ALEXANDRIA, Va. – NCUA on Wednesday ruled it can approve a charter change for a healthy credit union in order to facilitate its merger with another healthy credit union.

The ruling, in a new legal opinion letter signed by NCUA General Counsel Michael McKenna, means NCUA has the discretion to approve a voluntary merger of two healthy multiple common-bond credit unions. Under previous practice, NCUA would approve mergers of two credit unions of disparate fields of membership only if one was troubled.

NCUA has discretion under the Federal CU Act to approve a change to a credit union’s charter to facilitate a voluntary merger with another healthy credit union, wrote McKenna in the new ruling. “The FCUA expressly authorizes NCUA to approve credit union charters and subsequent conversions of those charters. It also provides NCUA authority to approve the voluntarily merger of credit unions. Taken together, these statutory provisions provide the authority to NCUA to permit charter conversions to facilitate subsequent mergers.”

The practice has been unsuccessfully challenged in court by the American Bankers Association, which asserts the provision in NCUA’s rule permitting the voluntary merger of healthy multiple common-bond credit unions containing select groups of less than 3,000 members violates provisions of the 1998 CU Membership Access Act.

The ABA argued the provision violated CUMAA’s mandate that, whenever practicable and reasonable, NCUA should encourage the formation of separately chartered credit unions. But a federal court ruled CUMAA’s mandate to encourage separate credit unions likely applied only to the “expansions” of existing credit unions affected by the addition of a single group, and not to mergers of multiple common-bond credit unions consisting of many groups.


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