Why is NCUA Overlooking the Biggest Fee of All?

By Frank J. Diekmann

NCUA has made a priority out of the F word in 2024—fees--announcing a special focus on NSF and OD fees this year.  And yet the agency seems to have little interest in the biggest and most egregious fee of all—the “merger” fee that comes when net worth isn’t returned to the people whose money it is in the first place, and it instead goes to insiders—often in amounts a multitude larger than any bounced check fee.

It's sadly ironic that NCUA seems bothered by fees members opt into, but not by a merger fee they don’t seem able to opt out of.

The merger fee is a hidden-in-plain-sight cost to members that is so brazen and increasingly occurring it has entered that dangerous territory of almost being taken for granted, with even those who see it for what it is surrendering with a “whattaya gonna do?” attitude.

And that’s not good for the individual member or the collective credit union community.  Whattaya gonna do? How about something!

It Would Seem Straightforward, But…

It would seem to be a pretty straightforward question, would it not? Whose money is it? 

It’s a query I’ve posted here before, as it’s the one that comes immediately to mind every time CUToday.info publishes its regular reviews of what members are being told by credit unions seeking to merge—and what some others are getting (taking?) out of the proposed combinations. 

The question, of course, is about the capital, the net worth, the credit union’s rainy day fund, if you will. Who owns it? The answer would seem to be screamingly obvious—the member-owners of the credit union. I mean, how often do you hear credit unions and their trade groups stress those words, member-owners? And yet in what is becoming a disturbing, disgusting and I would say for credit unions, embarrassing scenario,  member-ownership apparently only applies so far, and that net worth is often treated as the personal property of insiders in management.

What Review Found

In a two-part series last week, which can be found here and here, CUToday.info offered an update on 22 credit unions that have told members they either just don’t have the gas to make it up the next hill, or that more horsepower is what’s needed to win (or at least stay in) the race.

The Latest Disclosures

Here's some of what CUToday.info found in reviewing the disclosure forms filed with NCUA:

• Enterprise CU in Brookfield, Wis., which is seeking to merge into Credit Union 1 headquartered 200 miles away in Illinois, said if its merger is OK’d CEO Jeff Bashaw is to receive  a bonus of $100,000 at the close of the deal, along with post-merger employment with Credit Union 1 that will include an increase in his current total compensation by $38,000 for a minimum of 10 years, unless terminated for cause. There is also a $110,000 bonus to be paid to the CFO. 
• Also looking to merge into Credit Union 1  is Live Life FCU in Fraser, Mich. If that deal gets the OK, LLFCU President and CEO Karla Haglund will be given a $33,000 increase in annual compensation and a one-time merger bonus of $75,000, while EVP/COO Traoney Harris will receive an annual pay increase of $32,000 and a one-time merger bonus of $10,000. Live Life FCU posted a $213,384 loss for Q1 (after a $231,344 loss at year-end 2023), with net worth of 6.95%. 
• At Member One CU in Virginia, which is looking to combine with Virginia Credit Union to create a $7 billion institution, five executives are to get merger-related comp, including President/CEO Frank Carter, who will become senior executive business advisor to VCU and who will receive a one-time retention bonus of $250,000 if he remains with the CU through the merger’s effective date
• Eastpointe Community CU in Michigan, which aims to become part of FreeStar Financial CU, also in the Wolverine State, posted a $10,803 loss for during Q1. If the merger is approved, ECCU said President/CEO Theresa Hing will receive an increase in base compensation and retirement benefits of $13,440 annually and $240,000, respectively, while COO Dave Lafayette will be paid a retention bonus of $25,000.
• The $65-million Bourns Employees FCU in California, which is to become part of Arrowhead Central CU if members approve, said CEO Edward Casanova is set to receive $110,813 as retention bonus and for PTO payout. BEFCU posted a $168,372 loss as of Q1, following a loss of $463,092 for year-end 2023. It had net worth of 9.82% as of March 31. 
• Shipbuilders Credit Union, which told members a safe harbor can be found in tying up with Kohler Credit Union (both are in Wisconsin), said its CEO, Michael Steimle, has “waived any special compensation” related to the merger, but four other employees would see potential payments. At least Shipbuilders is also planning to distribute $3.8 million of its net worth to members.
• In Minnesota, where Anoka Hennepin CU hopes to combine with Topline Financial Credit Union to create a billion-dollar co-op,  it said five people are to receive bonuses tied to the merger, while CEO Jeff Clausin will receive18 months salary and benefits of worth approximately $427,250 after the date of the merger.

And that is just from our latest batch of reporting. Other CUToday.info reports on credit union mergers have all included similar deals for some management.

(And before you fire up the keyboard with an email or Linked-In Post, yes, in some cases payments are pretty small for retiring managers at smaller CUs who likely sacrificed the larger salaries they could have earned elsewhere during their careers, so I don’t have an issue with that).

Dirty Little Secrets

Here's one of those dirty little secrets that are a secret to exactly no one reading this: Some large CUs aren’t even hiding the offers to smaller CUs anymore—especially if they have aging leadership. “Merge with us, mention something about ‘improved products and services,’ and grab a slice of the net worth pie on your way to Retirement Acres,” some bigger credit unions are all but taking out advertisements to announce.

Meanwhile, when it comes to the reasons given to members for not getting any of their own money back in a merger, even at CUs with overly healthy capital ratios (which, in some cases, had it been invested better in the first place the credit union might not need to merge), are often disingenuous and baffling. One CU, for example, said no distribution was planned in part because of “greater career pathing” for employees. Huh?

Another said it would just turn its capital over to the acquiring CU because the former’s “assets are insignificant in relation” to the latter’s. Oooookkkkaaayyy.

Don’t Know What You Don’t Know

What this entire enterprise counts on, of course, is most CU members don’t know it’s their money in the first place. It’s good, old-fashioned apathy and ignorance. And just like it is in democracy in general, that’s a fail that’s on everyone involved.

Every time I report on this issue I think of a similar scenario. Imagine you belong to a homeowners’ association and the homeowners who bother to vote approve a merger with another nearby association to “achieve scale” or for some other reason that can never really be nailed down. You’ve been dutifully paying into your association’s joint reserves for years, when the management of the association says it will be paying itself a hefty bonus from those reserves if the merger is approved.

Neither you or anyone else would ever stand for that cash grab, and CU members shouldn’t either.

Not All Bad News

It’s isn’t all bad news; some CUs still act like credit unions. I would be remiss were I not to note that during the same week CUToday.info was providing its newest update on mergers, Bessemer System FCU in Greenville, Penn. said it would be awarding a $100 one-time special dividend to each active member in good standing to “celebrate the credit union’s recent successes,” which will mean more than $330,000 infused into the local community.

Remaining Seated

Kudos to Bessemer System FCU for standing up for its member-owners. But who will stand up for those who basically don’t know to stand up for themselves?  It won’t be the trade associations, where increasingly higher-paid leadership needs those dues checks to keep arriving. So, instead, they point everyone toward “advocacy.”

And it won’t be the regulators. NCUA and state regulators have spoken by not speaking. Hey, doing the right thing isn’t a field on the 5300, and CAMELS isn’t an abbreviation for Capital AWOL, Members Expected to Lose Savings, right?

Perhaps not taking a stance is technically right in terms of the Federal Credit Union Act and state statutes, but it’s wrong for another more important reason: credit unions without credit unionism will eventually fade away, and who will need a regulator then? 

Or, perhaps I’m not seeing the real government brilliance here: if there aren’t any credit unions remaining, they won’t be able to charge those NSF fees any longer. Mission accomplished.

Frank J. Diekmann is Cooperator in Chief of CUToday.info and can be reached at Frank@CUToday.info. Mr. Diekmann is also author of  several new book, including the brand new “The Last Lyric,” a humorous satire about a murder investigation at the Rock & Roll Hall of Fame in which every line of dialogue is either a classic pop/rock song title or lyric. Available on Amazon, Apple iBook, Barnes & Noble and Smashwords.  Mr. Diekmann is also author of a non-fiction compilation of the very best & worst he has seen and heard in covering more than 500 CU meetings and conferences, “501 Name Tags: How Everything You Need to Know About Business Can Be Learned at a Conference & Forgotten in the Trade Show.” It is available on Amazon, Barnes & Noble, Apple, Lulu, and Smashwords.