[Federal Register Volume 63, Number 228 (Friday, November 27, 1998)]
[Rules and Regulations]
[Pages 65532-65536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31599]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708a


Conversion of Insured Credit Unions to Mutual Savings Banks

AGENCY: National Credit Union Administration (NCUA).

ACTION: Interim final rule with request for comments.

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SUMMARY: The NCUA is revising its rules that govern the conversion of 
insured credit unions to mutual savings banks or savings associations, 
if the savings associations are in mutual form. These revisions will 
simplify the charter conversion process and reduce regulatory burden 
for insured credit unions that choose to convert. NCUA is making these 
revisions in compliance

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with recent federal legislation that mandates such revisions.

DATES: This rule is effective November 27, 1998. Comments must be 
received on or before February 25, 1999.

ADDRESSES: Direct comments 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. Please send comments by one method only.

FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney, 
Division of Operations, Office of General Counsel, at the above address 
or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

Background

    The Credit Union Membership Access Act (the Membership Access Act) 
was enacted into law on August 7, 1998. Public Law 105-21. Section 202 
of the Membership Access Act amends the provisions of the FCU Act 
concerning conversion of insured credit unions to mutual savings banks 
or mutual savings associations. Pursuant to the amendments, NCUA is 
required to promulgate final rules regarding charter conversions within 
six months that are: (1) consistent with the Membership Access Act; (2) 
consistent with the charter conversion rules promulgated by other 
financial regulators; and (3) no more or less restrictive than rules 
applicable to charter conversions of other financial institutions. 
Accordingly, NCUA is revising part 708a to implement the provisions of 
Sec. 202 of the Membership Access Act. NCUA does not interpret the 
Membership Access Act to preclude state regulatory authorities from 
imposing more restrictive charter conversion rules on federally insured 
state-chartered credit unions.

Interim Final Rule

    The NCUA Board is issuing this rule as an interim final rule 
because there is a strong public interest in having rules in place 
consistent with the requirements of Sec. 202 of the Membership Access 
Act. If this rule were not effective immediately, there would be no 
such rule in place to process credit union conversions to mutual 
savings banks. Accordingly, for good cause, the Board finds that, 
pursuant to 5 U.S.C. 553(b)(3)(B), notice and public procedures are 
impracticable, unnecessary, and contrary to the public interest; and, 
pursuant to 5 U.S.C. 553(d)(3), the rule shall be effective immediately 
and without 30 days advance notice of publication. Although the rule is 
being issued as an interim final rule and is effective immediately, the 
NCUA Board encourages interested parties to submit comments.

Section by Section Analysis

Section 708a.1  Definitions

    This section defines a number of terms used throughout part 708a. 
Although the former part 708a did not contain a section specifically 
designated for definitions, former Sec. 708a.2(c)(2) defined ``senior 
management official.'' Revised Sec. 708a.1 expands on that definition 
to include, at the end of the definition, the phrase ``and any other 
senior executive officer as defined by the appropriate federal banking 
agency pursuant to section 32(f) of the Federal Deposit Insurance 
Act.'' 12 U.S.C. 1831i(f).

Section 708a.2  Authority to Convert

    This section restates a portion of the Membership Access Act that 
provides an insured credit union may convert to a mutual savings bank 
or a savings association that is in mutual form without the prior 
approval of NCUA. Although the Membership Access Act eliminates the 
need for credit unions to obtain NCUA's prior approval, it requires 
NCUA to administer the membership vote. Also, the vote must be verified 
by the federal or state agency having jurisdiction over the credit 
union after the conversion. As provided in Sec. 708a.7 discussed below, 
if NCUA disapproves of the methods or procedures applicable to the 
membership vote, it may require that another vote be taken. This 
section also states that conversions require the approval of the credit 
union's members and are subject to the laws governing mutual savings 
banks and savings associations and the other requirements of this part.

Section 708a.3  Board of Directors and Membership Approval

    This section provides that the board of directors must approve the 
proposal to convert by a majority vote and must set a date for a 
membership vote on the proposal. Membership approval requires an 
affirmative vote of a majority of those members who vote on the 
proposal. Former Sec. 708a.5 required a majority vote of the entire 
membership, not just a majority of those members choosing to vote. The 
former requirements for NCUA approval of a detailed plan and disclosure 
statement have been deleted.

Section 708a.4  Voting Procedures

    This section sets out the voting and notice requirements for the 
membership vote on the proposal to convert. It provides that members 
eligible to vote on the proposal to convert may do so in person at the 
meeting designated for the vote on the proposal or by written ballot 
filed by the member. It also provides that the credit union must 
provide members with notice to the members 90, 60, and 30 calendar days 
before the date of the vote and a ballot not less than 30 calendar days 
before the date of the vote. This section describes the basic 
requirements for the content of the notice, namely, that the notice 
must adequately state the purpose and subject matter of the proposal 
and inform members that they may vote either at the meeting or by 
submission of a written ballot. The notice must set out the date, time, 
and place for the meeting.

Section 708a.5  Notice to NCUA

    This section requires the credit union to provide NCUA with notice 
of its intent to convert during the 90 calendar day period preceding 
the date for the membership vote. A credit union may fulfill this 
notification requirement by providing the NCUA a letter describing the 
material features of the conversion or a copy of the filing made with 
another federal or state regulatory agency seeking that agency's 
approval of the conversion. With the notice to NCUA, a credit union 
must include a copy of the notice, ballot and all other written 
materials it has provided or intends to provide to members so that NCUA 
can fulfill its oversight responsibility regarding the methods and 
procedures of the membership vote. If it chooses, a credit union may 
provide notice of intent to convert prior to the 90 calendar day period 
preceding the membership vote. If a credit union submits its notice of 
intent early, the Regional Director will review it and let the credit 
union know within 30 calendar days if there is a problem with the 
methods and procedures for the membership vote. This preliminary review 
is intended to provide time to credit unions, for example, to correct 
any defects in the notice to members or other problems in connection 
with the proposed membership vote. In any event, the credit union will 
still have to comply with the requirement of verifying the membership 
vote once it is taken and the Regional Director will still have the 
right to require a new vote if it is determined that the methods and 
procedures of the membership vote were not conducted properly.

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Section 708a.6  Certification of Vote on Conversion Proposal

    This section requires the board of directors of the converting 
credit union to certify to NCUA the results of the membership vote 
within 10 calendar days after the vote is taken. The board of directors 
is also required at this time to certify that all notices, ballots and 
other written materials provided to members were identical to those 
submitted to NCUA pursuant to Sec. 708a.5 or to provide copies of any 
new or revised materials and an explanation of the reason for the 
changes.

Section 708a.7  NCUA Oversight of Methods and Procedures of Membership 
Vote

    The Membership Access Act specifically requires NCUA to participate 
in the conversion process by overseeing the membership vote concerning 
the charter conversion. This oversight function centers on reviewing 
the methods by which the membership vote was taken and the procedures 
applicable to the membership vote. The Membership Access Act provides 
that if, upon review of the membership vote, NCUA disapproves of the 
methods by which the vote was taken or the procedures applicable to the 
membership vote, then NCUA is authorized to direct a new membership 
vote be taken on the proposal to convert. NCUA interprets ``methods and 
procedures'' of the membership vote to include determining that the 
notice that the credit union sends to its members is accurate and not 
misleading, that all required notices were timely, and that the 
membership vote was conducted in a fair and legal manner.
    This section provides that, once the Regional Director receives a 
certification from the converting credit union of the results of the 
membership vote, the Regional Director will have 10 calendar days to 
issue a determination regarding the methods and procedures applicable 
to the membership vote. This section also sets out that the Regional 
Director's review of the methods and procedures will consider whether 
the notice was accurate and not misleading, that all required notices 
were provided and that the membership vote was conducted in a fair and 
legal manner.

Section 708a.8  Other Regulatory Oversight of Methods and Procedures of 
Membership Vote

    The Membership Access Act requires the federal or state regulatory 
agency that will have jurisdiction over the financial institution after 
conversion to verify the membership vote, and has authorized that 
agency to direct a new membership vote be taken on the proposal to 
convert if it disapproves of the methods by which the vote was taken or 
the procedures applicable to the membership vote.

Section 708a.9  Completion of Conversion

    This section provides that upon receipt of the approvals discussed 
in Sec. 708a.7 and Sec. 708a.8, the credit union may complete the 
conversion transaction. The board of directors of the newly chartered 
mutual savings bank or mutual savings association is required to 
certify completion of the conversion transaction to NCUA within 30 
calendar days of the effective date of the conversion. Upon receipt of 
such certification, the NCUA will cancel the credit union's insurance 
certificate and federal charter, if applicable.

Section 708a.10  Limit on Compensation of Officials

    This section provides that directors and senior management 
officials of a credit union may not receive any economic benefit from 
the conversion of their credit union other than compensation and 
benefits paid to them in the ordinary course of business. This section 
is intended to insure that decisions to convert are based on proper and 
appropriate business judgment.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact any proposed regulation may 
have on a substantial number of small entities (primarily those under 
$1 million in assets). The NCUA has determined and certifies that this 
interim rule will not have a significant economic impact on a 
substantial number of small credit unions. Accordingly, the NCUA has 
determined that a Regulatory Flexibility Analysis is not required.

Paperwork Reduction Act

    The NCUA Board has determined that the notice and disclosure 
requirements in part 708a constitute a collection of information under 
the Paperwork Reduction Act. NCUA is submitting a copy of this interim 
final rule to the Office of Management and Budget (OMB) for its review.
    The interim final rule requires an insured credit union that 
intends to convert to a mutual savings bank or savings association to 
provide notice and disclosure of its intent to convert to its members 
and NCUA. It also requires the credit union to provide additional 
information to NCUA at various points in the conversion process. These 
notice and disclosure requirements are mandated by the Membership 
Access Act. They are also necessary to insure safety and soundness in 
the credit union industry, and to protect the interests of credit union 
members in the charter conversion context.
    The NCUA Board estimates that it will take an average of 15 to 20 
hours to comply with the notice and disclosure requirements of part 
708a. The NCUA Board also estimates that fewer than 10 insured credit 
unions will convert per year, so that the total annual collection 
burden is estimated to be no more than 200 hours.
    The Paperwork Reduction Act of 1995 and OMB regulations require 
that the public be provided an opportunity to comment on information 
collection requirements, including an agency's estimate of the burden 
of the collection of information. The NCUA Board invites comment on: 
(1) whether the collection of information is necessary; (2) the 
accuracy of NCUA's estimate of the burden of collecting the 
information; (3) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (4) ways to minimize the burden of 
collection of information. Comments should be sent to: OMB Reports 
Management Branch, New Executive Office Building, Room 10202, 
Washington, D.C. 20503; Attention: Alex T. Hunt, Desk Officer for NCUA. 
Please send NCUA a copy of any comments you submit to OMB.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. The final rule, as does the current rule, 
applies to all federally insured credit unions, including federally 
insured state chartered credit unions. However, since the final rule 
reduces regulatory burden, NCUA has determined that the final rule does 
not constitute a ``significant regulatory action'' for purposes of the 
Executive Order.

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Fairness Act of 1996 
(Pub. L. 104-121) provides generally for congressional review of agency 
rules. A reporting requirement is triggered in instances where NCUA 
issues a final rule as defined by Section 551 of the Administrative 
Procedures Act. 5 U.S.C. 551. The Office of Management and Budget is 
reviewing this rule to determine whether it is major for

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purposes of the Small Business Regulatory Enforcement Fairness Act of 
1996.

List of Subjects in 12 CFR Part 708a

    Charter conversions, Credit unions.

    By the National Credit Union Administration Board on November 
19, 1998.
Becky Baker,
Secretary of the Board.

    For the reasons set forth above, 12 CFR part 708a is revised to 
read as follows:

PART 708a--CONVERSION OF INSURED CREDIT UNIONS TO MUTUAL SAVINGS 
BANKS

Sec.
708a.1  Definitions.
708a.2  Authority to convert.
708a.3  Board of directors and membership approval.
708a.4  Voting procedures.
708a.5  Notice to NCUA.
708a.6  Certification of vote on conversion proposal.
708a.7  NCUA oversight of methods and procedures of membership vote.
708a.8  Other regulatory oversight of methods and procedures of 
membership vote.
708a.9  Completion of conversion.
708a.10  Limit on compensation of officials.

    Authority: 12 U.S.C. 1766, 12 U.S.C. 1785(b).


Sec. 708a.1  Definitions.

    As used in this part:
    (a) Credit union has the same meaning as insured credit union in 
section 101 of the Federal Credit Union Act.
    (b) Mutual savings bank and savings association have the same 
meaning as in section 3 of the Federal Deposit Insurance Act.
    (c) Federal banking agencies has the same meaning as in section 3 
of the Federal Deposit Insurance Act.
    (d) Senior management official means a chief executive officer, an 
assistant chief executive officer, a chief financial officer, and any 
other senior executive officer as defined by the appropriate federal 
banking agency pursuant to section 32(f) of the Federal Deposit 
Insurance Act, 12 U.S.C. 1831i(f).


Sec. 708a.2  Authority to convert.

    An insured credit union, with the approval of its members, may 
convert to a mutual savings bank or a savings association that is in 
mutual form without the prior approval of the NCUA, subject to 
applicable law governing mutual savings banks and savings associations 
and the other requirements of this part.


Sec. 708a.3  Board of directors and membership approval.

    (a) The board of directors must approve a proposal to convert by 
majority vote and set a date for a vote on the proposal by the members 
of the credit union.
    (b) The membership must approve the proposal to convert by the 
affirmative vote of a majority of those members who vote on such 
proposal.


Sec. 708a.4  Voting procedures.

    (a) A member may vote on the proposal to convert in person at a 
special meeting held on the date set for the vote or by written ballot 
filed by the member.
    (b) A credit union that proposes to convert must provide written 
notice of its intent to convert to each member who is eligible to vote 
on the conversion. The notice to members must be sent by registered, 
certified, or regular mail with postage prepaid and postmarked 90 
calendar days, 60 calendar days, and 30 calendar days before the date 
of the membership vote on the conversion and a ballot must be sent not 
less than 30 calendar days before the date of the vote.
    (c) The notice to members must adequately describe the purpose and 
subject matter of the vote to be taken at the special meeting or by 
submission of the written ballot. The notice must clearly inform the 
member that the member may vote at the special meeting or by submitting 
the written ballot. The notice must state the date, time, and place of 
the meeting.


Sec. 708a.5  Notice to NCUA.

    (a) The credit union must provide the Regional Director for the 
region where the credit union is located with notice of its intent to 
convert during the 90 calendar day period preceding the date of the 
membership vote on the conversion.
    (b) The credit union must give notice to the Regional Director by 
providing a letter describing the material features of the conversion 
or a copy of the filing the credit union has made with another federal 
or state regulatory agency in which the credit union seeks that 
agency's approval of the conversion. The credit union must include with 
the notice to the Regional Director a copy of the notice the credit 
union provides to members under Sec. 708a.4, as well as, the ballot 
form and all written materials the credit union has distributed or 
intends to distribute to the members.
    (c) If it chooses, the credit union may provide the Regional 
Director notice of its intent to convert prior to the 90 calendar day 
period preceding the date of completion of the conversion. In this 
case, the Regional Director will make a preliminary determination 
regarding the methods and procedures applicable to the membership vote. 
The Regional Director will notify the credit union within 30 calendar 
days of receipt of the credit union's notice of intent to convert if 
the Regional Director disapproves of the proposed methods and 
procedures applicable to the membership vote. The credit union's prior 
submission of the notice of intent does not relieve the credit union of 
its obligation to certify the results of the membership vote required 
by Sec. 708a.6 or eliminate the right of the Regional Director to 
disapprove the actual methods and procedures applicable to the 
membership vote if the credit union fails to conduct the membership 
vote in a fair and legal manner.


Sec. 708a.6  Certification of vote on conversion proposal.

    The board of directors of the converting credit union must certify 
the results of the membership vote to the Regional Director within 10 
calendar days after the vote is taken. The board of directors must also 
certify at this time that the notice, ballot and other written 
materials provided to members were identical to those submitted 
pursuant to Sec. 708a.5 or provide copies of any new or revised 
materials and an explanation of the reasons for the changes.


Sec. 708a.7  NCUA oversight of methods and procedures of membership 
vote.

    (a) The Regional Director will issue a determination that the 
methods and procedures applicable to the membership vote are approved 
or disapproved within 10 calendar days of receipt from the credit union 
of the certification of the result of the membership vote required 
under Sec. 708a.6.
    (b) If the Regional Director disapproves of the methods by which 
the membership vote was taken or the procedures applicable to the 
membership vote, the Regional Director may direct that a new vote be 
taken.
    (c) The Regional Director's review of the methods by which the 
membership vote was taken and the procedures applicable to the 
membership vote includes determining that the notice to members is 
accurate and not misleading, that all notices required by this section 
were timely, and that the membership vote was conducted in a fair and 
legal manner.

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Sec. 708a.8  Other regulatory oversight of methods and procedures of 
membership vote.

    The federal or state regulatory agency that will have jurisdiction 
over the financial institution after conversion must verify the 
membership vote and may direct that a new vote be taken, if it 
disapproves of the methods by which the membership vote was taken or 
the procedures applicable to the membership vote.


Sec. 708a.9  Completion of conversion.

    (a) Upon receipt of approvals under Sec. 708a.7 and Sec. 708a.8 of 
this part, the credit union may complete the conversion transaction.
    (b) Within 30 calendar days after the effective date of the 
conversion, the board of directors of the mutual savings bank or mutual 
savings association must certify completion of the transaction to the 
Regional Director. NCUA will cancel the insurance certificate of the 
credit union and, if applicable, the charter of the federal credit 
union.


Sec. 708a.10  Limit on compensation of officials.

    No director or senior management official of an insured credit 
union may receive any economic benefit in connection with the 
conversion of the credit union other than compensation and other 
benefits paid to directors or senior management officials of the 
converted institution in the ordinary course of business.

[FR Doc. 98-31599 Filed 11-25-98; 8:45 am]
BILLING CODE 7535-01-U