[Federal Register Volume 62, Number 233 (Thursday, December 4, 1997)]
[Proposed Rules]
[Pages 64185-64187]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-31501]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708a


Mergers or Conversions of Federally-Insured Credit Unions to Non 
Credit Union Status: NCUA Approval

AGENCY: National Credit Union Administration (NCUA).


[[Page 64186]]


ACTION: Notice of proposed rulemaking.

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SUMMARY: The proposed rule would add a new provision to the disclosure 
statement in regulations relating to NCUA approval of mergers or 
conversions of federally-insured credit unions to non credit union 
status. Credit unions would be required to disclose in plain English on 
the cover page of the disclosure statement specific facts relating to 
the proposed transaction's impact on the members.

DATES: Comments must be received by February 2, 1998.

ADDRESSES: Comments should be directed to Becky Baker, Secretary of the 
Board. Mail or hand-deliver comments to: National Credit Union 
Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428. Fax 
comments to (703) 518-6319. E-mail comments to [email protected]. 
Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Mary F. Rupp, Staff Attorney, Office 
of General Counsel, National Credit Union Administration, 1775 Duke 
Street, Alexandria, Virginia 22314-3428 or telephone: (703) 518-6553.

SUPPLEMENTARY INFORMATION:

Background

    On September 16, 1994, the NCUA Board issued an interim final rule, 
part 708a, and request for comments. 59 FR 48790 (September 23, 1994). 
The rule established that the NCUA Board must approve any merger or 
conversion of a federally insured credit union to a non credit union 
institution. On March 1, 1995, the NCUA Board issued a final rule 
setting forth the procedures and disclosure requirements for these 
transactions. 60 FR 12659 (March 8, 1995). One of the issues addressed 
in the final rule was the requirement that a uniform member notice be 
sent to the members as part of the disclosure. Nine of the ten 
commenters supported a uniform notice. The reasons given were that a 
uniform notice would provide clear and consistent guidelines for 
merging credit unions, ensure that important information is not 
withheld from the members and require less individual review. The NCUA 
Board agreed with these goals, but believed that they could be 
accomplished more effectively through a listing of the information that 
must be included in the notice to members, rather than a form that may 
become outdated or not apply to all transactions. The final rule did 
not require a uniform notice.
    The NCUA Board has had an opportunity to review Disclosure 
Statements under this rule and now, agrees with the commenters that 
certain key information should be routinely provided to the members in 
plain English. Although most of the information is currently being 
provided, it is buried in a multi-page Disclosure Statement, often in 
excess of fifteen pages. Further, it is stated in a way that is 
difficult to understand.

Proposal

    To ensure that the members understand the proposed transaction's 
impact, the Board proposes requiring credit unions to provide in plain 
English on the cover page of the Disclosure the following information: 
(1) The institution will no longer be democratically controlled with 
each member having one equal vote. The larger depositors will have more 
votes than the smaller depositors; (2) This action would enable the 
credit union to further change its organizational structure in the 
future. For example, if the institution were to convert to a stock 
institution, the members will lose their equity ownership interest. Any 
future decision to convert to a stock institution would be made by a 
vote of the members. The weight a member's vote carries will be based 
on the amount of the member's deposit; and (3) The board of directors 
may receive financial benefits not available to other members. For 
example, after waiting the two years required by NCUA's regulation, 
Board members could be compensated and they could obtain stock under 
terms not available to other members.
    In the event these statements do not apply to a particular 
transaction, they may be modified as necessary.
    The NCUA Board is interested in receiving comments on the proposed 
uniform disclosure requirements.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires the NCUA to prepare an 
analysis to describe any significant economic effect any regulation may 
have on a substantial number of small credit unions, meaning those 
under $1 million in assets. The NCUA Board has determined and certifies 
that the proposed rule if adopted will not have a significant economic 
impact on a substantial number of small credit unions. The reason for 
this determination is that it is highly unlikely that small credit 
unions would be engaged in a merger or conversion to a noncredit union 
institution. Accordingly, the NCUA Board has determined that a 
Regulatory Flexibility Analysis is not required.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. The proposed amendments will apply to all 
federally insured credit unions. The proposed amendments are not 
designed or intended to interfere with the state regulation of state-
chartered institutions. However, existing statutory requirements 
mandate the Board approve transactions of this nature for all federally 
insured credit unions. Recognizing the interests of states and state 
regulators in supervising state chartered credit unions, the rule 
governing transactions of this nature includes a provision that allows 
federally insured state chartered credit unions, on a case-by-case 
basis, to obtain a waiver from NCUA's rule and follow state procedures 
if those procedures are determined to adequately address the concerns 
of NCUA's rule. With this provision in the rule, the NCUA Board has 
determined that the proposed amendments are not likely to have any 
direct effect on states, on the relationship between the states, or on 
the distribution of power and responsibilities among the various levels 
of government.

Paperwork Reduction Act

    The proposed amendment requires the credit union to provide to its 
members information that is provided by NCUA in the proposal. The 
Paperwork Reduction Act does not apply to disclosures that are 
directives for a person to disclose information completely supplied by 
the agency. 5 CFR 1320.3(c)(2).

List of Subjects in 12 CFR Part 708a

    Bank deposit insurance, Credit unions, Reporting and recordkeeping 
requirements.

    By the National Credit Union Administration Board on November 
24, 1997.
Becky Baker,
Secretary of the Board.

    Accordingly, NCUA proposes to amend 12 CFR part 708a as follows:

PART 708a--MERGERS OR CONVERSIONS OF FEDERALLY-INSURED CREDIT 
UNIONS TO NON CREDIT UNION STATUS: NCUA APPROVAL

    1. The authority citation for part 708a is revised to read as 
follows:

    Authority: 12 U.S.C. 1766, 1785.


[[Page 64187]]


    2. Amend Appendix A to part 708a to revise paragraph (2)(m) to read 
as follows:

Appendix A to Part 708a--Notice to Members of Special Meeting, 
Disclosure and Ballot

* * * * *
    (2) * * *
    (m) The cover of the Disclosure Statement must contain the 
following statement in bold, appropriately modified to the extent 
that this statement does not accurately describe the transaction:
    PLEASE READ THIS DISCLOSURE DOCUMENT. IT CONTAINS IMPORTANT 
INFORMATION ABOUT YOUR CREDIT UNION.
    If the credit union converts to a savings bank, the institution 
will no longer be democratically controlled with each member having 
one equal vote. As explained in this Disclosure, the larger 
depositors will have more votes than the smaller depositors.
    This action would enable the credit union to further change its 
organizational structure in the future. For example, if the 
institution were to convert to a stock institution, you would lose 
your equity ownership interest. Any future decision to convert to a 
stock institution would be made by a vote of the members, however, 
the weight your vote carries will be based on the amount of your 
deposit in the institution.
    If the credit union converts to a savings bank, your board of 
directors may receive financial benefits not available to other 
members. For example, Board members could be compensated and they 
could obtain stock on terms not available to other members, after 
waiting the two years required by credit union regulation.
* * * * *
[FR Doc. 97-31501 Filed 12-3-97; 8:45 am]
BILLING CODE 7535-01-P