WASHINGTON — Two attorneys said a newly proposed rule by the National Credit Union Administration are offering their insights in response to an NCUA proposal that would make it easier for credit unions seeking to merge into banks.
In an analysis published by Law360, attorneys Christopher J. Pippett and Madison S. Ott of Fox Rothschild LLP said the NCUA’s proposed amendments to Title 12, Part 708a, Subpart C, would modernize and streamline rules governing federally insured credit union mergers into banks for the first time in more than 15 years.
The CU Daily has coverage of the NCUA proposal and additional details here.
According to the authors, the proposal is “narrow in scope,” but could indicate the NCUA is willing to revisit regulations that have long been considered settled.
Pippett and Ott wrote that the existing framework was established in 2010 following concerns within the credit union industry that some charter conversions were driven more by executive and board enrichment than member interests. They said the rules imposed extensive disclosure, valuation and voting requirements under NCUA oversight, effectively slowing the conversion process.
‘Effectively Dormant’
The attorneys noted that the conversion pathway “went effectively dormant,” with the first such transaction in nearly two decades not closing until March 2025, when Thrivent Federal Credit Union merged into Thrivent Bank. According to the authors, the transaction required four years and approvals from three federal and state agencies.
Pippett and Ott said the proposed amendments would preserve substantive member protections, including member voting requirements, merger value determinations, notices of intent to merge and due diligence obligations, while eliminating or revising procedural requirements the NCUA considers outdated.
Changes Highlighted
Among the proposed changes highlighted by the authors:
- Removing rigid formatting requirements for “clear and conspicuous” disclosures, including minimum font-size rules
- Replacing newspaper publication requirements for prevote notices with digital posting requirements on member home banking landing pages, while retaining lobby and website postings
- Eliminating requirements that boards detail how they identified and negotiated with merger partners, which the NCUA described as “overly intrusive.”
- Removing prescriptive notice package formatting requirements and redundant plain-language mandates
- Eliminating nonbinding voting guidance contained in Section 708a.312 because, according to the NCUA, advisory guidance embedded in regulations can blur the distinction between mandatory and recommended practices.
The attorneys also said the proposal comes as the credit union industry continues to experience consolidation and as more credit unions pursue growth strategies that include acquiring banks.
According to Pippett and Ott, rising compliance costs and increasing technology investments have contributed to consolidation trends across the industry. They wrote that while the proposed amendments are incremental and have been characterized by both the Office of Management and Budget and the NCUA as deregulatory and not significant, the broader importance may lie in what the proposal signals about the agency’s future direction.
Part of Broader Deregulatory Efforts
The attorneys said the proposal aligns with broader federal deregulatory efforts reflected in Executive Order No. 14192 and could encourage renewed interest in bank conversion transactions among credit unions facing capital constraints or evaluating strategic alternatives.
Pippett and Ott noted that bank charters provide capabilities unavailable to credit unions, including the ability to raise capital through equity issuance. They said a streamlined regulatory process could make conversion transactions more viable for some institutions.
At the same time, the attorneys emphasized that key member protections would remain in place, including independent merger valuations and disclosure of merger-related compensation for directors and senior management officials.
Specific Feedback Requested
The authors noted that the comment period on the proposal runs for 60 days following publication and that the NCUA has specifically requested feedback on whether supervisory committees should play a supplemental role in reviewing mergers.
Pippett and Ott said credit unions considering strategic transactions should closely monitor the rulemaking process, while cautioning that mergers involving banks and credit unions would remain complex, multiagency transactions requiring significant regulatory engagement.
