Charter and Bylaws; One Member, One Vote

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 544

[No. 98-89]

RIN 1550-AB17

Charter and Bylaws; One Member, One Vote

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is amending its

regulations on federal mutual savings association charters. The

amendment expands the range of votes a federal mutual savings

association may allow a member to cast on issues requiring action by

the members of the association from the current 50 to 1000 votes to one

to 1000 votes per member. This amendment adds flexibility to the

federal mutual charter, and allows a federal mutual savings association

to adopt a charter providing for ``one member, one vote.''

EFFECTIVE DATE: August 31, 1998.

FOR FURTHER INFORMATION CONTACT: Diana L. Garmus, Director, Corporate

Activities Division (202/906-5683); David A. Permut, Counsel (Banking

and Finance) (202/906-7505) or Kevin A. Corcoran, Assistant Chief

Counsel for Business Transactions (202/906-6962), Business Transactions

Division, Chief Counsel's Office, Office of Thrift Supervision, 1700 G

Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

Various depository institutions have expressed interest in

converting to a federal mutual savings association charter,1

but requested the right to retain existing voting procedures following

the conversion. Several credit unions with membership voting rights of

one vote per member, for example, have asked to retain their current

voting provisions upon their conversions to federal charter. On April

14, 1998, the OTS issued a Notice of Proposed Rulemaking (``NPR'') that

would provide such flexibility for mutual financial institutions,

including credit unions, that wish to convert to the federal mutual

charter.2

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\1\ Section 2(5) of the Home Owners' Loan Act defines federal

savings associations to include federal savings associations and

federal savings banks. Accordingly, references to federal savings

associations include federal savings banks.

\2\ 63 FR 18149 (April 14, 1998).

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The OTS has long taken the position that depository institutions

should be free to operate under whatever charter best suits their

business needs, consistent with safety and soundness. Federal savings

associations may operate under a stock charter or mutual charter.

Within each charter, the OTS permits variations. For example, Federal

mutual savings associations have varying voting provisions (e.g., 50

votes per member, 400 votes per member or 1000 votes per member), often

based upon the rules in effect when they obtained their charters. The

NPR proposed to permit federal mutual associations to expand the

permissible range of votes allowed per member from one to 1000, rather

than the current range of 50 to 1000.

II. Summary of Comments and Description of Final Rule

The public comment period on the NPR closed on June 15, 1998. Three

commenters, all trade associations, responded to the proposal. Two were

in favor of the proposal and one opposed it. The favorable comments

agreed that the proposal would add flexibility to the federal mutual

charter and would put credit unions on an equal footing with state

chartered mutuals that convert to a federal charter. One commenter

pointed out that adoption of the amendment would remove one of the

perceived barriers to the conversion of a credit union to a federal

mutual association.

The trade association opposing the amendment argued that the one

member, one vote provisions are unique characteristics of credit

unions, which should be maintained. In addition, the commenter noted

that the proposed rule would jeopardize the one member, one vote

principle because a converted institution could easily amend its

charter, without OTS approval following the conversion. This trade

association questioned the timing of the proposal and argued that the

rule should be delayed until Congress had an opportunity to respond to

the February 25, 1998 Supreme Court ruling overturning the National

Credit Union Administration's (``NCUA'') actions permitting multiple

common bonds for credit unions.3 The trade association also

asserted the board of directors and management of credit unions may

seek to convert to federal association charter solely for their own

personal enrichment. As a result, the trade association urged the OTS

to require a converting credit union to wait a

[[Page 46160]]

minimum of seven years after conversion to federal mutual form before

it may convert to federal stock form.

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\3\ National Credit Union Administration v. First National Bank

& Trust Co., 118 S.Ct. 927 (1998).

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The OTS is aware of no reason why credit unions should be the only

type of depository institution to permit a one vote per member

arrangement. In response to the comment that the one member, one vote

principle is jeopardized by the ease of later amending the federal

charter, the OTS believes that members of a federal mutual association

should continue to have the right to change the number of votes per

member if they wish.

Further, the OTS is aware of no reason to delay its regulation.

Legislation has been enacted in response to the Supreme Court

ruling.4 In addition, the OTS has seen no mass influx of

credit unions seeking to become federal thrifts. Only seven credit

unions have applied to convert to a federal mutual charter in the last

eighteen months. (During the same period of time, ten commercial banks

applied to convert to federal savings associations.)

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\4\ On August 7, 1998 the President signed Pub. L. 105-219 which

mitigated the impact of the Supreme Court decision by allowing

occupation-based credit unions to accept members from unrelated

companies with fewer than 3000 employees.

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Finally, the OTS believes that restricting converting credit unions

from converting to stock for a number of years is beyond the scope of

the proposal and would be more appropriately raised in response to

planned revisions to the Part 563b mutual to stock conversion

regulations.

The OTS is adopting the amendment as proposed. The amendment will

permit mutual depository institutions that are converting to federal

savings associations to retain the one vote per member provision in

their current charters, and will permit other converting institutions,

as well as existing federal mutual savings associations, to adopt a one

vote per member provision.

The Final Rule will amend 12 CFR 544.2(b)(4) to permit federally

chartered mutual savings associations to set the number of votes per

member within the range of 1 to 1,000, rather than the current range of

50 to 1,000. New federal mutual savings associations may include this

provision in their initial federal thrift charter. Existing federal

mutual associations may amend their charters under the prescribed

regulatory procedures.5 Specifically, an institution must:

(i) Obtain a board of directors' resolution adopting the amendment,

(ii) obtain a favorable vote by the members, and (iii) notify the OTS

of the adoption at least 30 days prior to the effective date of the

proposed amendment. Unless the OTS notifies the institution of its

objection to the proposed amendment within that 30 days, the amendment

is automatically approved.

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\5\ 12 CFR 544.2(b) (1998).

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III. Executive Order 12866

The Director of the OTS has determined that this final rule does

not constitute a ``significant regulatory action'' for the purposes of

Executive Order 12866.

IV. Regulatory Flexibility Act Analysis

Under Section 605(b) of the Regulatory Flexibility Act, the OTS

certifies that this proposal will not have a significant economic

impact on a substantial number of small entities. Small entities

utilizing the regulation may be able to retain their existing

membership rights, which will simplify the process of converting to a

federal charter and reduce regulatory burden.

V. Unfunded Mandates Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L.

104-4 (Unfunded Mandates Act), requires that an agency prepare a

budgetary impact statement before promulgating a rule that includes a

federal mandate that may result in expenditures by state, local, and

tribal governments, in the aggregate, or by the private sector, or $100

million or more in any one year. If a budgetary impact statement is

required, Section 205 of the Unfunded Mandates Act also requires an

agency to identify and consider a reasonable number of regulatory

alternatives before promulgating a rule. The OTS has determined that

the proposed rule will not result in expenditures by state, local, or

tribal governments or by the private sector of $100 million or more.

Accordingly, this rulemaking is not subject to Section 202 of the

Unfunded Mandates Act.

VI. Effective Date

The OTS has determined that there is good cause to dispense with a

30-day delayed effective date under 5 U.S.C. 553(d)(3). The amendment

permits federal mutual savings associations and depository institutions

converting their charters to federal mutual savings association charter

to add flexibility to existing voting arrangements or retain current

voting rights. The OTS believes the change does not have an adverse

impact on savings associations because it reduces regulatory burden.

Moreover, the substantive change to the regulations has already been

made available to requesting converting depository institutions on a

case-by-case basis. OTS-regulated institutions will not require

additional time to adjust their policies or practices to comply with

the rule.

The OTS has also determined, for the reasons stated in the

preceding paragraph, that good cause exists to adopt an effective date

that is before date that would otherwise be required by section 302 of

CDRIA (i.e., the first day of the calendar quarter after the date of

publication).

List of Subjects in 12 CFR Part 544

Bylaws, Charters, Reporting and recordkeeping requirements, Savings

associations.

Accordingly, the Office of Thrift Supervision proposes to amend

chapter V, title 12, Code of Federal Regulations, as set forth below.

PART 544--CHARTER AND BYLAWS

1. The authority citation for part 544 continues to read as

follows:

Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et

seq.

2. Section 544.2 is amended by revising the last sentence of

paragraph (b)(4) to read as follows:

Sec. 544.2 Charter amendments.

* * * * *

(b) * * *

(4) * * * [Fill in a number from 1 to 1000.]

* * * * *

Dated: August 25, 1998.

By the Office of Thrift Supervision.

Ellen Seidman,

Director.

[FR Doc. 98-23281 Filed 8-28-98; 8:45 am]

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