CUNA Comment Letter

Interim Final Rule Regarding Conversion of Insured CUs to Mutual Savings Banks (Part 708a)

February 25, 1999

Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, Virginia 22314-3428

RE: Interim Final Rule Regarding Conversions of Insured Credit Unions to Mutual Savings Banks (Part 708a)

Dear Ms. Baker:

The Credit Union National Association (CUNA) appreciates the opportunity to comment on NCUA's interim final rule regarding 12 CFR Part 708a, Conversions of Insured Credit Unions to Mutual Savings Banks. CUNA represents more than 90% of our nation's 11,000 state and federal credit unions.

The Credit Union Membership Access Act (CUMAA) amended the previous statutory provisions regarding conversions. Prior to the CUMAA, NCUA was given considerable flexibility to regulate in this area but now the agency must follow specific requirements included in the Act. NCUA's prior rule provided that a conversion must be approved by a majority of all of the members of the credit union. Under the new statute, only a majority of the members who actually vote on the proposed conversion need approve the conversion. The CUMAA also permits credit unions to convert without prior approval of NCUA. The CUMAA requires NCUA to issue rules that are consistent with the statutory provisions and with the rules issued by other financial regulators. NCUA's rules cannot be more or less restrictive than those applicable to charter conversions of other financial institutions.

CUNA strongly opposed the addition of the conversion provisions to the CUMAA, and we are hopeful that statutory changes can be accomplished. In the meantime, we recognize NCUA has a very limited ability to interpret the statutory provisions. Thus, we generally support the interim final rule, which restates many of the applicable provisions of the CUMAA. However, while we recognize that the board and members of a credit union have the right to choose for themselves what type of charter their institution will have, CUNA staunchly believes that consumers' financial interests are much better served by credit unions than by other types of financial institutions.

With regard to the specific provisions of the rule, we note the requirement that notice must be sent to members three times prior to the date of the vote. These notices must be postmarked 90, 60, and 30 days before the date of the membership vote. CUNA supports this effort to ensure that members are fully informed of the facts and circumstances when a credit union's board seeks to convert to another type of charter.

The rule also requires the credit union to provide the appropriate NCUA Regional Director with a notice of the intent to convert during the 90-day period preceding the date of the membership vote. The credit union also has the option of submitting the notice of intent prior to the 90-day period before the vote in order to provide the Regional Director with additional time to comment on the proposed methods and procedures of the membership vote. Other provisions of the rule require the credit union board to certify the results of the membership vote to the appropriate NCUA Regional Director within 10 days after the vote. The Regional Director may then direct a new vote if he or she disapproves of the methods and procedures. CUNA supports these procedures to ensure that the NCUA Regional Director has an adequate opportunity to review the methods and procedures of the membership vote.

The rule also has a provision that prohibits the directors and senior management of a credit union from receiving economic benefits as a result of the conversion, other than the compensation and other benefits that these officials would otherwise receive in the ordinary course of business. CUNA supports this provision, although we firmly believe that credit union officials act on the basis of their good faith assessments of their members' best interests when making conversion decisions.

Thank you for the opportunity to comment on the interim final rule regarding the conversion of insured credit unions. If you or your staff have any questions about our comments, please give me a call at 202-718-7765.


Mary Mitchell Dunn
Associate General Counsel for Regulatory Advocacy