California Coast Credit Union and San Diego County Credit Union (SDCCU) announced merger last year that’s turned into a legal spat

Deal would have created a southern-California powerhouse with $13.5 billion in assets, 65 branches, 600,000 members

As the integration began, SDCCU says it uncovered serious governance and compliance red flags including marketing in Spanish without disclosures in the same language, use of alternative credit scores and more

Cal Coast CEO Todd Lane said “I am a dictator and I run a dictatorship” according to sworn statement by SDCCU Chief Risk Officer Carolyn Kissick

Ms. Kissick also said in a sworn statement that Cal Coast’s Chief Audit & Risk Officer said of Mr. Lane “It doesn’t matter what I say or what I think, he’s going to do what he wants to do.”

SDCCU this week also raised concerns about Cal Coast’s Chief Audit and Risk Officer’s DUI conviction

SDCCU has proposed putting its CEO, Teresa Campbell at the helm and take a 9-2 board majority, which in turn led to lawsuit by Cal Coast attempting to force merger consummation

By John Jannarone

It was supposed to be a picture-perfect marriage of California credit unions. But a breakdown in corporate governance has threatened the tie-up long before they could reach the altar.

That’s the case of San Diego County Credit Union (SDCCU) and smaller peer California Coast Credit Union, which announced a merger that would have created a Golden State powerhouse with $13.5 billion in assets, 65 branches, and 600,000 members. Credit unions operate much like banks, but are effectively owned by members who make deposits.

Unfortunately, SDCCU says it encountered compliance and governance issues as soon as it began to look closely at Cal Coast’s operations. One concern included a marketing campaign in Spanish and failing to furnish contract and disclosure paperwork in the same language.

“The Spanish language issue hits hard,” said former bank regulator and industry veteran David Gibbons, who worked for decades in roles including 27 years at the Office of the Comptroller of the Currency, which oversees national banks and federal savings banks.

He added that processes such as preparing disclosures in the same language as marketing are “not just best practice but good practice.” Mr. Gibbons, who is now CEO of David D. Gibbons & Company, LLC, a consultancy, has served as an expert witness in other matters but isn’t involved in this case.

SDCCU also said it found that certain auto loans were being approved in situations where policy afforded discretion for underwriters to disregard a low FICO credit score when the car dealership provided a higher alternative credit score.