CUNA Regulatory Comment Call


August 2, 2004

Conversion of Insured CUs to Mutual Savings Banks

(Major Rule)

EXECUTIVE SUMMARY

BACKGROUND

  • Concerned that many credit union members do not appreciate the effect a conversion may have on their ownership interests in the credit union and voting power in the mutual savings bank, NCUA amended it conversion rule in February to require a converting credit union to disclose the following additional information in the notice to its members:
  • NCUA is concerned that credit unions may not be providing some important conversion-related information effectively to their members, limiting members’ ability to make informed decisions about a conversion. In addition, many credit unions may not be equipped to conduct a proper member vote on conversion. During the comment period for the recent conversion rule amendment, some commenters suggested that NCUA impose more disclosure and other requirements on converting credit unions. At that time, NCUA felt such changes were outside the scope of its proposal. However, NCUA has now determined that it is appropriate to consider such changes as part of a new rulemaking procedure to amend the rule even further to address NCUA’s ongoing concerns about protecting members’ interests in the conversion process.
  • DESCRIPTION OF THE PROPOSAL

    Disclosures

    The National Credit Union Administration, the federal government agency that supervises credit unions, requires [insert name of credit union] to provide the following disclosures.

    1. OWNERSHIP AND CONTROL. In a credit union, every member has an equal vote in the election of directors and other matters concerning ownership and control. In a mutual savings bank, ACCOUNT HOLDERS WITH LARGER BALANCES USUALLY HAVE MORE VOTES AND, THUS, GREATER CONTROL.

    2. EXPENSES AND THEIR EFFECT ON RATES AND SERVICES. Credit union directors and committee members serve on a volunteer basis. Directors of a mutual savings bank are compensated. Credit unions are exempt from federal tax and most state taxes. Mutual savings banks pay taxes, including federal income tax. If [insert name of credit union] converts to a mutual savings bank, these ADDITIONAL EXPENSES MAY CONTRIBUTE TO LOWER SAVINGS RATES, HIGHER LOAN RATES, OR ADDITIONAL FEES FOR SERVICES.

    3. SUBSEQUENT CONVERSION TO STOCK INSTITUTION. Conversion to a mutual savings bank is often the first step in a two-step process to convert to a stock-issuing bank or holding company. In a typical conversion to the stock form of ownership, the EXECUTIVES OF THE INSTITUTION PROFIT BY OBTAINING STOCK FAR IN EXCESS OF THAT AVAILABLE TO THE INSTITUTION'S MEMBERS.

    4. COSTS OF CONVERSION. The costs of converting a credit union to a mutual savings bank are paid from the credit union's current and accumulated earnings. Because accumulated earnings are capital and represent members' ownership interests in a credit union, the conversion costs reduce members' ownership interests. As of [insert date], [insert name of credit union] estimates THE CONVERSION WILL COST [INSERT DOLLAR AMOUNT] IN TOTAL. That total amount is further broken down as follows: [itemize the costs of all expenses related to the conversion including printing fees, postage fees, advertising, consulting and professional fees, legal fees, staff time, the cost of holding a special meeting, conducting the vote, and any other expenses incurred].

    Requirement to Use Secret Ballot and Independent Entity to Conduct Vote

    Guidelines for Conducting a Membership Vote

    Relationship Between State and Federal Law

    QUESTIONS REGARDING THE PROPOSAL

      Meaningful Way for Members to Share Opinions on Conversion

    1. NCUA is also asking for comments on how to provide members with a meaningful way to share their opinions on the conversion and on how to disclose the views and concerns of the credit union’s directors and officers who oppose the conversion. [In CUNA’s comments to NCUA in 2003 regarding an earlier proposal to amend the agency’s conversion rule, CUNA recommended that NCUA 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 with the membership prior to the vote.] How could this be accomplished with minimal regulatory burden?

      Please explain.













      Disclosures

    2. Do you believe that the disclosure prepared by NCUA would enhance the members’ ability to make informed decisions about the conversion?

      Yes ______ No ______

      Are there are additional/other disclosures that should be included in the notice to members?

      Yes ______ No ______

      Please explain.













    3. Are the amount and level of disclosures in the form prepared by NCUA appropriate or overly burdensome for a converting credit union?

      Please explain.













      Secret Ballot and Independent Entity

    4. Would the dual requirements to have secret ballot and hire a third-party teller pose undue burden for converting credit unions?

      Yes ______ No ______

      Please explain.













      Guidelines for Conducting Membership Vote

    5. Do you believe the proposed guidelines would sufficiently assist converting credit unions to more fully understand what they need to do to fulfill their regulatory obligation in terms of conducting the membership vote?

      Yes ______ No ______

      If not, what additional information would be helpful?













      Relationship Between State and Federal Law

    6. Do you agree with the requirements for a converting FISCU to notify NCUA about the law of its state upon which it relies for authority to convert?

      Yes ______ No ______

      Please explain.













      Other













    7. Other comments













    Eric Richard • General Counsel • (202) 508-6742 • erichard@cuna.com
    Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 • mdunn@cuna.com
    Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 • jbloch@cuna.com
    Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 • corr@cuna.com