUA’s consumer compliance program.

As the credit union system evolves, so must the NCUA. Many of the banks that are part of these deals are supervised for consumer compliance by the Federal Deposit Insurance Corporation. That agency has a consumer compliance program that is by far more robust than the NCUA’s program. The FDIC conducts regular consumer compliance reviews and assigns the bank a separate compliance rating outside of the CAMEL supervision process.

Would-be new members of the acquiring credit union deserve to have the same level of consumer financial protection at their new financial institution as they had at their bank. For that reason, I will keep pushing the NCUA to step up and make sure that consumers receive strong consumer financial protection.