The credit union system faces a major challenge to its values and identity in the capitalist-inspired takeovers via merger of financially strong, long-serving credit unions.

The process has been distorted by leaders with member-owners having no meaningful role at any step.  The so-called member vote is a charade.  But regulators are scared, intimidated or just simply impotent to stop the self-dealing, self-enrichment  and sometimes, outright corrupt practices.  They hold a fig leaf, well the members voted for it,  to hide their private unexamined approvals of the official disclosures required in the Member Notice.

What is to be done?  There is one very simple step in the process that would both address the lack of transparency and the absence of any real member-owner say.

The Broken Merger Process

When the updated voluntary merger rule was passed in2017, disclosures of special payments was supposed to fix the outright self-dealing by senior managers used to induce combinations of strong charters.  See The Art of the Steal.

But the process was fundamentally flawed.  When implementing the rule, NCUA placed itself in the sole role of protecting the members’ “best interests.” It gives final approval to the required disclosure in the members’ official meeting Notice. This is before members have any input let alone facts about the reasons and plans for the transaction.

Today, two healthy credit union CEO’s announce their intent to combine for a brighter future, but then the process goes backstage.  Occasionally there is a general  update  or two several months in, saying the credit unions are working on it.  The IT in reality is getting regulatory sign off on what to tell the members when calling for their vote to approve.

The  NCUA is  acting as an  in loco parentis position about what members should know to approve their charter transfer.  The minimal mostly marketing information in the official Member Notice, will be  the first and only time members learn any official details.  But the CEO’s now have the OK to proceed with the vote knowing this content is all they have to p;rovide as the regulators have already signed-off on the transaction.

These Notice disclosures are proforma generalizations, a listing of locations and  with merger reasons sometimes copied from a previous application.  There is no meaningful financial or business content that a concerned owner might need to have for an informed decision.

If members are upset when the required self-dealing information is presented, they are effectively powerless to do anything about it.  They are just individuals fighting an entrenched leadership with all the resources needing only a margin of one vote and the deed is done.  99% of mergers that go to a vote are approved.

These are not votes about a choice. Rather they are presented as a mere administrative act to ratify  decisions already made and approved by those in authority.  Decisions made without any owner input or options in the matter.

There is no secret about the lack of any member role or benefit in the majority of these ;privately negotiated deals.  The credit union merger arena has become a Roman amphitheater where  lions and beasts prey on unarmed Christians.

But there is one simple event  that if added to the merger steps could change the entire process, restore opportunity for member participation, and make the member voting process more informed and democratic.

Resolving the Merger Madness with Public Hearings

The solution: require that within 10 days of mailing the Member Notice, the credit union must hold a public hearing open to all members in person and online.  The CEO and board initiating the merger could present their plan and attendees could ask questions.  Members, the press, community organizations, sponsors and other interested parties would have a right to participate.

The hearing would be led by a hearing officer appointed by the regulator who would moderate the agenda and make a record of the meeting, to be available for all. This public step would be required for all credit unions that have at least 7% net worth.

Whose idea is this?  It’s NCUA’s.   On July 3^rd the agency posted a notice of a public hearing for an FOM request.  The notice outlines very elaborate procedures, registrations, deadlines etc.  However a merger hearing need not be this bureaucratic. Credit unions are used to holding member meetings as a standard bylaw annual requirement.  The only difference is that this event would have a neutral moderator and be open to all members and the public.

Public meetings with those in positions of leadership is part of America’s democratic tradition.

NCUA’s Pioneering Example

NCUA initiated the practice of open meetings, not just in DC, but across the country.

On May 20, 1982 the NCUA broad met in Boston’s Faneuil Hall marking the first NCUA meeting held outside DC.  This was part of Chairman Callahan’s grass roots effort to bring the agency closer to the credit unions and members it supervises.

Left to right  at board table:  Chip Filson, Director Office of Programs, Rosemary Hardiman, Board Secretary,  Chairman Callahan, Vice Chair P.A. Mack, and John Otsby, General Counsel

These on the road meetings continued throughout Callahan’s tenure.  The second meeting was in July 1982 in conjunction with NAFCU’s Annual Members Meeting in Chicago, Ill.  It also was the week after the largest bank failure, Penn Square, to that point in FDIC history.

NCUA staff not only participated in this monthly board meeting but also held an open press conference following to answer questions on credit union’s exposure to  uninsured CD’s placed with the bank.

I can still remember the first press question:   Does the Penn Square failure  mean NCUA will propose a rule to limited credit union investments to the $100,000 insured limit?  It was a directed at the deregulation policy of the NCUA.  The answer was no.  But we also outlined the help that would be provided by the CLF and NCUSIF 208 assistance if necessary.

These public board meetings were held in each of the six regions on a rotating basis.  They often coincided with League Annual Meetings or other national industry conferences.  Regional senior staff were part of the presentations.  The local press was notified. Sometimes a new charter would be presented by NCUA in person to the organizers.

The effort was to promote the democratic, member owned system in all of its multiple  capacities.   It  introduced NCUA and the credit union option to the public press in cities across America. For many members, it was their only chance to meet and chat with NCUA senior staff in open dialogue.

Credit Unions:  Made in America

Public meetings are part of America’s democratic character and practice.  Norman Rockwell captured this town hall spirit in his Freedom of Speech, a part of the Four Freedom’s WW II poster.

Public hearings enable public accountability.   The “member special meeting” that wraps up the merger process on the last day of voting is anything but a public event.  The votes are mostly by mail ballot sent along with the initial Meeting Notice—urging a Yes vote.  There is no way for persons to learn or hear the details that would make the process meaningful with different points of view.

Public hearings are the easiest, most immediate and democratic way for members-owners have a say about whether their charter and relationships should be sold to a third party.  The hearings require no NCUA board approval.

Members should have the chance to play a real role in mergers  and not merely  be passive ratifiers of decisions by those in authority.

Whether a credit union believes that mergers are  inevitable or harmful to the future because of the shenanigans  now occurring, everyone should be in favor of giving the owners a real voice in this live or die decision.  Let the Regions get on with it.

This past weekend a Houston Business Journal article noted a 30-day gap in TDECU’s disclosure of its failure to receive regulatory approval for its  Sabine Bank purchase versus the date of the Bank’s online post.  During this period TDECU finalized the merger of Space City CU.  During the public controversy, regulators feigned impotence to do anything about this deeply flawed transaction.

To understand the significance of this regulatory inaction,  it is helpful to recall some circumstances of this merger travesty.

On May 25^th, I posted a two part analysis of the proposed merger of the $147 million Space City Credit Union with the $4.8 billion TEDCU.

The Member Notice was mailed on March 28th, providing the public for the first time the details of payments to senior staff. All member voting ended May 14^th.   The result was 862 of the 12,000 eligible members voted with 82% for and 18% against.   End of story?

A Cooperative Merger Tragedy

I summarized this sleazy event as follows:  This self-dealing transaction marked by conflicts of interest, lax board oversight and member manipulation is the latest example of internal corruption in the $2.3 trillion cooperative system. . . State and federal regulators seem oblivious or powerless to stop this internal pillaging.

Here were some of the merger specifics. In distributing the surplus from Space City’s 14.6% net worth, the top three employees received $6.750 million of which $4.0 million went to the CEO. He already had a cu paid retirement plan and a $3.250 split dollar life insurance plan.  This $4.0 million total was equal to 53% of the entire retained earnings of the credit union in its 60-year history!

Two components of the total payments to the CEO and COO came directly from TDECU, not Space City’s reserves.  This total of $850,000, approved byTDECU’s CEO and board, was an  outright “gratuity.”  What was the fiduciary responsibility of these two  persons with direct responsibility for arranging the merger and its approval by members when receiving direct payments by both parties?

To top off these senior staff incentives, members were given a “bonus” dividend from their collective savings.  However, it was designed so that members with the least amounts of shares  received the greatest percent return.  Those who had the most to lose received the lowest percentage.  Specifically all members with $289 in savings or less, would receive $100 bonus.  If the vote were NO, you get nothing.

In addition to this blatant self-dealing, the basic concern with this merger was that the financial performance of TDECU, the continuing credit union.  For the prior  15 months its financial performance had deteriorated.  It reported a loss in the first quarter of 2025, and a troubled loan portfolio with 2.01% delinquency (up from 1.13% prior year) and an allowance coverage ratio one third of the peer average.  Its balance sheet loan and share  growth had flatlined under the new CEO.

Most importantly to TDECU’s future ambitions, it had announced in April 2024  the purchase of the Many, LA based $1.2 billion Sabine Bank.  A  “definitive acquisition agreement” was in place with the transaction to be completed in early 2025.

“TDECU is on a growth journey to expand across the state of Texas and beyond,” the credit union’s CEO, Isaac Johnson stated.

The Outcome and Regulatory Silence

When askng the state and federal credit union regulators, when and who had approved the merger, these were the replies:

From the Texas Commission:  preliminary approval was given by Department (Commissioner) on February 6, 2025. . .

From the NCUA:  The merger was approved by Southern Regional Director Keith Morton on March 6. . .

So long before the Space City members knew any details of the merger (Member Notice dated March 28), both credit union CEO’s knew their two regulators had approved their self-serving actions. The financial statements with the Notice were also six months old, September 2024, not even for the full 2024 yearend.

The members knew nothing until receiving the March 28 Notice, but the credit union leaders who privately put it together,  knew they had the deal approved.

All the controversy after the members and public learned of these details went for naught.  The regulators had said OK. It was all over but the shouting, which occurred in June when the merger was completed.

So at this point the merger  just seemed another example of regulatory ineptitude, indifference or perhaps other factors such as legal or poltical intimidation preventing any relook. The members were unprotected, fleeced and alone.  Those charged with protecting members’ best interests feigned impotence, or would assert, It’s just up to the members.

The Regulators’ Double Speak

But on July 3^rd an article appeared in the Houston Business Journal:  TDECU delays rebrand as it closes Space City Credit Union merger, terminates bank acquisition 

The article’s main points are that the Sabine Bank acquisition is off, the Space City merger is done, and that the rebrand using Space City is on hold.

The most interesting line however is the reporter’s final comment when reacting  to this post on the Sabine Bank website about the failed purchase which reads in part: 

“On June 4, TDECU and Sabine State Bank and Trust Company (Sabine) announced their mutual decision to not move forward with the planned acquisition and to terminate their agreement . . . to which the reporter added:

The termination was also not disclosed directly by TDECU via a press release or to the HBJ until July 2.

This is the example of regulatory double speak. This “definitive acquisition agreement” of Sabine needed only regulatory approval.  This means NCUA and the Texas Commission would make the decision because  this is where the oversight of the outcome would reside.

The deal got stopped, but was not disclosed by TDECU until July 2,  Sabine’s post is dated June 4.  Why?

The obvious answer is so the Space City merger can proceed unimpeded.  The  credit union regulators refused approval of the bank acquisition because they didn’t believe TDECU was up to the task.  But go ahead and take over these 12,000 members and their future for this is an event too minor to concern us.

The TDECU regulatory hold up did not begin on June 4.  The potential problems with this purchase and TDECU’s declining performance were obvious for at least six months from call reports. But proceed with the credit union takeover.

This regulatory double speak, two TDECU transaction and two opposite outcomes, is the most concerning aspect of regulatory oversight. The Texas Commission and NCUA did not respond to the deeply concerned members who spoke out only after they first learned how disgusting  this deal would be.   They were “nobodies.”

Besides the regulators already told the credit unions it was OK.  They couldn’t  go back now and change their decisions made in private because of members’ concerns.

By all the standards most members care about, the Space City merger heist was abundantly clear.  The regulators ignored their own words such as the members’ best interest and fiduciary responsibility. The members are sheep left to the care of wolves.  In this case both state and federal regulators aided and abetted their exploitation.

The Sabine Bank purchase was stopped by credit union regulators while they stood still during the acquisition of Space City at the very same time. TDECU’s capabilities were fine for credit union members but not a bank’s customers.  TDECU is now backing away from even converting to the Space City brand—a selling point in the merger.

Today we live in a political debate  where regulatory oversight is presented as one of two extremes:  laissez-faire, that is let the market decide or, regulation protecting those powerless against market exploitation.

But there is a third possibility,  worse than these two political extremes.  This is fake regulation deceiving  the public that regulators really are on the job and have rules and processes in place to ensure compliance.  But the regulators do not enforce their own rules.

The credit union market sees this regulatory GAP clearly and the zealous and ambitions are rushing to take advantage.  The result will be that the credit union members may lose their cooperative system because of regulatory neglect.