CUNA Regulatory Comment Call


August 11, 2004

Proposal on Mergers and Changes
of Insured Status

(Major Rule)

EXECUTIVE SUMMARY

Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.coop and to Assistant General Counsel Jeff Bloch at jbloch@cuna.coop; or mail them to Mary and Jeff in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, South Building, Suite 600, Washington, DC 20004-2601. You may also contact us at 800-356-9655, ext. 6732, if you would like a copy of the proposed rule, or you may access it here.

BACKGROUND

The Federal Credit Union Act authorizes the NCUA Board to issue rules regarding mergers of federally-insured credit unions and changes in insured status. The approval of the NCUA Board is required before federally-insured credit unions merge or before a federally-insured credit union terminates federal insurance or converts to nonfederal insurance. As part of NCUA’s continuing process of reviewing all its rules, the Board has decided to issue these amendments regarding mergers of federally-insured credit unions and the voluntary conversion or termination of federal insurance.

BRIEF DESCRIPTION OF THE PROPOSED RULE

Amendment Related to Hart-Scott-Rodino Act

The Hart-Scott-Rodino Act requires certain entities, including credit unions, to file a premerger notification with the Federal Trade Commission (FTC) if they enter into a merger or acquisition. Credit unions need not file if they meet one of the following criteria:

The proposal will require a credit union with more than $50 million in assets to inform NCUA whether it plans to file with the FTC. Many credit unions of more than $50 million in assets may not be required to file because some of their assets do not count towards the FTC thresholds, which may mean their assets levels fall below $50 million for purposes of FTC filings.

Amendments Related to Share Insurance Disclosure

The Federal Deposit Insurance Act (FDIA) requires financial institutions, including credit unions, that do not have federal deposit or share insurance to disclose that fact and the potential ramifications to their current and potential accountholders. The proposed rule will revise the disclosure requirements in connection with the membership vote required of credit unions seeking to terminate or convert from federal insurance, and it will also require credit unions to acknowledge these provisions of the FDIA and certify that they will comply with them after the termination or conversion.

As part of the membership voting process, the current rules require credit unions to use certain language to disclose to members the effects of insurance termination or conversion. These disclosures will be modified so they are more consistent with the FDIA requirements.

The proposed rule also updates the required form notices, ballots, and certifications. These forms must be used, unless the Regional Director approves the use of alternative forms. Termination forms will no longer be included, since there is no state that currently permits an insured credit union to voluntarily terminate its share insurance.

Other Amendments Related to Insurance Conversions and Terminations

Timing and Sequence of the Approval Process — Currently, the credit union must give notice of an insurance conversion to the NCUA Board either when the membership approval is solicited or after membership approval is obtained. The proposed rule will now require the credit union to notify NCUA and request approval of the insurance conversion before the credit union solicits a member vote.

Right to Redeem Term Share Accounts Without Penalty — The proposal rule will require, as part of the insurance conversion process, to notify members that they may close share certificate and other term accounts without penalty if they are closed prior to the effective date of the conversion. This will not apply in insurance termination situations since federal insurance may continue up to one year after termination, unlike a conversion in which federal insurance ends on the date of the conversion.

Communications to Members

Eligibility for Nonfederal Insurance — In order to receive NCUA approval of the conversion to nonfederal insurance, the proposed rule will require the converting credit union to provide proof that the nonfederal insurer is authorized to issue share insurance in the state in which the credit union is located and that the insurer will insure the credit union.

Voting procedures — The proposed rule will require the vote regarding the change in insurance status to be conducted by secret ballot and administered by an independent entity. An “independent entity” is defined as a company with experience in conducting corporate elections and in which no official or senior manager of the credit union, or their immediate family members, have any ownership interest or is employed by that entity.

Miscellaneous Amendments

QUESTIONS TO CONSIDER REGARDING THE PROPOSAL ON MERGERS AND CHANGES OF INSURED STATUS

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