Credit Unions would see substantial changes to procedures for appealing adverse supervisory decisions and pursuing voluntary mergers under a trio of proposed regulations the National Credit Union Administration’s board approved Thursday.
The two regulations impacting appeals would streamline procedures for appealing a wide range of decisions, including those involving critical issues such as loan loss reserves, CAMELS ratings, chartering, field of membership, conversions, and mergers. In a significant departure from current practice, the proposed regulations also offer opportunities for aggrieved credit unions to plead their case to the agency’s governing board in an on-the-record, face-to-face hearing.
The regulations, which now enter a 60-day comment period, represent a major accomplishment for acting Chairman J. Mark McWatters, who has advocated for expanded appeals process since joining the board in August 2014.
“I think that there is much to be gained through due process; for people who have an issue with respect to an NCUA determination to come before the board, to be represented by counsel, to be represented by their advisors and to state their positions on the record,” McWatters said Thursday.
The first proposed regulation involves appeals to decisions by regional directors or other NCUA officials involving non-supervisory issues, including chartering and field of membership, severance pay for senior-level executives, personnel decisions at new or troubled credit unions and conversions and mergers. It gives affected institutions the chance to appear before the board to argue their appeals -- provided at least one board member agrees a hearing should be held.
“We think this new rule will place NCUA in the forefront of agencies in providing meaningful due process,” Special Counsel Ross Kendall said Thursday.
“In the case of the FDIC for example, parties seeking review of program office determinations creditor claims or on deposit insurance calculations must seek judicial review, whereas this rule provides the opportunity for administrative review at a high level, which is a much less expensive and burdensome process,” Kendall said.
“In short we think the new rule provides clarity efficiency and enhanced due process,” he added.
Similarly, a second proposed rule governing supervisory decisions involving loan loss reserves, classifications of different loans, CAMELS ratings and other exam-related issues also provides for an oral hearing before the board. Currently board appeals of supervisory decisions are handled entirely in writing.
“This oral hearing possibility in fact puts us ahead of the other federal financial regulators in terms of the amount and kinds of due process we provide,” Associate General Counsel Frank Kressman said Thursday. “We think the results of these enhancements provide greater procedural certainty and increased flexibility along with the additional due process that we seek.”
McWatters was the driving force behind the revisions to the appeals process, board member Rick Metsger said.
“While we’ve been very happy to work with his office on these proposed rules, he is the inspiration for them and we could not be considering them today without his energy and dedication,” Metsger said.
Credit unions generally welcomed the appeals changes. They were more reserved about proposed alterations to rules governing mergers of federal credit unions.
In broad terms, the proposed changes to the rules governing voluntary mergers require significantly enhanced disclosure of financial incentives paid to board members and senior executives at merging credit unions. They also establish procedures to allow member-to-member communication in advance of a merger vote. Finally, they require notices to be mailed to members at least 90 days in advance of a vote.
According to Kressman about 80 percent of the recent mergers reviewed by NCUA staff included provisions granting “significant merger-related compensation.” Disclosure has been lacking in many of them, he added.
Dan Berger, president and CEO at the National Association of Federally-Insured Credit Unions, expressed concern that the proposed rules might place road blocks in the paths of merging institutions.
"NAFCU will seek feedback from our members on this proposal," Berger said in a statement. "We support transparency, but we want to ensure that the voluntary merger process is not unintentionally impeded."
Metsger, however, said the rule should be thought of as a “member disclosure and transparency rule.”
“Its underlying principle is simple,” he continued. “It provides due process and transparency so that when a federal credit union merges into another credit union, the member owners of the merging credit union understand the terms and conditions.”
For his part, McWatters said that transparency “cuts both ways.”
“Since I’ve been around here, there’s been a hue and cry within the credit union community about enhanced transparency within this building, within the board,” he said. “I totally agree with that. I’ve worked towards it, Mr. Metsger worked towards it and we’ve made much progress. There’s also transparency within the credit union industry itself. It’s a bit disheartening to think that there would be some obfuscation with respect to compensation packages.”
As with the appeals regulations, the proposed regulation governing voluntary mergers now enters a 60-day comment period.
