Category: NCUA

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NCUA Flying Solo

On May 22, the NCUA held its first public board meeting with its one and only member, Chairman Hauptman, overseeing staff reports.

This was the first public meeting since February, where the only agenda item then was the NCUSIF  update. Both March meetings were closed.  The March 27 and April 17 open meetings were  cancelled.  On April 16 President Trump fired the two democratic board members. That event is now being challenged in court with no specific timetable for resolution.

Observations from the May 22 Meeting

At the meeting’s conclusion Chairman Hauptman assured the public that NCUA was fully capable of meeting its statutory responsibilities.  He repeated the message from an earlier NCUA statement of April 18:

Please be assured that the NCUA has precedent and standing delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member. 

During the Bush Administration (2001–2002), Chairman Dennis Dollar acted as a sole Board Member. He held a Board meeting, voted, and took several actions, both administrative and operational. 

However the circumstances between these two situations is entirely different. In 2002, both nominees filling the expired terms were known and required only Senate confirmation, which happened very quickly.  This time, confirmed nominees have been fired, an action which is now under legal challenge.

Chairman Dollar held only one board meeting in which he received two briefings (one on the NCUSIF) and then tabled three other actions until a full board was in place.

Moreover, in a May 25, 2005 Delegation GEN 5 update by General Counsel Bob Fenner,  all delegations of Authority in the final paragraph is subject to the phrase “In a state of national emergency, all authorities retained by the board are delegated to . . .”  Are we-NCUA in a national emergency? 

Hauptman’s situation is unique in how the vacancies occurred, the seemingly open-ended  time for the current solo leadership, the dramatic internal staff and organizational changes underway, and the uncertain legal status of the fired members-especially if they return to their positions.

Board Item One NCUSIF Update

The publc format of the March financial NCUSIF   update was changed. A  series of “dashboard” charts showing five years of trends for key balance sheet and performance trends was unveiled.

These presentations provided no increased transparency on critical numbers such as the increase in loss reserves of $5.4 million during the quarter, the highest ratio of reserves to insured shares far exceeding the long term loss rate.

Most importantly while reporting zero losses in the first quarter, there was complete silence on the recent liquidation of the $ 65 million Unilever FCU. This was completed in such a haste that there was not even a conservatorship or apparent effort to find a willing merger partner.  The situation has echoes of the $13 million unexplained loss (20% of assets) at Creighton FCU in mid 2024.

The most important  issue, the underperformance of the NCUSIF portfolio, was shown in the new dashboard slide Portfolio Performance. It shows the NCUSIF’s return has trailed significantly the 90 -day T bill rate since mid 2022.  The year-to-date  yield of 2.59% is also significantly below the overnight return.

NCUA CFO Schied said staff’s policy was to continue the investment ladder out as long as ten years in order to ensure “a steady income.”  This steady income has trained market returns, as shown in the bottom graph for over three years.

There was no reference to either interest rate risk or ALM, the two basic factors in managing any portfolio. Especially one which cannot be adjusted once invested.

Chairman Hauptman likes to describe NCUA as an “insurance company.”  It would be helpful if there was much more transparency and thoughtful discussion about how this “company” manages its most valuable asset.  This underperformance damanges both the fund’s finances and credit union’s returns.

The Voluntary Separation Program

The staff stated that the voluntary layoff program had been agreed to in the March 21 closed board meeting.  By  May the employee responses were  known.

250 employees elected to leave voluntarily. There were no forced departures.  Almost all will be placed immediately on administrative leave with full pay and benefits but doing no work.  This status will extend until December 31, 2025.  This means most of these departing employees will be paid in full for not working for at least a half year

To incentivize the two options, there was a $50,000 bonus provided to each participant.  In addition, all will receive their 2025 merit bonus which will average $15K for junior staff and from $29K-$42K for senior staff.

In addition Hauptman announced that there would be no restrictions on these employees’ future employment so they might find another job while on leave. “They might even be paid more than what they earned at NCUA.”

As explained by Executive Director Larry Fazio, the program was designed by the staff for the staff. There will be no budget savings for 2025.  The benefits will fully utilize the  NCUA’s operating funds for this year. The estimated cost of $75 million means the average cost for the 250 departures was $300,000 each.

Staff was ambivalent about whether there will be anything close to this savings in 2026.  The gross cost of $75 million paid to the departing employees will be offset by new contracts, salary increases, new hires, technology investments and other expenditures from setting up a new future state for the Agency.  In other words any savings are yet to be determined and will not offset the additional costs of the 2025 voluntary departures.

There were no specifics provided on what NCUA’s future state will be.  No departments closed or consolidated, no programs (consumer exams, DEI conferences, etc) to be modified.

The one specific example of change was to extend the time between annual on-site exams based on a credit union’s net worth.  For credit unions $1-15 billion in assets, the exam interval would be from 12 to 18 months.  For less than $1 billion, the period between contacts would be 14 to 24 months.

The one concrete step announced is to reduce the agency’s in person safety and soundness exams as long as the net worth seems sufficient-above 10%.  This first line of defense for the NCUSIF is being weakened at a time when the sudden fall of Unilever and Creighton FCUs is still unexplained.

 Flying Solo & Landing Safely

There is no business as usual in the current single board leadership.  A circumstance which is exacerbated by the fact that Chairman Hauptman’s term expires in August of this year.  What happens then?  An acting Chair?  Who designs and follows through on NCUA’s future state?  Staff whose 25% reductions spent the enire year’s budget ?

In a March 3, 2025 CUSO Magazine article,  Hauptman’s agnostic approach to the future of credit unions was provided:

On the topic of the NCUA’s future, Hauptman declined to speculate or advocate for one outcome or another, noting that while he does not shy away from controversial topics, he keeps himself from getting into debates when he has no authority over the outcome. The fate of the NCUA, he argues, is outside his control and lies in the hands of Congress and the White House.

Congress created the NCUA in 1970, and there were 27,000 credit unions operating before then…my only view on it is that it is important for people to understand that credit unions are different. So whoever in the future is going to be regulating needs to be aware of this.” 

In an April 23, 2025 memo to All NCUA Staff, Hauptman wrote in part: NCUA will be returning to the headcount that it had a few years back—but be assured we know it takes teamwork and creativity to “land the plane safely.” And NCUA is doing that quite well thus far.” 

The outcome of the first solo board meeting since 2002 suggests that there is still a great deal of turbulence.  It is not clear who is piloting the plane or where it is trying to land.

This first flyby of the landing zone with credit unions leaves more questions than answers.  The future of NCUA and the implications for credit unions and their 100 million members seems at best cloudy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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A Member’s Question

If credit unions are a special idea about individuals’ collaborative financial efforts, we should care about human values and human rights when implementing this design.

I received the following from a member who had read several previous blog posts about mergers and just lived through the experience:

Recently, I was reading some of your articles, such as from 2017 regarding the issue of unjust enrichment by insiders in mergers. (Credit Unions for Sale) I didn’t realize what a longstanding problem this has been.   It seems like the whole structure is designed to enable those in power, in charge, to take advantage of those with less power, authority, resources, knowledge, and education.  

I don’t know who are the worst actors – the regulators who give the illusion of regulating to protect consumers, the BOD’s who are supposed to be looking out for members’ best interests, or the executive management who selfishly negotiate these deals at the expense of members, and try to convince members to give up their rights, their credit union, their net worth.   It’s a sickening rigged game. 

I see the motivation for the insiders who have millions of reasons for this, but how does the BOD benefit? Or regulators overseeing an industry decline in numbers and reputation?

A Rigged Game

Welcome to what democracy looks like with one- party government.  No loyal opposition.  In fact, no opposition, just obedience. Be a loyal consumer.  A satisfied customer, but not an owner.

The theory of cooperative design is that the one vote per member in election of their board members will act as a democratic check and balance to ensure the owners’ interest always come first.

It is an extremely rare event for those in power to fulfill this voting practice.  Boards become self-perpetuating; members are rarely encouraged to attend let along participate in the annual election.  And there is no voting, just acclimation for the board’s nominees.

The result is that boards and CEO’s believe they alone are responsible for determining the priorities and future of the members’ organization.  Even if this means transferring a long-standing, sound communal charter’s legacy  to another credit union where owners receive nothing and those last in charge cash out, often big time.

Democracy in a One-Party State

The defense offered by the regulator and the credit unions involved in these private deals is the members voted for it, often by overwhelming margins.

But what kind of a “vote” is taking place when those in charge control all the financial resources of the institution, the means for direct member and public communications, the timing and presentation of the election process, and the representation of regulatory oversight and approval?

The situation is the authoritarian’s dream of one-party governance. This is pretend democracy.  The people are told to vote for what the Board and executives will proclaim is a better future; albeit no longer under your control.

The results show the effectiveness of one-party rule.  Over 99 percent of mergers are approved.  An incumbent’s sure-fire strategy for self-enrichment.

To assert, as NCUA and state regulators routinely do, that the members’ voted for this is an  abdication of responsibility for member-owner rights. It destroys the core of credit union character. It demonstrates regulators as powerless or clueless in the face of this predatory  cooperative plundering of members’ equity. There is no governance by members, just subservience.

There Are No Limits

Ambitious CEO’s and boards see these free takeovers being negotiated daily.  There is no limit to the combinations being planned.  Just payout the initiators and receive the billions now up for grabs-for free.  The stakes will only get bigger, the payouts more creative and humongous, and the capitalistic model of acquisition dominate cooperative strategy.

But the history of one-party rule is not encouraging for the  long run.  The consolidation of power and resources grows, the lack of any meaningful role for owners is blatant,  and the sameness of all the “better products and services” becomes apparent to all.

Ultimately, the people will see what the member above observed.  The media will highlight the gaps between purpose and practice.  And the disruptions will start, small isolated at first, but real and threatening to those in authority.  Examples are already underway.

Most importantly, credit union leaders and members will learn what one-party rule means when this occurs with the federal regulator, not just in their individual institutions.  Then maybe the virtues of democracy will be embraced once again.

 

 

 

 

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The Art of the Steal

Financial oversight policy by the federal government is often presented as two distinct opposites: deregulate so the free market can work its wonders or regulate to prevent the worst instincts of capitalism from harming individuals or the greater economy.

However, there is a third policy option.  I call it fake regulation. The regulator takes action to prevent some excess or outright harm from occurring, but then never enforces the rule.  The market quickly sees these are only pretend guardrails. And the predatory behavior expands in ever increasing incidents.

The Merger Problem Becomes Public

In 2017 the situation of credit unions buying out and paying off their kin was written about by a number of  commentors in articles such  as:

The Dark Side of Mergers, by Peter Strozniak, March 27, 2017 Credit Union Times

Time to Talk About an Ugly Truth in Mergers by Frank Diekmann, March 6, 2017 CUToday

Credit Unions for Sale? By Chip Filson, February 14, 2017, Credit Unions.com

In response to the growing disclosures of large payments by credit unions openly seeking acquisitions, in June 2017 NCUA proposed an updated voluntary merger rule.  Folllowing  a lengthy comment period the final rule was adopted in June 2018.

It is helpful to review the specific statements and intent of this final rule when looking at concrete circumstances today.  For many actual events seem to suggest the rule isn’t in force. There are no longer any regulatory roles or constraints being exercised.

What the Final Rule Required

 

The  rule included important statements about NCUA’s role and scope of authority when approving voluntary mergers.  For example:

“Several commentators . . .suggested that NCUA’s role is limited to safety and soundness concerns.  These comments are not accurate.  The FCU Act explicitly requires the “Board’s prior written approval” before FICU mergers with another FICU. Moreover, as detailed in the preamble. . . the FCU Act requires the board to consider six factors in determining whether to approve FICU mergers.  Clearly, the FCU Act expects the Board to consider the effect of  the proposed merger on the credit union members, and gives the Board authority to deny mergers that do not, in their judgment, serve members well. . .

Several commentators stated. . .that members have no right  to the net worth of a credit union except in liquidation.  This assertion ignores the reality that hundreds of credit unions annually return excess net worth  to members. . .A credit union in good condition has the option of voluntary liquidation  instead of voluntary merger. . .

The Board agrees that mergers should not be the first resort when an otherwise healthy credit union facing succession issues or a lack of growth. . .

The Board acknowledges however that not all boards of directors are conscientious about fulfilling their fiduciary duties. . .

The Board also confirms that for merging credit unions, the NCUA’s regional offices must ensure that board and management have fulfilled their fiduciary duties under 12 CFR$701.4.

In contrast to commenters’ assertions, the statutory factors the board must consider in granting or withholding approval of a merger transaction include several factors related to safety and soundness, such as the financial condition of the crediit union. . . and the general character and fitness of the  credit union’s management. . .

Concerns with Financial Disclosures

The impetus for the updated rule was driven in large part by the financial incentives being used to acquire other credit unions.  In the initial June 2017 draft proposal, the staff was asked by a Board member what percentage of recent mergers reviewed involved increases in compensation?  The staff response said 75% to 80% had significant merger related payouts often in the low seven figures.

The final rule in 2018 had extensive examples of “merger-related financial disclosures” that must be provided members.  Several comments explained the scope and reasoning included in the new rule:

A “but for” test determines whether the senior management official or director would not otherwise receive the compensation “but for” the merger. . .

Disclosure includes, “all increases in compensation or benefits that a covered person has received during the 24 months prior to the date of the approval of the merger plan by the boards of directors of both credit unions. . . “.

The rule applies to all compensation or benefits received in connection with a merger transaction including early payout of pension benefits and increased insurance coverage. . .

. . . the proposed rule requires both the merging and the continuing credit union to submit board minutes to NCUA that reference the merger during the 24 months preceding the date of the approval of the merger plan by the boards . . .In several recent mergers, a review of board minutes has shed light on potential conflicts of interest, including a situation where a credit union chief executive officer voted on a merger proposal that included significant merger related compensation for himself. . .

Furthermore, members’ interest in the transaction extend beyond practical matters of access and service, because the merging FICU’s net worth belongs to the members. . .

The basis for NCUA’s concern about financial disclosure follows with emphasis added:

The prospect of a significantly higher salary at the continuing credit union could be a motivational factor in an individual’s choice to advocate for a merger both internally within the credit union leadership and with members.  Credit union management may well have considerable influence with members, who may look to  management for trusted opinions and advice about whether the proposed merger is in the best interest of the credit union and its members.  It is not unimaginable that the prospect of a significantly higher compensation package could affect an individual manager’s thinking about the desirability of the merger. . .

Houston, We Have a Problem

The Space City CU merger proposal with TDECU violates a number of these explicit statements as well as the intent to protect members’ interest in NCUA’s merger rule.

The initiative was led by the CEO.  The CEO and COO are paid directly by TDECU $850,000 in the transaction, a direct conflict of interest. These are described as “non compete agreements.” This is a nonsensical justification. Neither has ever worked for TDECU.  Now they turn over their entire operations to TDECU after “competing” with this $4.8 billion firm for 30 years and are paid to “non-compete.”

The CEO is to be paid $3.5 million for not working for the next ten years.  In fact he was the person who decided to close the credit union and turn over operations to TDECU and leave the workforce.  The amount, as stated was in “honor of his retirement and in recognition and appreciation of his long tenure and outstanding performance.” This rationale is belied by the facts.  Of the credit union’s net worth, only 39% is from his operational earnings and 61% from the net worth transferred by four other credit unions in mergers.

The members who own the net worth receive $346 each on average, or about 25% of their total ownership stake.  TDECU has announced a definitive acquisition agreement to purchase Sabine Bank five months before the CU merger announcement. The bank owners will certainly receive their entire net worth plus a premium.

However, the credit union owners are asked to approve the same exact economic sale transaction as the bank owners, but will receive only a fraction of their ownership stake. The five employees arranged to pay themselves an amount $1 million greater than the 12,000 members whose loyalty built the credit union.  Management is acting like owners, free to do whatever they wish with the credit union, and not as stewards for the members’ interests.

TDECU is showing credit union member-owners they are less worthy of equitable payment than bank owners.

The Manipulated Voting Process

Space City’s final defense and where the regulators could justify their intentional inaction is that the “members voted for it. “

But member voting is a process without substance.   All of the critical financial disclosures were revealed only six months after the September 2024 joint announcement of the agreement.  Once presented the facts, there was no opportunity to organize and find other options or learn critical factors in this decision.

There was no factual information why this was in their best interest or any relevant reasons why TDECU was the best option—or whether any other options were even considered.

In the Member Notice, it is “recommended” by “your” board of directors to vote yes.  And for that vote, members would receive  between $100 to $1,000.  Vote no and you will get nothing and the implied continuation of the same leaders who decided to close the credit union.

The required member vote is nothing more than a managed event to ensure there is no time or ability for anyone opposed to raise questions or mobilize a counter view.  Management in these so-called elections holds “all the cards” and resources.  Management does not respond to questions from the press or members.

The only requirement to approve is that a majority of those who bother to vote, vote Yes.  There is no minimum number as for example the 20% requirement in other charter changes.  So only a tiny fraction of members participate. Normally the majority of votes are by mail-in ballot where the board says to vote Yes.

To call this one-time vote by members democratic in any sense of that term is a mistake.  It is the same voting process followed by authoritarian governments in such well known democracies as Cuba, China, and Russia.

The System’s Problem

This relatively small voluntary merger of a 60-year old, financially viable credit union, may seem inconsequential for a $2.4 trillion system.  But the details demonstrate the complete absence of any the oversight NCUA clearly lays out in its rule.

The two credit unions publicly declare the merger must pass regulatory approval, implying all they present and do has received the blessing of NCUA.  However, it is a blessing in absentia.  The data and reasoning is misleading, overtly self-dealing and provides no substance for a member-owner to make an informed decision.  But what the heck–the regulator approved it.

The Absence of Regulatory Oversight

There is still one final step in NCUA and the Texas Credit Union Commission’s role.  They must approve the final charter cancellation.  In the past this is a nonevent.  Regulators have not even required  the results of the vote be disclosed when members ask  for details.

Will either the state or NCUA look at the totality of this event and decide  if, under the rule, members’ best interests are being served? Is this cooperative charter termination with these payments the best option?  Might a small fraction of the planned $11 million  payments be used to find new management, request new volunteer leaders from the 12,000 members and give the owners back their credit union?

That would be the common sense and right thing to do.  It would take courage.  And if done, it would send a signal to the entire movement that the era of self-dealing and hypothetical future visions is over.  If a credit union wants to buy another credit union and take over all of its resources, then members need to have a real ownership say and return.

Today there is an absence of any regulatory presence and studied inaction  in the face of misinformation and self-dealing.  This silence has encouraged mega mergers by competitors in  local markets, across state lines and, in one case, across the country.

These proposals involving credit unions with tens of billions of assets are not because some superior business benefit is now feasible for members.  These mergers are by credit unions with all the necessary resources and capability to carry out any business initiative that would better serve members.

Mega mergers only benefit is to the ambitions of CEO’s and their boards who believe size correlates with success.  That view shows they have not looked at the track records of their billion dollar peers about the actual outcomes when exteral acquisitions are prioritized over internal growth.  The record of the largest credit unions shows that internal growth is stronger, more stable and effective than external firm buyouts.

The Combinations Undercut Cooperative Advantage

Moreover, these mergers of sound credit unions ignore the most important system reality. In these combinations, not a single new member is added, there is no market share gained,  and no new markets entered.

Rather, these combinations reduce the number of independent firms with their own volunteers and market strategies,  eliminate leadership opportunities for employees and volunteers, reduce independent community contributors and most critically, destroy the collaborative legacy of generations of members who sought  more control over their and their children’s financial futures.

These mergers reduce the diversity and roots that have made credit unions a unique force in financial service options for America.

Who believes that the 12,000 members of Space City will now have a better financial relationship opportunity as part of a 380,000 member organization (soon to be 470,000) versus their current circumstance?  And if someone wants that option, they can join TDECU today.  But why eliminate the more intimate, personal option now available?

Transparency Does not Erase Wrong Doing

Since the 2018 voluntary merger rule was passed, transparency has illuminated an increasing cycle of cooperative self-destruction driven by institutional self-interest.

The regulators have abandoned the standards they explictly laid out as the foundation for their updated meger rule.  The rationale appears that if you tell people you are taking the members money for whatever reason, then conflicts of interest, self- dealing or simply exhorbitant enrichment are fine.

I know of no illegal activity that is absolved by disclosing the facts of the deed.  But that seems to be NCUA’s interpretation.  CEO’s are increasingly brazen, as in the Space City example, to ignore all fiduciary standards.

There is no cop on the beat.  The temptations will only worsen. In one California merger the CEO and Chair transferred $12 million of members equity to their sole control as part of the merger distributions. NCUA said and did nothing.

Merger stories are clothed with common PR phrases about similar cultures, values and enhanced opportunities for innovation in an evolving marketplace. There is nothing more than marketing rhetoric in these so-called merger plans.

How Healthy Mergers Damage the System’s Soundness

But the current harm is real. Mergers of sound, long serving credit unions destroy the legacy of relationships on which every firm depends for success.  They wipe away the past commitments and memories.  New brands then try to portray a new reality but often show how shallow the relationships have become. For example,  Empeople credit union or the retirement community sounding EastRise FCU.

For cooperatives, legacy matters. It is a design  chosen by  a community of interest wanting to take control of their future with collective action.  Carrying that legacy to the future perpetuates this human effort as opposed  to the cycles of firm destruction accepted as part of capitalism. A credit union instead conserves and passes to the future  the shared interests founded on local focus, knowledge and community spirit.

Instead of building on this foundation to work together, merging stable credit unions results in just another generic financial institution removed from any past connections, constantly seeking new markets to conquer or expand.  The past is over and done with.

While this approach might appear to work for a while, it sacrifices the most important foundation for any successful enterprise, the power of human agency.  Agency means  being part of a collaborative effort, that is a person’s belief  that I am accomplishing something important in my life.  This kind of relationship creates institutional resilience that no amount of resources can achieve. Sometimes we call these outcomes trust and hope.

Space City is just the latest poster child of this growing Art of the Steal.  Its reasons are ridiculous and it may generate member resistance far beyond Houston. For the wider problem revealed in these transaction is that some credit union leaders don’t seem to know for whom they work.

One Voice

A Space City member with deep concerns with this merger called and asked,  Who do I go to for help?  The person had spoken up, answered press questions, encouraged her friends to vote no. But she felt all this was in vain. Just her alone.

My response was you are doing exactly what democracy requires. It is not about creating a popular uprising to overthrow entrenched leaders in a moment of confrontation or voting.

One person standing up and publicly raising their voice will be seen. It will encourage other like-minded persons to learn their concerns are shared. Her courage will become contagious.  It might even spark a regulator to do the job they are empowered to do.

Just one voice. It only takes one match to light a fire. Then watch the members respond with hope and goodwill.  Credit union democracy needs many more  such member-leaders.

 

 

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Whose Voice Do You Follow?

in the late 1970’s Norman Gazer was a relatively new examiner in the Credit Union Division of the Department of Financial institutions (DFI) in Illinois. He had a bookkeeping background, understood accounting, and had a very quiet, reticent almost shy demeanor.

One of the DFI’s goals was that every one of the over 1,000 state charters must have an annual exam.  This must be by the DFI examiners  or completed by an independent CPA firm using our format.

An essential part of the annual exam was the verification of lndividual loan and share account balances.  This was the primary function of the supervisory committee. In larger credit unions this would be done by an outside firm.  When there was no record in smaller credit unions, the examiners would attempt to test the accounts.

Norman did this in two ways.  He would run his own adding machine tape of the individual ledger balances to see if they equalled the general ledger total.  Were their suspense accounts?  Late entries etc?  This was before computers.  In some cases the cards were still hand posted.

I knew we verified  external investments by sending out confirmation requests to firms holding these balances. But how did he verify members?  He said it was simple.  He just looked up the names in the telephone book and called.

It was this effort to verify accounts that led Norman to discover the credit union defalcation at Scott, Forseman and Company, the publisher of the children’s first reading books: “See Spot Run.”  After repeated attempts to balance the share accounts, Norman determined the credit union manager of this $1 million single sponsor, was keeping two sets of books.

When confronted, the manager handed over the second set. The defalcation was almost $1.0 million.Norman’s documentation persuaded CUNA Mutual to cover most of the shortfall under the credit union’s fidelity bond.

Whose Voice Do You Listen to?

In America today almost anyone can set up a platform to share their views about any issue.  Politicians routinely present themselves as the voice of the neglected, unheard or angry.

We often choose the voices to follow by two criteria.   Do we generally agree with the person’s point of view whether the topic is professional, personal or political.  Secondly, we tend to believe those in leadership, or individuals whose opinions are based on their professional experiences and credentials (professors, doctors, lawyers, or regulators)

One of the commentators i respect is Ancin Cooley.  His  succinct postings are well reasoned and from extensive on the ground interactions. His comment on the recommendations of America’s Credit Union lobbiests to reduce NCUA rules caught my attention.  And reminded me of Norman’s story of why we have supervisory committees in the first place.

This is Cooley’s response to  ACU’s proposal to  eliminate supervisory committee and succession planning requirements by NCUA.

What are we doing?

“Now its eliminate succession planning and Supervisory Committee audits?

We’re literally watching member money be used to advocate against the very guardrails designed to protect them and the institutions they trust.

At some point, someone has to throw a flag on the play. Come on y’all….

Succession planning shouldn’t even be up for debate. It’s basic governance. It’s only an issue because if there is a succession plan in place, it makes it difficult to merge the credit union when a CEO retires.

And now, Supervisory Committees? Yes, they can be a pain, but the function must remain intact and unweakened.

This one’s been locked-and-loaded for a while, especially given the quiet, strategic push to weaken audit committees through legislative efforts over the last twenty years.

If we let this trend continue, the very banks we claim not to be will end up with stronger governance and audit protections for their shareholders than we offer our members.

I’ve been asking this question repeatedly: Who do our associations and leagues actually represent?

The members? The credit unions?

Or the CEOs who sign the check for the membership dues?

Because if you said members—if you truly represent the membership—let me be clear: this proposal is not in the interest of any member-owner.

No bank shareholder would vote to eliminate their audit committee. Why? Because they have their actual money at stake.

Our members deserve the same level of protection. Their collective capital deserves the same level of seriousness and protection.”

This is plain spoken common sense by a person who knows what he is talking about.  But there is still a worse outcome than bad counsel.

What could  be more disastrous? Complete silence. Especially by those in positions of responsibility for credit unions.  Tomorrow I will show how voicelessness communicates approval of bad behavior in The Art of the Steal.

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Harper’s Brookings Interview

I attended former NCUA board member Todd Harper’s interview with Aaron Kline of Brookings yesterday.  Thes session lasted an hour, was recorded and can be accessed here.

Notes from the Conversation

When asked why the administration removed the two members, Harper thought the firings were part of a broader strategy to eventually change the Federal Reserve Board before those terms expire.

In the February closed board meetings, he had voted for the staff downsizings that were  agenda items on the public April board meeting–which was cancelled.

He had not met with he DOGE people and was not aware of their role in the agency.  NCUA legal staff had not provided any advice versus the board removals.   Only Inclusiv had backed his suit so far. He expressed disappointment that America’s Credit Unions had taken a “wait and see” approach.

Data Referenced in Questions

In responding to two questions Harper used prepared data. One topic was the initial findings from NCUA’s call report collection of OD/NSF fees from credit unions over $1 billion.  The second was the number of CAMELS code 3, 4, and 5 ratings.  In both cases the data was used to support his previous positions.  He was critical of fees and asserted staff cuts could increase risk to the NCUSIF.  Therefore the need for a higher NOL cap.

In terms of future policy he listed three areas:  disclosure of executive pay for FCU’s, paying volunteer board members for dependent care, and revisiting the NCUSIF’s NOL cap.

When asked about taxation of credit unions he said it could impact safety and soundness by slowing the growth of retained earnings/capital.  But that Congress wlll decide the issue while noting the Washington state legislature’s proposal to tax state charters which buy banks.

My reaction.  The Harper one saw at NCUA, his priorities, selective use of data, and policy justifications were the focus.  This may have been due to the interviewer’s questions on areas such as naming rights for stadiums, bank purchases and OD fees.

Harper’s attention was his NCUA policy preferences, not the future of credit unions. There was no rallying cry to fight back on the firings. He is not turning the page either.  As he said in response to a question from a reporter, he is not  “going off Broadway.”

 

 

 

 

 

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May 1: Time for a MayDay Call for Rule of Law and a Popular Uprising

America is not living in a normal period of federal governmental conduct.  Trump’s largest campaign donor ($275  million) Elon Musk was given a non-legislative, non-elected temporary position. Thus informally  empowered,  his DOGE teams have gone into every federal government and some non-governmental organizations to mandate staff and program cuts.

These cuts and program closures are of Congressionally authorized programs and spending.  This is a pure power play with no oversight, accountability or  any formal authority.

It is total power without limits. In a democracy those who are appointed or elected to positions of power are called leaders.  In an authoritarian government, these individuals are called rulers.

A Fight for the Cooperative System’s Integrity

On April 16 President Trump removed the two Senate confirmed democratic members of the NCUA board. Only Chairman Hauptman, a republican whose term ends this August, remains.  There was no reason given in the firing email. Sue me if you don’t like it.  And both fired members have filed suit in federal court.

The power of both law and precedent suggest this action is illegal.  It raises substantive questions about NCUA’s authority and future.  The bottom line is credit unions are in a fight for the financial and legal integrity of their system.

Some credit unions will want to wait and see what happens before acting.  Others will delegate the burden and pay someone else to chart the way forward.  Many will just go on with business as usual.  With all the uncertainties in DC the assumption is that NCUA is at best pre-occupied, or at worst NCUA won’t dare buck Trump’s deregulation stance and stand up to credit unions.

One long-time reader suggested another approach: There is no reason to stand by this board, or jeopardize your voice by association.  They were neither effective as administrators nor wise enough to see the fog of the last administration. .  .

Why not push for the quick organization of a new board and the forward progress it might bring.  In the very least be ready to work with this administration and keep the CU agenda clear of the fall out that will follow.

That presumes a democratic, participatory system.  That is not what we have as illustrataed by yesterday’s announcement of the larest credit union liquidation in at least six years.

The Unilever FCU  Liquidation

Here are the facts last published by NCUA about this sudden $47 million credit union liquidation announced by NCUA on April 30.

At December 30, 2024, Unilever’s total assets were $ 46.7 million; net worth, $4.1 million (8.95%), virtually no delinquency on a portfolio of which 90% is real estate loans.  There are five employees, a single office, and very high average share balances ($29,400) and loans ($58,502), while serving just 1,448 members.

No conservatorship was announced. Instead an immediate takeover with no announced effort to find a merger solution.  No facts or explanation for the los was provided except to say the credit union was insolvent. What caused this sudden loss discovery? Why the instant liquidation?

The absence of any facts or reasons for acting suggests another regulatory-supervisory failure that is just being expensed away with insurance funds.

It reminds one of the situation last July when NCUA suddenly discovered that Creighton FCU had lost 20% of its value in the days right after filing its March 2024 call report.  The newly discovered loss was approximately $13 million in a $67 million FCU.  The credit union was merged with Cobalt FCU. There was no NCUSIF expense.  And no explanation of where the money went.

In the Unilever case, Hauptman, a one-person NCUA board, approved the outcome.  There is no evidence in support of this action.  Zero transparency for the members and the public.  This is what one person rule creates.  Is Unilever just the first of a series of unilateral decisions by Hauptman?

NCUA’s Defense of a One Person Board

On April 18, 2025 two days after the two board firings, the agency published an internal staff memo on the current state of the NCUA Board.  The memo was unattributed and contained no statements by any NCUA person.  It was just an anonymous assertion with these points:

Please be assured that the NCUA has precedent and standing delegations of authority in place to continue performing all operational and statutory requirements under the authority of a single Board Member. No statutory authority, internal legal opinion or other objective fact was provided to support this “assurance.”

In support of this undocumented position, the agency referenced a purported past event:

“During the Bush Administration (2001–2002), Chairman Dennis Dollar acted as a sole Board Member. He held a Board meeting, voted, and took several actions, both administrative and operational. Chairman Dollar recently stated in an article  in CU Today, “The records are in place at NCUA from 2002 that clearly establish the precedent that the Chairman can act as the Board.”

This statement is the most problematic of all.  Immediately after the board firings, Dennis Dollar called them “unprecedented.”  But a day later he claims that his prior tenure is now the precedent to follow this unprecedented event (see same article).

However NCUA presents none of the “records” that Dollar says are in place and certainly references no legal opinion.

What is even more curious is that the official NCUA 2002 Annual Report page 13 states:

Board members confirmed

The highlight of NCUA’s legislative year occurred March 22, 2002, when the U.S. Senate confirmed JoAnn Johnson and Deborah Matz, both serving as interim appointees, to join Chairman Dennis Dollar to complete the three-member NCUA Board.  

According to NCUA’s public account, Dollar’s two colleagues were indeed present, serving as interim appointees. There is no mention of his taking any action to set a precedent for one person rule to be followed in the future.

Following NCUA’s circular reasoning in citing a former board member and then that person confirming it is OK to do so, NCUA closes its staff update saying:

“It is the NCUA’s long-held view that a single Board Member constitutes a quorum when there are no other Board Members. Chairman Hauptman and NCUA’s leadership are equipped with the required authorities to continue implementing the Administration’s priorities. . . 

The memo asserts an  anonymous long-held view with zero factual, no legal reference nor any public prior event where this opinion was expressed.  The long held view is  an argument made of whole cloth.

One could just have easily asserted that in any organization’s bylaws or chartering authority where a  quorum is required, the term presumes more than a single board member is necessary to conduct business.  That is a more reasonable understanding of the quorum requirement.

So instead of clarifying Hauptman’s authority as Chairman, Vice Chairman and board member, the three-in-one board situation now, the agency presents a shallow, undocumented explanation to the staff and the public.

What’s at Stake this May Day

The rule of law is at stake.  NCUA has become a basterdized agency with no apparent legal grounding.  Fire the board and turn the agency into  one person rule,

This is the reason for the Unilever FCU unexplained liquidation is so important.  For the most consequential action the regulator can take versus a credit union is to put it out of business with no due process or public accountability.

The action was intended to demonstrate we’re really in charge now.  It is the largest liquidation in six years or longer.  A first example of how  the agency now “will ensure America’s credit unions are safe and sound.”   And if this arbitrary assertion of power can happen to Unilever FCU, it can happen to any credit union.

Credit unions today are confronting a situation where the entity charged with overseeing the legislation and regulation protecting the system, is itself acting extra-legal, unable or unwilling to even defend its current board status.   In other words the agency which enforces the law cannot defend its own legal standing.

Where are the agency’s lawyers so quick to explain the agency’s legislative interpretations?  Did they challenge the firings?  Brief Hauptman?  Were there resignations on principle if there was an obection?

Every NCUA employee took an oath to support the constitution, not a specific person in power.  Where are those individuals of courage and character in the agency?  Silence is consent.  Consent is capitulation.  That is the end of the credit union democratic experiment, unless there is a MayDay uprising starting now.

 

 

 

 

 

 

 

 

 

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Fired NCUA Board Member Harper to Speak at Brookings

The Brookings Institution, a Washington DC think tank, has announced the following event this Thursday:

“Credit union regulation at a crossroads: A conversation with former NCUA Board Member Todd M. Harper.” 

Event Details:

Date: Thursday, May 1, 2025

Time: 11:00 a.m. – 12:00 p.m. EDT

Location: The Brookings Institution, Saul Auditorium, 1775 Massachusetts Ave. NW, Washington, D.C. 20036

This is the link to the online broadcast.

Two NCUA Board Members File Suit to Regain their Positions

On Monday, as reported in CU Today, Otsuka and Harper filed suit in federal court to regain their NCUA board seats.

The full 12-page suit can be found here.  One paragraph is especially important right now.  This is a statement about the quorum needed to conduct Board business.  It reads:

  1. The President’s removal of Mr. Harper and Ms. Otsuka has left the NCUA Board without a quorum, rendering it unable to implement Congress’s mandate in full. Only one Board Member, Defendant Kyle S. Hauptman, remains as both the agency’s sole Board Member and its Chairman.

But the Federal Credit Union Act vests the powers of the agency in “the Board,” not in any one individual, with a quorum requiring a majority of the Board. 12 U.S.C. § 1752a(d). And the “agreement of at least two of the three Board members is required for any action by the Board.” 12 C.F.R. § 791.2.

With only a single Member purporting to exercise authority, the NCUA cannot Case 1:25-cv-01294 Document 1 Filed 04/28/25 Page 7 of 12 7 continue carrying out the supervisory, regulatory, and institutional functions that Congress intended to be exercised by a Board composed of at least a majority of its Members.

Despite some agency and other comments, the lawyers assert that a single board member is not a legal quorum to conduct board meetings or other official business.

Questions for Harper’s Conversation at Brookings

The lawsuit is clear in its arguments that Trump’s actions are unlawful.  But it will take time to see how this legal process plays out, and lots can happen in the meantime.

Here are several areas  I hope Harper will address in this week’s public conversation:

  1. Circumstances at NCUA prior to the removals. The action was just prior to a scheduled board meeting in which the downsizing was on the agenda.  What was the proposed action?  Was there consensus among the board?  What internal work did DOGE representatives do?  Why are Hauptman and Fasio included in the suit?  What was their role in this action?  Did you ask NCUA legal staff for their position or to challenge this action?  What is your current understanding of the state of the agency’s staffing-how many are leaving and what critical areas do you see uncovered?
  2. In addition to following the lawsuit and Brookings conversation, what other public actions might credit unions or their representatives undertake to support this lawsuit? Amicus briefs?  How are your legal expenses being covered?
  3. Your role as Chairman at NCUA. Several significant trends emerged during your NCUA tenure in the cooperative system.  Two major ones were the accelerating pace of credit union whole bank purchases for cash.  The second was mergers of strong, long serving and increasingly large credit unions in which  the departing CEO’s and staffs gained significant personal compensation for setting up the merger.  In one case the CEO and Chair transferred $12 million in member equity to their personal control.  You did not address these topics while on the board.  What is your position on events like this?
  4. Your position on potential future regulatory changes. During your tenure as an NCUA board member you frequently cited the FDIC model to recommend multiple changes in the legislation governing the NCUSIF, the cooperative credit union insurance fund.  Would you support merging the NCUSIF and FDIC if that were to be proposed?  A second issue is potential federal taxation of credit unions in some format.  What is your position on such an initiative?

Finally, how might credit unions and the public get in touch with your and Otsuka now that your official emails and contacts have ended?

I intend is to attend the event in person this Thursday.

 

 

 

 

 

 

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An Annual Meeting Experience

The formal invitation came by mail and read as follows:

TowneBank

Cordially invites you to attend the:

Annual Meeting of Shareholders

Wednesday May 14, 2025  at 9:30 AM

The address for the meeting was the Richmond Convention Center. The invite closed:

Lunch will be served immediately after the meeting

Kindly reply by returning the enclosed card only if you plan to attend

The reply card asked if the attendees would stay for the luncheon.   The only required information was first and last name of those attending.  There was an addressed stamped envelope to mail the response.

TowneBank is $17 billion in assets with  2,800 employees in 51 branches throughout the greater Richmond, VA area.   TowneBank  converted from a mutual charter several decades earlier.  In that process depositors could buy  newly issued shares if interested.   My wife converted her  savings to stock.

TowneBank’s mission is:

Serving Our Community

Throughout our growth, we’ve never lost sight of our true mission: to continue to be a community asset by serving others and enriching lives.

Respect for the Owners

As a shareholder-owned financial institution, their board’s  goal is to provide its owners an acceptable return and ensure trust and confidence in the firm’s leadership.   Its invitation is gracious, formal in style and intended to encourage owner participation.  It feels welcoming.

A Credit Union’s Annual Meeting

The annual meeting of many credit unions conveys just the opposite impression.  Member-owners must register in advance to attend the meeting.  The event is often virtual only, with no member attendance permitted. The agenda may state as mine did: 

Matters requiring a vote

Please note that there is no new business to discuss. The only matter requiring a vote of the members in attendance is approval of the 2024 Annual Meeting minutes.

There is no voting for directors as the board nominated candidates equal the vacancies. No new items or old business will be permitted. There will be a Q & A for questions submitted in advance, and sometimes those added during the meeting.

This was the setup for Patelco’s 2025 virtual annual meeting last Friday.  There was much material a member-owner might download at this site.   The State of the Credit Union included 46 slides with much information both financial and operational efforts. The 2024 Annual Report is 18 pages of high level summaries, a financial statement (unaudited) and pictures of staff and board.

Patelco’s annual report and CEO meeting update met the letter of the law, but the Friday event lacked any hint of spirit. No celebration, no thank yous to members and carefully scripted to create an impression of a required exercise versus a shared experience with member-owners.

The Q&A Portion

The only section not prepared and sent in advance were member questions. Some were submitted prior and some during the meeting.

The cyber ransom attack was a major disruption in 2024.  It was discussed in the CEO’s summary and in the Q & A.  New information included an estimated total cost of $64 million of which  $37 million was fraud losses caused by some 6,000  members during the outage.  Their accounts were subsequently closed.  The sale of Visa shares in January resulted in a $35 million gain which helped offset part of the cyber attack expense.

The Annual Meeting’s Intent

Is the Annual meeting a mere administrative formality to be closely controlled by the organizers?  Or, is it an opportunity to enhance member confidence and support for their cooperative?

The meeting ritual can be much more than publishing required data and information. It  communicates leadership’s attitude toward their member-owners. Patelco’s approach signals control not mutual responsibility.  There were two examples that illustrate this approach.

Democratic Governance

When asked about the closed election process Chairman Rivera read the formal steps. He said there were no limits to board terms. Two board members’ service began in 1996. As of the next meeting, five more will have served for over two decades. Longevity is certainly an attraction for those in power.

The Chairman carefully avoided addressing the issue of democratic governance for topics such as: When was the last meeting in which there was a contested vote?  Ever? Why does the board encourage members submit proxies, thus surrendering their right to vote in board elections?  Why are no members allowed to attend in person?  How meaningful is the member’s meeting  in which all business is conducted with only employees present?

At a time when every segment of the country’s democratic processes seem to be under direct or implied threat, why is Patelco shutting down the democratic practice meant to be the hallmark of cooperative design?

This was a missed opportunity to highlight  fundamental cooperative governance.

Questions About Threats from Without

The second reason for engaging members is that this is the source of the movement’s political power.  Credit unions cannot out spend political funds or have enough lobbyists to rely on traditional forms of political influence. It is members voting their self interest that will secure credit union success in DC.

Three questions touched on  national topics. One was whether Patelco was safe and sound at this moment, referring to bank problems. A second asked about possible threats from a government agency. The CEO’s response interpreted the question as referring to credit unions’ tax exemption.

And the last question of the evening: After President Trump fired two of the three NCUA board members—does this threaten our deposit insurance?  CEO’s answer paraphrased: Your deposit insurance is not threatened, the NCUA board is reduced from three to one member but can continue to take the actions it needs to;  your insurance is federally backed. 

These questions referencing the external environment (taxation, NCUA board firings, bank uncertainties) were an opportunity to educate and prepare members for their critical role in countering these threats.  It was the moment to rally the members with straight talk.  Instead general assurances that everything is OK were given.

To suggest taxation is a just another banker’s campaign is to overlook the entire current context.  True as always, but that is not what is going on that makes this a potential opening now. The response that the firing of two NCUA board members means “business as usual” at NCUA and the NCUSIF, is ill informed or naïve.

Both questions were an opportunity to remind members about credit union uniqueness and why there is a federal tax exemption—the purpose and role of cooperatives in a capitalistic market place.   More vital, this purpose is regulated by a unique dual chartering framework. That system includes insurance fund options that require 1 cent of every member’s savings dollar be sent to capitalize their special cooperative fund.

To blithely assure members their fund and NCUA  function like “business as usual” is to misstate the whole intent behind the board’s two removals.  Moreover, the question of NCUA’s single member board authority is anything but settled.

If this is indeed the view of Patelco’s leadership about DC events, they need to do some homework.  More importantly, their power to address these topics will rely on member awareness and the ability to rally their engagement when needed.

The Bottom Line

Credit unions are different by design until those who lead them cease to believe in that difference.

TowneBank believes in courting and encouraging shareholder engagement. They talk the same language as credit unions about community and customer support.  But they back that community spirit up with invitations and hospitality.

Patelco’s actions speak much louder than the many pages of charts, numbers and operational activity in prepared reports. The annual meeting is not a member’s final exam for the prior year. It should be a celebration of mutual progress.

There has never been a time when acting to support democratic values and practice has been more vital.  Credit unions should be leaders in this affirmation of member-ownership and governance.  Without this effort, credit unions will increasingly be perceived as just another example of self-perpetuating oligarchy at work.

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The Sounds of Silence

Cowardness is contagious.  So is courage.

Last week I received along with others on his distribution list, the following retirement announcement from Joe Adamoli, Office of External Affairs and Communications:

Hello, Chip.  Writing to let you know that I opted in to the NCUA’s deferred resignation program. If you need assistance from NCUA Communications after May 2, please contact Ben Hardaway (bhardaway@ncua.gov).

Fair enough.  Just transitioning responsibilities on his way out the door.

So I followed up with the following query:

Is it possible to set up an interview with anyone still around to get an update on events?

The response hours later from Adamoli was:

Hello, Chip. The NCUA declines the request.

I asked for any “press releases or other announcements about events at NCUA. For example have there been any new hires on Hauptman’s staff?”

No response.   So NCUA leadership is so fearful that they wish to say nothing; or so sure of their role, they are no longer accountable to public discussion.  Or perhaps a combination.

It should be obvious that this is not how a governemtn regulatory agency overseeing a $2.3 trilllion system of cooperative credit for 100 million or more citizens is supposed to behave.  Public dialogue is essential for responsive and accountable agency functioning in a democracy.

This is not primarily about the future of NCUA; rather it is about the future of the independent  member-owned financial system in America.

Some will just want to wait and see, hoping that some confluence of events will protect member’s interest in their institutions.

But if no push back is attempted, we know nothing will happen.  With a challenge, we may not know the outcome, but that is why we must try. Has anyone put forth an action plan on Trump’s takeover of NCUA eight days ago?   It’s time for one.

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“Take Action Now”

That was the request of O Bee Credit Union President Andrew Downin’s recent letter to his members.

Dated April 18, two days after the Trump administration fired the two democratic board members at NCUA, I thought this was fast action.

The immediacy of the situation was different however:

We need your help. 

A proposed change in Olympia (WA) could directly impact O Bee Credit Union and the services we provide to you and our community. A last-minute amendment was added to Senate Bill 5794 that would impose a new tax on not-for-profit, Member-owned credit unions like O Bee. This amendment was introduced without any public input and ignores the real value credit unions provide. 

This new tax would reduce our ability to offer affordable loans, low fees, and financial support to our Members. It’s not just a tax on O Bee – it’s a tax on you, our Member-owners.

The email closes with this request:

TAKE ACTION NOW*
* This link takes you to a trusted website from our partners at GoWest Credit Union Association.

The letter ends with: Thank you for being a part of O Bee Credit Union. Together, let’s stand up for what makes credit unions special.

What Makes Credit Unions Special?

In this event, the credit union threat is from a change in the state’s tax exempt status. There is direct parallel at the federal level.

But threats to credit unions are more than taxation. Last week the Trump administration took over NCUA.  With a single board member whose term expires in four months, the agency will either bow to Caesar or navigate to keep member-owners’ interest first.

If the latter course is followed, it will need the support and engagement of the members. This existential threat may be harder to rally for member action versus opposing taxation,  No one is for taxes.

But it is critical to point out the NCUSIF logo on the credit union’s marketing materials represents a uniquely credit union designed and dedicated cooperative fund.  Even this email includes the words:  Federally Insured by NCUA.

During the Silver State banking crisis in 2023, the credit union community promoted their separate insurance fund as well as the differences in institutional structure and risk versus banks.

Many factors make credit unions special.   For me the most important takeaway from this communication is not the issue of a tax change or  the current Agency takeover in DC, but rather the request for members to act.

It is member involvement that will separate the credit union issues from the transactional lobbying circus in Washington.   O Bee does an excellent job communicating their credit union’s uniqueness in their monthly messages.

This corporate discipline to stay connected with members is a potent power.  This was the first but not the last time members will be asked to take action in the months ahead.