CUNA Regulatory Comment Call

April 17, 2007

EXECUTIVE SUMMARY

• The National Credit Union Administration (NCUA) has issued a proposed rule that will require the disclosure of any arrangements that provide a material increase in compensation or benefits to senior management officials in connection with a merger transaction. This information would be included in the merger plan submitted to NCUA. A “material” increase in compensation would be defined as an increase of 15% above the official’s current compensation or $10,000, whichever is greater.
• Federal credit unions (FCUs) will also be required to disclose the existence of these compensation arrangements in the materials provided to the members eligible to vote on the proposed merger. (State law determines whether members of a state-chartered credit union are entitled to vote on a proposed merger.) A member of the FCU will also be entitled to inspect the credit union’s records detailing these compensation arrangements.
• Comments on the proposed rule are due on June 22, 2007. Please submit your comments to CUNA by June 11, 2007. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Senior Vice President and Deputy General Counsel Mary Dunn at mdunn@cuna.com and to Senior Assistant General Counsel Jeff Bloch at jbloch@cuna.com; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6032, if you would like a copy of the proposed rule, or you may access it here.

BACKGROUND

The Federal Credit Union Act requires that the merger of federally insured credit unions receive the written approval of the NCUA Board. The NCUA Board is also authorized to issue rules regarding this process. Click here for a copy of NCUA’s Credit Union Merger and Conversion Manual, which provides additional information regarding the merger process.

When the merging credit union is an FCU, members have the right to vote on whether to approve the merger. (State law determines whether members of a state-chartered credit union are entitled to vote on a proposed merger.) The one exception is if NCUA determines that the FCU is in danger of insolvency.

BRIEF DESCRIPTION OF THE PROPOSED RULE

The proposed rule will require the disclosure of any arrangements that provide a material increase in compensation or benefits to senior management officials in connection with a merger transaction. This information would be included in the merger plan submitted to NCUA, and NCUA would also have the right to request further details about these arrangements in connection with its review of the merger plan. The rule only imposes disclosure requirements. It does not prohibit the offering of additional compensation to senior management officials that the credit union believes would be appropriate.

A “material” increase in compensation will be defined as an increase of 15% above the official’s current compensation or $10,000, whichever is greater. This proposal is designed to cover salary, bonuses, deferred compensation, or other financial awards offered to influence the decision regarding a merger. A “senior management official” will be defined as the chief executive officer, any assistant chief executive officer, and the chief financial officer.

FCUs will also be required to disclose the existence of a material compensation arrangement in the materials provided to the members eligible to vote on the proposed merger. (Again, state law determines whether members of a state-chartered credit union are entitled to vote on a proposed merger.)

A member of the FCU will also be entitled to inspect the credit union’s records detailing these compensation arrangements; the inspection would take place at an office of the credit union during regular business hours. The rule does not specify which office that would be and expects the credit union and member to make reasonable arrangements that are mutually acceptable.

The member requesting the inspection would need to submit a request in writing to the credit union at least one day before the date of the meeting called for the purpose of voting on the merger. At the inspection, the member will have the right to review the documents but not the right to make or retain copies.

• Do you agree that these additional disclosure requirements are appropriate?
  
  

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• An FCU member will have the right to review documents relating to merger related compensation at “an” office of the credit union, including branch offices. The member would also not be able to make or retain copies. NCUA expects that the FCU and the member will make reasonable arrangements for this review that are mutually acceptable. Do you agree with this approach with regard to this review process?
  
  

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• Do you agree with the definition of “material” increase, defined as 15% above the official’s current compensation or $10,000, whichever is greater?
  
  

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• Do you agree that “senior management official” should be defined as the chief executive officer, any assistant chief executive officer, and the chief financial officer? Should others be included?
  
  

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• Other comments?
  
  

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