CUNA Comment Letter
Conversion of Credit Unions to Thrifts
November 26, 2003
Ms. Becky Baker
Secretary of the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428
Dear Ms. Baker:
The Credit Union National Association is pleased to comment on the National Credit Union Administration Boards proposal regarding increased disclosure requirements for federal credit unions seeking to convert to a thrift charter. By way of background, CUNA represents 90 percent of the nations almost 10,000 state and federal credit unions, which serve approximately 85 million members. CUNAs letter was developed under the auspices of our Examination and Supervision Subcommittee, our Federal Credit Union Subcommittee and our State Issues Subcommittee.
Summary of CUNAs Position
- CUNA supports the additional disclosures the agency is proposing.
- Further, CUNA recommends that member disclosures regarding a conversion be separate from other information or financial disclosures provided to members.
- CUNA also recommends the agency require converting credit unions to provide their members with an opportunity to file written comments with the credit union on the conversion before the membership vote and to share such comments prior to the vote with the membership.
The National Credit Union Administration Board is proposing to add member disclosure requirements for credit unions seeking to convert to a thrift charter. Currently, a credit union seeking to convert must provide three notices to members 90, 60 and 30 days prior to the vote of the membership on the conversion. The notices to members must adequately describe the purpose and subject matter of the vote on the conversion. As directed by the Credit Union Membership Access Act (CUMAA), the majority of members who vote decide the issue of conversion. Also, the credit union must submit to NCUA a copy of the member notice, ballot and all other written materials that the credit union provides or intends to provide to its members in connection with the conversion.
As provided by CUMAA, NCUA has limited authority to regulate such conversions. However, if NCUA does not approve the notice procedures or the procedures for the member vote, NCUA may direct the credit union to correct deficiencies in its process; this could include requiring a new membership vote.
The proposal changes the disclosure requirements to direct converting credit unions to include the following information to members in the notices provided prior to the vote.
Credit unions must disclose that:
- The one member, one vote rule changes upon conversion. Also, the fact that, in contrast to credit unions, most thrifts allot votes based on the amount of a members deposits. Conversion from a credit union to a thrift could lead members to have lesser voting rights in the thrift than they had in the credit union.
- A subsequent conversion from a mutual savings bank to a stock institution will result in a loss of ownership interest if the member does not purchase stock in the institution.
- There are conversion-related economic benefits a director or senior management official may receive, including an increase in compensation and any foreseeable stock-related benefits associated with a subsequent conversion to a stock institution.
The notice must also include an affirmative statement indicating whether at the time of conversion to a thrift the credit union intends to:
- Convert to a stock institution;
- Provide any compensation to previously uncompensated directors or increase compensation or provide other conversion-related benefits to directors or senior management officials; and
- Base member voting rights on account balances.
In CUNAs view, these disclosure requirements are not onerous or unreasonably costly and will help credit union members have a better understanding of the conversion process.
Nonetheless, while NCUA has developed a positive proposal, we believe the agency has authority to develop a rule that goes further in helping to ensure members are fully informed regarding a potential conversion.
In that connection, we recommend NCUA consider two amendments. One would direct a converting credit union to make disclosures to members about the conversion separate from other financial disclosures or information such as newsletters. We believe this amendment is important because it will facilitate the ability of members to focus on key information about a conversion and not be distracted by other disclosures or materials from the credit union.
The other change we are recommending would require a credit union preparing for a membership vote on a conversion to allow all members to be able to object, in writing, or otherwise file comments prior to the conversion vote from the members. A credit union receiving comments from a member prior to the conversion vote would be required to share that information with the rest of the membership.
In closing, CUNA appreciates the opportunity to express our views on the proposed disclosures for federal credit unions seeking to convert their charter to a mutual thrift. We would welcome the opportunity to discuss our views and recommendations if that would be useful for NCUA Board members or agency staff.
Mary Mitchell Dunn
Associate General Counsel
and Senior Vice President