NCUA’s one-member board liquidates two failed credit unions

Kyle Hauptman, the president of the National Credit Union Administration, voted to liquidate two troubled credit unions, a move that has raised procedural questions since Hauptman alone does not constitute a quorum of the NCUA board. 

On Tuesday, the NCUA placed Aldersgate Federal Credit Union — a $10.3-million asset credit union operated by a unit of the United Methodist Church in Marion, Illinois — into liquidation. 

That action comes on the heels of the NCUA closing the $173 million-asset Butler Heritage Federal Credit Union, in Middletown, Ohio, and arranged for the sale of some assets and transfer of share accounts to the Cincinnati Ohio Police Federal Credit Union. NCUA said there was no interruption to members’ services at both credit unions. Butler Heritage FCU had been placed into conservatorship in January and was liquidated on June 30. 

The credit union failures are the first since President Donald Trump fired two Democrats on the NCUA board, leaving Hauptman — a republican — as the sole board member of the three-person NCUA board. The fired NCUA members, Todd Harper and Tanya Otsuka, are suing to be reinstated to their jobs. 

Under the Trump administration, NCUA has adopted the position that only one board member is needed to constitute a quorum — an issue in dispute by some legal experts.

The NCUA said the decision to liquidate Aldersgate was made quickly after the regulator determined that “the credit union was insolvent and had no prospect for restoring viable operations.” 

Aldersgate, with just 811 members, violated numerous provisions of the Federal Credit Union Act as well as NCUA rules and regulations including “operating in an unsafe and unsound manner,” the NCUA said. Two weeks ago, the NCUA placed Aldersgate into conservatorship. 

Mark Treichel, CEO of Credit Union Exam Solutions LLC, who served as executive director of NCUA for more than a decade, said the Federal Credit Union Act required that the board take action.

“It is the first time that there’s only been one board member, at least since 1986,” Treichel said. Hauptman “had to vote for the liquidation because the board is not allowed to delegate” such actions, he said. 

Aldersgate was created in 1962 to serve church members, employees, local pastors, clergy and ministers of the Illinois Great Rivers Conference of the United Methodist Church. It had assets of $10.6 million, according to its most recent call report, which listed $10.3 million in consumer loans and $260,000 in cash as of March 31.

The credit union raised red flags by listing zero delinquencies and charge-offs for loans in the past five years, which Treichel called “almost a mathematical impossibility.” 

“It was quick, and they moved to take it over and liquidate it,” he said. 

NCUA has adopted the position that only one board member is needed to constitute a quorum. In April, after Trump fired the Democratic board members, NCUA issued a press release claiming that there was precedent and “standing delegations of authority in place” for a single board member to perform all operational and statutory requirements.

The NCUA has claimed that during the Bush administration, then-chairman Dennis Dollar acted as a sole board member in which he held a board meeting, voted, and took several actions, both administrative and operational. NCUA quoted Dollar as saying that in 2002, the regulator established the precedent “that the chairman can act as the board.”

Tim Oppelt, a partner at Styskal, Wiese & Melchione, LLP in Glendale, California, said NCUA is doing what it needs to do to manage the credit union financial system even though many disagree that a single member makes a quorum. 

The decision to liquidate Aldergate “probably is not overly controversial if the credit union was insolvent,” Oppelt said. “But from the perspective of the rule of law, the NCUA continuing to operate with a one-person board is troubling.”

“There is a lot that happens in credit union land that doesn’t happen in other places, and it’s a small enough town that there isn’t a big fight about it,” he said.

When a credit union is taken over, the company’s management has 10 days to file a lawsuit arguing that the action was arbitrary and capricious under the Administrative Procedure Act, Treichel said. NCUA also conducts a post-mortem review. Typically with a liquidation, the NCUA staff and a regional office, plus the office of general counsel, make a recommendation to the board, which then votes on the issue. 

Hauptman has served as the NCUA’s vice chairman since 2020 and was named chair by Trump in January. He previously was an economic policy advisor to Sen. Tom Cotton, R-Ark., and a staff director on the Senate Banking Committee’s subcommittee on economic policy. He served on President Trump’s transition team in 2016.

Because a quorum requires a minimum number of members to be present to make the proceedings valid, several lawyers said that a meeting of one member doesn’t meet the requirements.

Asked if one member meets the definition of a quorum, Oppelt responded: “No. I believe strongly in the English language.”