Conversion of Insured Credit Unions to Mutual Savings Banks

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708a

Conversion of Insured Credit Unions to Mutual Savings Banks

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: The NCUA is revising its rules that govern the conversion of

insured credit unions to mutual savings banks or savings associations,

if the savings associations are in mutual form. These revisions will

simplify the charter conversion process and reduce regulatory burden

for insured credit unions that choose to convert. NCUA is making these

revisions in compliance

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with recent federal legislation that mandates such revisions.

DATES: This rule is effective November 27, 1998. Comments must be

received on or before February 25, 1999.

ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail

or hand-deliver comments to: National Credit Union Administration, 1775

Duke Street, Alexandria, Virginia 22314-3428. Fax comments to (703)

518-6319. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney,

Division of Operations, Office of General Counsel, at the above address

or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

The Credit Union Membership Access Act (the Membership Access Act)

was enacted into law on August 7, 1998. Public Law 105-21. Section 202

of the Membership Access Act amends the provisions of the FCU Act

concerning conversion of insured credit unions to mutual savings banks

or mutual savings associations. Pursuant to the amendments, NCUA is

required to promulgate final rules regarding charter conversions within

six months that are: (1) consistent with the Membership Access Act; (2)

consistent with the charter conversion rules promulgated by other

financial regulators; and (3) no more or less restrictive than rules

applicable to charter conversions of other financial institutions.

Accordingly, NCUA is revising part 708a to implement the provisions of

Sec. 202 of the Membership Access Act. NCUA does not interpret the

Membership Access Act to preclude state regulatory authorities from

imposing more restrictive charter conversion rules on federally insured

state-chartered credit unions.

Interim Final Rule

The NCUA Board is issuing this rule as an interim final rule

because there is a strong public interest in having rules in place

consistent with the requirements of Sec. 202 of the Membership Access

Act. If this rule were not effective immediately, there would be no

such rule in place to process credit union conversions to mutual

savings banks. Accordingly, for good cause, the Board finds that,

pursuant to 5 U.S.C. 553(b)(3)(B), notice and public procedures are

impracticable, unnecessary, and contrary to the public interest; and,

pursuant to 5 U.S.C. 553(d)(3), the rule shall be effective immediately

and without 30 days advance notice of publication. Although the rule is

being issued as an interim final rule and is effective immediately, the

NCUA Board encourages interested parties to submit comments.

Section by Section Analysis

Section 708a.1 Definitions

This section defines a number of terms used throughout part 708a.

Although the former part 708a did not contain a section specifically

designated for definitions, former Sec. 708a.2(c)(2) defined ``senior

management official.'' Revised Sec. 708a.1 expands on that definition

to include, at the end of the definition, the phrase ``and any other

senior executive officer as defined by the appropriate federal banking

agency pursuant to section 32(f) of the Federal Deposit Insurance

Act.'' 12 U.S.C. 1831i(f).

Section 708a.2 Authority to Convert

This section restates a portion of the Membership Access Act that

provides an insured credit union may convert to a mutual savings bank

or a savings association that is in mutual form without the prior

approval of NCUA. Although the Membership Access Act eliminates the

need for credit unions to obtain NCUA's prior approval, it requires

NCUA to administer the membership vote. Also, the vote must be verified

by the federal or state agency having jurisdiction over the credit

union after the conversion. As provided in Sec. 708a.7 discussed below,

if NCUA disapproves of the methods or procedures applicable to the

membership vote, it may require that another vote be taken. This

section also states that conversions require the approval of the credit

union's members and are subject to the laws governing mutual savings

banks and savings associations and the other requirements of this part.

Section 708a.3 Board of Directors and Membership Approval

This section provides that the board of directors must approve the

proposal to convert by a majority vote and must set a date for a

membership vote on the proposal. Membership approval requires an

affirmative vote of a majority of those members who vote on the

proposal. Former Sec. 708a.5 required a majority vote of the entire

membership, not just a majority of those members choosing to vote. The

former requirements for NCUA approval of a detailed plan and disclosure

statement have been deleted.

Section 708a.4 Voting Procedures

This section sets out the voting and notice requirements for the

membership vote on the proposal to convert. It provides that members

eligible to vote on the proposal to convert may do so in person at the

meeting designated for the vote on the proposal or by written ballot

filed by the member. It also provides that the credit union must

provide members with notice to the members 90, 60, and 30 calendar days

before the date of the vote and a ballot not less than 30 calendar days

before the date of the vote. This section describes the basic

requirements for the content of the notice, namely, that the notice

must adequately state the purpose and subject matter of the proposal

and inform members that they may vote either at the meeting or by

submission of a written ballot. The notice must set out the date, time,

and place for the meeting.

Section 708a.5 Notice to NCUA

This section requires the credit union to provide NCUA with notice

of its intent to convert during the 90 calendar day period preceding

the date for the membership vote. A credit union may fulfill this

notification requirement by providing the NCUA a letter describing the

material features of the conversion or a copy of the filing made with

another federal or state regulatory agency seeking that agency's

approval of the conversion. With the notice to NCUA, a credit union

must include a copy of the notice, ballot and all other written

materials it has provided or intends to provide to members so that NCUA

can fulfill its oversight responsibility regarding the methods and

procedures of the membership vote. If it chooses, a credit union may

provide notice of intent to convert prior to the 90 calendar day period

preceding the membership vote. If a credit union submits its notice of

intent early, the Regional Director will review it and let the credit

union know within 30 calendar days if there is a problem with the

methods and procedures for the membership vote. This preliminary review

is intended to provide time to credit unions, for example, to correct

any defects in the notice to members or other problems in connection

with the proposed membership vote. In any event, the credit union will

still have to comply with the requirement of verifying the membership

vote once it is taken and the Regional Director will still have the

right to require a new vote if it is determined that the methods and

procedures of the membership vote were not conducted properly.

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Section 708a.6 Certification of Vote on Conversion Proposal

This section requires the board of directors of the converting

credit union to certify to NCUA the results of the membership vote

within 10 calendar days after the vote is taken. The board of directors

is also required at this time to certify that all notices, ballots and

other written materials provided to members were identical to those

submitted to NCUA pursuant to Sec. 708a.5 or to provide copies of any

new or revised materials and an explanation of the reason for the

changes.

Section 708a.7 NCUA Oversight of Methods and Procedures of Membership

Vote

The Membership Access Act specifically requires NCUA to participate

in the conversion process by overseeing the membership vote concerning

the charter conversion. This oversight function centers on reviewing

the methods by which the membership vote was taken and the procedures

applicable to the membership vote. The Membership Access Act provides

that if, upon review of the membership vote, NCUA disapproves of the

methods by which the vote was taken or the procedures applicable to the

membership vote, then NCUA is authorized to direct a new membership

vote be taken on the proposal to convert. NCUA interprets ``methods and

procedures'' of the membership vote to include determining that the

notice that the credit union sends to its members is accurate and not

misleading, that all required notices were timely, and that the

membership vote was conducted in a fair and legal manner.

This section provides that, once the Regional Director receives a

certification from the converting credit union of the results of the

membership vote, the Regional Director will have 10 calendar days to

issue a determination regarding the methods and procedures applicable

to the membership vote. This section also sets out that the Regional

Director's review of the methods and procedures will consider whether

the notice was accurate and not misleading, that all required notices

were provided and that the membership vote was conducted in a fair and

legal manner.

Section 708a.8 Other Regulatory Oversight of Methods and Procedures of

Membership Vote

The Membership Access Act requires the federal or state regulatory

agency that will have jurisdiction over the financial institution after

conversion to verify the membership vote, and has authorized that

agency to direct a new membership vote be taken on the proposal to

convert if it disapproves of the methods by which the vote was taken or

the procedures applicable to the membership vote.

Section 708a.9 Completion of Conversion

This section provides that upon receipt of the approvals discussed

in Sec. 708a.7 and Sec. 708a.8, the credit union may complete the

conversion transaction. The board of directors of the newly chartered

mutual savings bank or mutual savings association is required to

certify completion of the conversion transaction to NCUA within 30

calendar days of the effective date of the conversion. Upon receipt of

such certification, the NCUA will cancel the credit union's insurance

certificate and federal charter, if applicable.

Section 708a.10 Limit on Compensation of Officials

This section provides that directors and senior management

officials of a credit union may not receive any economic benefit from

the conversion of their credit union other than compensation and

benefits paid to them in the ordinary course of business. This section

is intended to insure that decisions to convert are based on proper and

appropriate business judgment.

Regulatory Procedures

Regulatory Flexibility Act

The Regulatory Flexibility Act requires NCUA to prepare an analysis

to describe any significant economic impact any proposed regulation may

have on a substantial number of small entities (primarily those under

$1 million in assets). The NCUA has determined and certifies that this

interim rule will not have a significant economic impact on a

substantial number of small credit unions. Accordingly, the NCUA has

determined that a Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

The NCUA Board has determined that the notice and disclosure

requirements in part 708a constitute a collection of information under

the Paperwork Reduction Act. NCUA is submitting a copy of this interim

final rule to the Office of Management and Budget (OMB) for its review.

The interim final rule requires an insured credit union that

intends to convert to a mutual savings bank or savings association to

provide notice and disclosure of its intent to convert to its members

and NCUA. It also requires the credit union to provide additional

information to NCUA at various points in the conversion process. These

notice and disclosure requirements are mandated by the Membership

Access Act. They are also necessary to insure safety and soundness in

the credit union industry, and to protect the interests of credit union

members in the charter conversion context.

The NCUA Board estimates that it will take an average of 15 to 20

hours to comply with the notice and disclosure requirements of part

708a. The NCUA Board also estimates that fewer than 10 insured credit

unions will convert per year, so that the total annual collection

burden is estimated to be no more than 200 hours.

The Paperwork Reduction Act of 1995 and OMB regulations require

that the public be provided an opportunity to comment on information

collection requirements, including an agency's estimate of the burden

of the collection of information. The NCUA Board invites comment on:

(1) whether the collection of information is necessary; (2) the

accuracy of NCUA's estimate of the burden of collecting the

information; (3) ways to enhance the quality, utility, and clarity of

the information to be collected; and (4) ways to minimize the burden of

collection of information. Comments should be sent to: OMB Reports

Management Branch, New Executive Office Building, Room 10202,

Washington, D.C. 20503; Attention: Alex T. Hunt, Desk Officer for NCUA.

Please send NCUA a copy of any comments you submit to OMB.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. The final rule, as does the current rule,

applies to all federally insured credit unions, including federally

insured state chartered credit unions. However, since the final rule

reduces regulatory burden, NCUA has determined that the final rule does

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

Executive Order.

Small Business Regulatory Enforcement Fairness Act

The Small Business Regulatory Enforcement Fairness Act of 1996

(Pub. L. 104-121) provides generally for congressional review of agency

rules. A reporting requirement is triggered in instances where NCUA

issues a final rule as defined by Section 551 of the Administrative

Procedures Act. 5 U.S.C. 551. The Office of Management and Budget is

reviewing this rule to determine whether it is major for

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purposes of the Small Business Regulatory Enforcement Fairness Act of

1996.

List of Subjects in 12 CFR Part 708a

Charter conversions, Credit unions.

By the National Credit Union Administration Board on November

19, 1998.

Becky Baker,

Secretary of the Board.

For the reasons set forth above, 12 CFR part 708a is revised to

read as follows:

PART 708a--CONVERSION OF INSURED CREDIT UNIONS TO MUTUAL SAVINGS

BANKS

Sec.

708a.1 Definitions.

708a.2 Authority to convert.

708a.3 Board of directors and membership approval.

708a.4 Voting procedures.

708a.5 Notice to NCUA.

708a.6 Certification of vote on conversion proposal.

708a.7 NCUA oversight of methods and procedures of membership vote.

708a.8 Other regulatory oversight of methods and procedures of

membership vote.

708a.9 Completion of conversion.

708a.10 Limit on compensation of officials.

Authority: 12 U.S.C. 1766, 12 U.S.C. 1785(b).

Sec. 708a.1 Definitions.

As used in this part:

(a) Credit union has the same meaning as insured credit union in

section 101 of the Federal Credit Union Act.

(b) Mutual savings bank and savings association have the same

meaning as in section 3 of the Federal Deposit Insurance Act.

(c) Federal banking agencies has the same meaning as in section 3

of the Federal Deposit Insurance Act.

(d) Senior management official means a chief executive officer, an

assistant chief executive officer, a chief financial officer, and any

other senior executive officer as defined by the appropriate federal

banking agency pursuant to section 32(f) of the Federal Deposit

Insurance Act, 12 U.S.C. 1831i(f).

Sec. 708a.2 Authority to convert.

An insured credit union, with the approval of its members, may

convert to a mutual savings bank or a savings association that is in

mutual form without the prior approval of the NCUA, subject to

applicable law governing mutual savings banks and savings associations

and the other requirements of this part.

Sec. 708a.3 Board of directors and membership approval.

(a) The board of directors must approve a proposal to convert by

majority vote and set a date for a vote on the proposal by the members

of the credit union.

(b) The membership must approve the proposal to convert by the

affirmative vote of a majority of those members who vote on such

proposal.

Sec. 708a.4 Voting procedures.

(a) A member may vote on the proposal to convert in person at a

special meeting held on the date set for the vote or by written ballot

filed by the member.

(b) A credit union that proposes to convert must provide written

notice of its intent to convert to each member who is eligible to vote

on the conversion. The notice to members must be sent by registered,

certified, or regular mail with postage prepaid and postmarked 90

calendar days, 60 calendar days, and 30 calendar days before the date

of the membership vote on the conversion and a ballot must be sent not

less than 30 calendar days before the date of the vote.

(c) The notice to members must adequately describe the purpose and

subject matter of the vote to be taken at the special meeting or by

submission of the written ballot. The notice must clearly inform the

member that the member may vote at the special meeting or by submitting

the written ballot. The notice must state the date, time, and place of

the meeting.

Sec. 708a.5 Notice to NCUA.

(a) The credit union must provide the Regional Director for the

region where the credit union is located with notice of its intent to

convert during the 90 calendar day period preceding the date of the

membership vote on the conversion.

(b) The credit union must give notice to the Regional Director by

providing a letter describing the material features of the conversion

or a copy of the filing the credit union has made with another federal

or state regulatory agency in which the credit union seeks that

agency's approval of the conversion. The credit union must include with

the notice to the Regional Director a copy of the notice the credit

union provides to members under Sec. 708a.4, as well as, the ballot

form and all written materials the credit union has distributed or

intends to distribute to the members.

(c) If it chooses, the credit union may provide the Regional

Director notice of its intent to convert prior to the 90 calendar day

period preceding the date of completion of the conversion. In this

case, the Regional Director will make a preliminary determination

regarding the methods and procedures applicable to the membership vote.

The Regional Director will notify the credit union within 30 calendar

days of receipt of the credit union's notice of intent to convert if

the Regional Director disapproves of the proposed methods and

procedures applicable to the membership vote. The credit union's prior

submission of the notice of intent does not relieve the credit union of

its obligation to certify the results of the membership vote required

by Sec. 708a.6 or eliminate the right of the Regional Director to

disapprove the actual methods and procedures applicable to the

membership vote if the credit union fails to conduct the membership

vote in a fair and legal manner.

Sec. 708a.6 Certification of vote on conversion proposal.

The board of directors of the converting credit union must certify

the results of the membership vote to the Regional Director within 10

calendar days after the vote is taken. The board of directors must also

certify at this time that the notice, ballot and other written

materials provided to members were identical to those submitted

pursuant to Sec. 708a.5 or provide copies of any new or revised

materials and an explanation of the reasons for the changes.

Sec. 708a.7 NCUA oversight of methods and procedures of membership

vote.

(a) The Regional Director will issue a determination that the

methods and procedures applicable to the membership vote are approved

or disapproved within 10 calendar days of receipt from the credit union

of the certification of the result of the membership vote required

under Sec. 708a.6.

(b) If the Regional Director disapproves of the methods by which

the membership vote was taken or the procedures applicable to the

membership vote, the Regional Director may direct that a new vote be

taken.

(c) The Regional Director's review of the methods by which the

membership vote was taken and the procedures applicable to the

membership vote includes determining that the notice to members is

accurate and not misleading, that all notices required by this section

were timely, and that the membership vote was conducted in a fair and

legal manner.

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Sec. 708a.8 Other regulatory oversight of methods and procedures of

membership vote.

The federal or state regulatory agency that will have jurisdiction

over the financial institution after conversion must verify the

membership vote and may direct that a new vote be taken, if it

disapproves of the methods by which the membership vote was taken or

the procedures applicable to the membership vote.

Sec. 708a.9 Completion of conversion.

(a) Upon receipt of approvals under Sec. 708a.7 and Sec. 708a.8 of

this part, the credit union may complete the conversion transaction.

(b) Within 30 calendar days after the effective date of the

conversion, the board of directors of the mutual savings bank or mutual

savings association must certify completion of the transaction to the

Regional Director. NCUA will cancel the insurance certificate of the

credit union and, if applicable, the charter of the federal credit

union.

Sec. 708a.10 Limit on compensation of officials.

No director or senior management official of an insured credit

union may receive any economic benefit in connection with the

conversion of the credit union other than compensation and other

benefits paid to directors or senior management officials of the

converted institution in the ordinary course of business.

[FR Doc. 98-31599 Filed 11-25-98; 8:45 am]

BILLING CODE 7535-01-U