[Federal Register Volume 63, Number 168 (Monday, August 31, 1998)]
[Rules and Regulations]
[Pages 46159-46160]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23281]


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DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 544

[No. 98-89]
RIN 1550-AB17


Charter and Bylaws; One Member, One Vote

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is amending its 
regulations on federal mutual savings association charters. The 
amendment expands the range of votes a federal mutual savings 
association may allow a member to cast on issues requiring action by 
the members of the association from the current 50 to 1000 votes to one 
to 1000 votes per member. This amendment adds flexibility to the 
federal mutual charter, and allows a federal mutual savings association 
to adopt a charter providing for ``one member, one vote.''

EFFECTIVE DATE: August 31, 1998.

FOR FURTHER INFORMATION CONTACT: Diana L. Garmus, Director, Corporate 
Activities Division (202/906-5683); David A. Permut, Counsel (Banking 
and Finance) (202/906-7505) or Kevin A. Corcoran, Assistant Chief 
Counsel for Business Transactions (202/906-6962), Business Transactions 
Division, Chief Counsel's Office, Office of Thrift Supervision, 1700 G 
Street, NW., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

    Various depository institutions have expressed interest in 
converting to a federal mutual savings association charter,1 
but requested the right to retain existing voting procedures following 
the conversion. Several credit unions with membership voting rights of 
one vote per member, for example, have asked to retain their current 
voting provisions upon their conversions to federal charter. On April 
14, 1998, the OTS issued a Notice of Proposed Rulemaking (``NPR'') that 
would provide such flexibility for mutual financial institutions, 
including credit unions, that wish to convert to the federal mutual 
charter.2
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    \1\ Section 2(5) of the Home Owners' Loan Act defines federal 
savings associations to include federal savings associations and 
federal savings banks. Accordingly, references to federal savings 
associations include federal savings banks.
    \2\ 63 FR 18149 (April 14, 1998).
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    The OTS has long taken the position that depository institutions 
should be free to operate under whatever charter best suits their 
business needs, consistent with safety and soundness. Federal savings 
associations may operate under a stock charter or mutual charter. 
Within each charter, the OTS permits variations. For example, Federal 
mutual savings associations have varying voting provisions (e.g., 50 
votes per member, 400 votes per member or 1000 votes per member), often 
based upon the rules in effect when they obtained their charters. The 
NPR proposed to permit federal mutual associations to expand the 
permissible range of votes allowed per member from one to 1000, rather 
than the current range of 50 to 1000.

II. Summary of Comments and Description of Final Rule

    The public comment period on the NPR closed on June 15, 1998. Three 
commenters, all trade associations, responded to the proposal. Two were 
in favor of the proposal and one opposed it. The favorable comments 
agreed that the proposal would add flexibility to the federal mutual 
charter and would put credit unions on an equal footing with state 
chartered mutuals that convert to a federal charter. One commenter 
pointed out that adoption of the amendment would remove one of the 
perceived barriers to the conversion of a credit union to a federal 
mutual association.
    The trade association opposing the amendment argued that the one 
member, one vote provisions are unique characteristics of credit 
unions, which should be maintained. In addition, the commenter noted 
that the proposed rule would jeopardize the one member, one vote 
principle because a converted institution could easily amend its 
charter, without OTS approval following the conversion. This trade 
association questioned the timing of the proposal and argued that the 
rule should be delayed until Congress had an opportunity to respond to 
the February 25, 1998 Supreme Court ruling overturning the National 
Credit Union Administration's (``NCUA'') actions permitting multiple 
common bonds for credit unions.3 The trade association also 
asserted the board of directors and management of credit unions may 
seek to convert to federal association charter solely for their own 
personal enrichment. As a result, the trade association urged the OTS 
to require a converting credit union to wait a

[[Page 46160]]

minimum of seven years after conversion to federal mutual form before 
it may convert to federal stock form.
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    \3\ National Credit Union Administration v. First National Bank 
& Trust Co., 118 S.Ct. 927 (1998).
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    The OTS is aware of no reason why credit unions should be the only 
type of depository institution to permit a one vote per member 
arrangement. In response to the comment that the one member, one vote 
principle is jeopardized by the ease of later amending the federal 
charter, the OTS believes that members of a federal mutual association 
should continue to have the right to change the number of votes per 
member if they wish.
    Further, the OTS is aware of no reason to delay its regulation. 
Legislation has been enacted in response to the Supreme Court 
ruling.4 In addition, the OTS has seen no mass influx of 
credit unions seeking to become federal thrifts. Only seven credit 
unions have applied to convert to a federal mutual charter in the last 
eighteen months. (During the same period of time, ten commercial banks 
applied to convert to federal savings associations.)
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    \4\ On August 7, 1998 the President signed Pub. L. 105-219 which 
mitigated the impact of the Supreme Court decision by allowing 
occupation-based credit unions to accept members from unrelated 
companies with fewer than 3000 employees.
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    Finally, the OTS believes that restricting converting credit unions 
from converting to stock for a number of years is beyond the scope of 
the proposal and would be more appropriately raised in response to 
planned revisions to the Part 563b mutual to stock conversion 
regulations.
    The OTS is adopting the amendment as proposed. The amendment will 
permit mutual depository institutions that are converting to federal 
savings associations to retain the one vote per member provision in 
their current charters, and will permit other converting institutions, 
as well as existing federal mutual savings associations, to adopt a one 
vote per member provision.
    The Final Rule will amend 12 CFR 544.2(b)(4) to permit federally 
chartered mutual savings associations to set the number of votes per 
member within the range of 1 to 1,000, rather than the current range of 
50 to 1,000. New federal mutual savings associations may include this 
provision in their initial federal thrift charter. Existing federal 
mutual associations may amend their charters under the prescribed 
regulatory procedures.5 Specifically, an institution must: 
(i) Obtain a board of directors' resolution adopting the amendment, 
(ii) obtain a favorable vote by the members, and (iii) notify the OTS 
of the adoption at least 30 days prior to the effective date of the 
proposed amendment. Unless the OTS notifies the institution of its 
objection to the proposed amendment within that 30 days, the amendment 
is automatically approved.
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    \5\ 12 CFR 544.2(b) (1998).
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III. Executive Order 12866

    The Director of the OTS has determined that this final rule does 
not constitute a ``significant regulatory action'' for the purposes of 
Executive Order 12866.

IV. Regulatory Flexibility Act Analysis

    Under Section 605(b) of the Regulatory Flexibility Act, the OTS 
certifies that this proposal will not have a significant economic 
impact on a substantial number of small entities. Small entities 
utilizing the regulation may be able to retain their existing 
membership rights, which will simplify the process of converting to a 
federal charter and reduce regulatory burden.

V. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act), requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
federal mandate that may result in expenditures by state, local, and 
tribal governments, in the aggregate, or by the private sector, or $100 
million or more in any one year. If a budgetary impact statement is 
required, Section 205 of the Unfunded Mandates Act also requires an 
agency to identify and consider a reasonable number of regulatory 
alternatives before promulgating a rule. The OTS has determined that 
the proposed rule will not result in expenditures by state, local, or 
tribal governments or by the private sector of $100 million or more. 
Accordingly, this rulemaking is not subject to Section 202 of the 
Unfunded Mandates Act.

VI. Effective Date

    The OTS has determined that there is good cause to dispense with a 
30-day delayed effective date under 5 U.S.C. 553(d)(3). The amendment 
permits federal mutual savings associations and depository institutions 
converting their charters to federal mutual savings association charter 
to add flexibility to existing voting arrangements or retain current 
voting rights. The OTS believes the change does not have an adverse 
impact on savings associations because it reduces regulatory burden. 
Moreover, the substantive change to the regulations has already been 
made available to requesting converting depository institutions on a 
case-by-case basis. OTS-regulated institutions will not require 
additional time to adjust their policies or practices to comply with 
the rule.
    The OTS has also determined, for the reasons stated in the 
preceding paragraph, that good cause exists to adopt an effective date 
that is before date that would otherwise be required by section 302 of 
CDRIA (i.e., the first day of the calendar quarter after the date of 
publication).

List of Subjects in 12 CFR Part 544

    Bylaws, Charters, Reporting and recordkeeping requirements, Savings 
associations.

    Accordingly, the Office of Thrift Supervision proposes to amend 
chapter V, title 12, Code of Federal Regulations, as set forth below.

PART 544--CHARTER AND BYLAWS

    1. The authority citation for part 544 continues to read as 
follows:

    Authority: 12 U.S.C. 1462, 1462a, 1463, 1464, 1467a, 2901 et 
seq.

    2. Section 544.2 is amended by revising the last sentence of 
paragraph (b)(4) to read as follows:


Sec. 544.2  Charter amendments.

* * * * *
    (b) * * *
    (4) * * * [Fill in a number from 1 to 1000.]
* * * * *
    Dated: August 25, 1998.

    By the Office of Thrift Supervision.
Ellen Seidman,
Director.
[FR Doc. 98-23281 Filed 8-28-98; 8:45 am]
BILLING CODE 6720-01-P