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: Final rule.

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SUMMARY: The NCUA is issuing a final rule that revises its rules

governing the conversion of insured credit unions to mutual savings

banks or mutual savings associations. These revisions simplify the

charter conversion process and reduce regulatory burden for insured

credit unions that choose to convert. NCUA is making these revisions in

compliance with federal legislation that mandates such revisions.

DATES: This rule is effective June 28, 1999.

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

Division of Operations, Office of General Counsel, (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

The Credit Union Membership Access Act (CUMAA) was enacted into law

on August 7, 1998. Public Law 105-21. Section 202 of CUMAA amends the

provisions of the Federal Credit Union (FCU) Act concerning conversion

of insured credit unions to mutual savings banks or mutual savings

associations. 12 U.S.C. 1785(b). CUMAA requires the NCUA to promulgate

final rules regarding charter conversions within six months of that

date that are: (1) consistent with CUMAA; (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 issued

an interim final rule with request for comments that was effective

November 27, 1998. 63 FR 65532 (November 27, 1998).

Final Rule

With the benefit of having considered public comments on part 708a,

NCUA issues this final rule and amends the interim final rule. As

discussed more fully below, the changes from the interim final rule to

the final rule consist of providing more flexibility to credit unions

in choosing methods for delivering member notices, correcting an

inadvertent, inconsistent use of language in the notice provision in

Sec. 708a.5(c), and clarifying the purpose and scope of the

certification provision in Sec. 708a.9(b). These amendments further

reduce regulatory burden on converting credit unions, simplify the

conversion process and provide continued consistent treatment of

proposals to convert. NCUA finds it appropriate to allow credit unions

to act immediately under this revised, less restrictive rule.

Accordingly, pursuant to 5 U.S.C. 553(d)(1) and (3), the rule will be

effective immediately and without 30 days advance notice of

publication.

Summary of Comments

The NCUA Board received eleven comment letters regarding the

interim final rule: three from banking trade associations, three from

credit union trade associations, one from an association of state

credit union supervisors, three from FCUs and one from a law firm. They

offered the following comments.

General Comments

Three commenters approve of the interim rule as written and believe

the rule is consistent with the provisions of CUMAA. As of the date of

preparation of this final rule, three converting FCUs have opted to

request NCUA review of their notice and other materials they intend to

send to members in advance of the time frame required by part 708a.

NCUA has reviewed these materials, had minor revisions, and the review

has not delayed or unduly burdened the conversion process. The

revisions incorporated into this final rule will further enhance part

708a.

One commenter contended generally that the rule is inconsistent

with the charter conversion rules of other financial regulators. NCUA

has reviewed the charter conversion rules of other financial regulators

and has drafted this rule to be consistent with them. In contrast to

the statutory and regulatory provisions governing conversions under the

jurisdiction of other financial regulators, CUMAA imposes specific time

frames and particular responsibilities on NCUA in the conversion

process. Accordingly, because of this significant difference, this rule

is not identical to those of the other financial regulators, but is

nonetheless consistent with them.

One commenter noted that in the preamble to the interim final rule,

NCUA stated that it ``does not interpret the [Credit Union] Membership

Access Act to preclude state regulatory authorities from imposing more

restrictive charter conversion rules on federally insured state-

chartered credit unions.'' That commenter suggested the

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following alternative language to make this point: ``NCUA does not

interpret the [Credit Union] Membership Access Act to preempt state

laws prohibiting conversions to thrift charter or imposing more

restrictive requirements on the conversion of federally insured state

chartered credit unions.'' This alternative language also reflects

NCUA's interpretation of CUMAA.

Comments to Sec. 708a.4--Voting Procedures

Two commenters recommended that NCUA permit methods of delivering

member notices in addition to the United States Postal Service,

including overnight couriers and in-hand delivery. One of these

commenters stated that credit unions should be permitted to include the

notices with other credit union mailings to reduce the cost of postage.

NCUA agrees that credit unions should have more flexibility in choosing

a method for delivering member notices than is provided in the interim

final rule. The final rule provides that additional flexibility. Notice

to members may not, however, be included with other credit union

mailings. By requiring three separate deliveries of the notice to

members 90, 60 and 30 days before the membership vote, NCUA believes

that Congress indicated its intent for these notices to receive special

attention. That level of attention would be lost if these notices were

included with other mailings.

One commenter stated that it would be appropriate for a credit

union to address the conversion proposal at a regularly scheduled

annual meeting and noted that this would save the cost of convening a

special meeting for this purpose. The requirement of having a special

meeting to consider the conversion proposal tracks the provisions of

CUMAA and is consistent with the voting procedures of other financial

regulators.

Comments to Sec. 708a.5--Notice to NCUA

Two commenters acknowledged that CUMAA gives NCUA the statutory

authority to require a converting credit union to provide notice of

that intent to NCUA. These commenters suggest, however, that NCUA has

overstepped this authority by requiring notice be in the form of a

letter that states the material features of the conversion or a copy of

the application filing made with another financial regulator. These

alternative methods of providing notice are borrowed directly from the

Office of Thrift Supervision regulations. 12 CFR 563.22(h). They are

practical and reasonable and are not overly burdensome to credit

unions.

One commenter acknowledged that CUMAA specifically mandates NCUA to

administer the member vote on conversion and review the methods by

which the vote is taken and the procedures applicable to the membership

vote. This commenter suggested, however, that NCUA has gone beyond this

mandate by requiring a credit union to provide NCUA with copies of the

written materials it has sent or intends to send to its members in

connection with the conversion. This same commenter stated that NCUA

has also gone beyond its statutory authority by reviewing whether

notices to members are inaccurate or misleading and whether they are

sent to members timely. NCUA believes a practical and unintrusive way

to review the methods and procedures is to review the notice and other

materials a converting credit union gives to its members. NCUA further

believes it has the responsibility to ensure compliance with statutory

time frames and the factual and legal accuracy of statements in those

materials.

One commenter noted that CUMAA provides that a converting credit

union is to submit its notice to NCUA during the 90-day period

preceding the date of the ``completion of the conversion,'' but the

regulation requires notice during the 90-day period preceding the date

of the ``membership vote on the conversion.'' NCUA purposefully used

this language in the regulation. The date of completion of the

conversion is not a date certain. Numerous events must occur throughout

the conversion process that involve action by the converting credit

union, NCUA, and the regulator that will supervise the credit union

after conversion. The timing of these events can vary from conversion

to conversion and cannot be predicted with any degree of certainty.

Therefore, it is not practically feasible to calculate the notice

period in relation to the date of completion of the conversion. In

other sections of CUMAA, notice periods have been stated in relation to

the date of the membership vote which is fixed in time. Accordingly,

NCUA calculates the notice period provided in this section in relation

to the fixed date of the membership vote. This enables practical

application of the rule and is consistent with the other notice

provisions in CUMAA.

Three commenters noted that throughout the rule, notice periods are

stated in relation to the date of the ``membership vote on the

conversion,'' but in Sec. 708a.5(c), the notice period is stated in

relation to the date of the ``completion of the conversion''. This

inconsistency is inadvertent and is revised in the final rule so that

all notice periods are stated in relation to the date of the

``membership vote on the conversion.''

Comments to Sec. 708a.6--Certification of the Membership Vote

One commenter suggested deleting the requirement that a converting

credit union certify that the written materials sent to members are

identical to those sent to NCUA for its review. Another commenter

stated that converting credit unions should neither be required to

provide copies to NCUA of new or revised materials sent to members that

were not previously sent to NCUA, nor required to provide an

explanation of the reasons for using new or revised documents. As noted

above, reviewing the information that is provided to members by their

credit union is central to administering the member vote on conversion

and reviewing the methods by which the vote was taken and the

procedures applicable to the member vote. Accordingly, the requirements

of this section are necessary for NCUA to fulfill these statutory

responsibilities.

Comments to Sec. 708a.9--Completion of Conversion

Two commenters stated that NCUA does not have the authority to

require the board of directors of the newly chartered mutual savings

bank or mutual savings association to certify to NCUA that the

conversion transaction has been completed. NCUA agrees. The purpose of

this provision is to obtain notice of the completion of the conversion

transaction so that NCUA may cancel the former credit union's insurance

certificate, provide for the return of its 1% insurance deposit in

accordance with 12 CFR 741.4(j), and if applicable, cancel its federal

charter. The final rule reflects this change.

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

final 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

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in part 708a constitute a collection of information under the Paperwork

Reduction Act. NCUA submitted a copy of this rule to the Office of

Management and Budget (OMB) for its review. OMB has assigned control

number 3133-0153 to this information collection.

Executive Order 12612

Executive Order 12612 requires NCUA to consider the effect of its

actions on state interests. This 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 has

reviewed this rule and has determined that it is not major for 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 May 19,

1999.

Becky Baker,

Secretary of the Board.

For the reasons set forth above, 12 CFR part 708a is amended as

follows:

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

BANKS

1. The authority citation for part 708a continues to read as

follows:

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

2. Section 708a.4 is amended by revising the last sentence of

paragraph (b) to read as follows:

Sec. 708a.4 Voting procedures.

* * * * *

(b) * * * The notice to members must be submitted 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 submitted not

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

* * * * *

3. Section 708a.5 is amended by revising the first sentence of

paragraph (c) to read as follows:

Sec. 708a.5 Notice to NCUA.

* * * * *

(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 the membership vote on the conversion. * *

*

4. Section 708a.9 is amended by revising paragraph (b) to read as

follows:

Sec. 708a.9 Completion of conversion.

* * * * *

(b) Upon notification by the board of directors of the mutual

savings bank or mutual savings association that the conversion

transaction has been completed, the NCUA will cancel the insurance

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

federal credit union.

[FR Doc. 99-13307 Filed 5-26-99; 8:45 am]

BILLING CODE 7535-01-U