[Federal Register Volume 64, Number 102 (Thursday, May 27, 1999)]
[Rules and Regulations]
[Pages 28733-28735]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13307]


-----------------------------------------------------------------------

NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708a


Conversion of Insured Credit Unions to Mutual Savings Banks

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The NCUA is issuing a final rule that revises its rules 
governing the conversion of insured credit unions to mutual savings 
banks or mutual savings associations. These revisions simplify the 
charter conversion process and reduce regulatory burden for insured 
credit unions that choose to convert. NCUA is making these revisions in 
compliance with federal legislation that mandates such revisions.

DATES: This rule is effective June 28, 1999.

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

SUPPLEMENTARY INFORMATION:

Background

    The Credit Union Membership Access Act (CUMAA) was enacted into law 
on August 7, 1998. Public Law 105-21. Section 202 of CUMAA amends the 
provisions of the Federal Credit Union (FCU) Act concerning conversion 
of insured credit unions to mutual savings banks or mutual savings 
associations. 12 U.S.C. 1785(b). CUMAA requires the NCUA to promulgate 
final rules regarding charter conversions within six months of that 
date that are: (1) consistent with CUMAA; (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 issued 
an interim final rule with request for comments that was effective 
November 27, 1998. 63 FR 65532 (November 27, 1998).

Final Rule

    With the benefit of having considered public comments on part 708a, 
NCUA issues this final rule and amends the interim final rule. As 
discussed more fully below, the changes from the interim final rule to 
the final rule consist of providing more flexibility to credit unions 
in choosing methods for delivering member notices, correcting an 
inadvertent, inconsistent use of language in the notice provision in 
Sec. 708a.5(c), and clarifying the purpose and scope of the 
certification provision in Sec. 708a.9(b). These amendments further 
reduce regulatory burden on converting credit unions, simplify the 
conversion process and provide continued consistent treatment of 
proposals to convert. NCUA finds it appropriate to allow credit unions 
to act immediately under this revised, less restrictive rule. 
Accordingly, pursuant to 5 U.S.C. 553(d)(1) and (3), the rule will be 
effective immediately and without 30 days advance notice of 
publication.

Summary of Comments

    The NCUA Board received eleven comment letters regarding the 
interim final rule: three from banking trade associations, three from 
credit union trade associations, one from an association of state 
credit union supervisors, three from FCUs and one from a law firm. They 
offered the following comments.

General Comments

    Three commenters approve of the interim rule as written and believe 
the rule is consistent with the provisions of CUMAA. As of the date of 
preparation of this final rule, three converting FCUs have opted to 
request NCUA review of their notice and other materials they intend to 
send to members in advance of the time frame required by part 708a. 
NCUA has reviewed these materials, had minor revisions, and the review 
has not delayed or unduly burdened the conversion process. The 
revisions incorporated into this final rule will further enhance part 
708a.
    One commenter contended generally that the rule is inconsistent 
with the charter conversion rules of other financial regulators. NCUA 
has reviewed the charter conversion rules of other financial regulators 
and has drafted this rule to be consistent with them. In contrast to 
the statutory and regulatory provisions governing conversions under the 
jurisdiction of other financial regulators, CUMAA imposes specific time 
frames and particular responsibilities on NCUA in the conversion 
process. Accordingly, because of this significant difference, this rule 
is not identical to those of the other financial regulators, but is 
nonetheless consistent with them.
    One commenter noted that in the preamble to the interim final rule, 
NCUA stated that it ``does not interpret the [Credit Union] Membership 
Access Act to preclude state regulatory authorities from imposing more 
restrictive charter conversion rules on federally insured state-
chartered credit unions.'' That commenter suggested the

[[Page 28734]]

following alternative language to make this point: ``NCUA does not 
interpret the [Credit Union] Membership Access Act to preempt state 
laws prohibiting conversions to thrift charter or imposing more 
restrictive requirements on the conversion of federally insured state 
chartered credit unions.'' This alternative language also reflects 
NCUA's interpretation of CUMAA.

Comments to Sec. 708a.4--Voting Procedures

    Two commenters recommended that NCUA permit methods of delivering 
member notices in addition to the United States Postal Service, 
including overnight couriers and in-hand delivery. One of these 
commenters stated that credit unions should be permitted to include the 
notices with other credit union mailings to reduce the cost of postage. 
NCUA agrees that credit unions should have more flexibility in choosing 
a method for delivering member notices than is provided in the interim 
final rule. The final rule provides that additional flexibility. Notice 
to members may not, however, be included with other credit union 
mailings. By requiring three separate deliveries of the notice to 
members 90, 60 and 30 days before the membership vote, NCUA believes 
that Congress indicated its intent for these notices to receive special 
attention. That level of attention would be lost if these notices were 
included with other mailings.
    One commenter stated that it would be appropriate for a credit 
union to address the conversion proposal at a regularly scheduled 
annual meeting and noted that this would save the cost of convening a 
special meeting for this purpose. The requirement of having a special 
meeting to consider the conversion proposal tracks the provisions of 
CUMAA and is consistent with the voting procedures of other financial 
regulators.

Comments to Sec. 708a.5--Notice to NCUA

    Two commenters acknowledged that CUMAA gives NCUA the statutory 
authority to require a converting credit union to provide notice of 
that intent to NCUA. These commenters suggest, however, that NCUA has 
overstepped this authority by requiring notice be in the form of a 
letter that states the material features of the conversion or a copy of 
the application filing made with another financial regulator. These 
alternative methods of providing notice are borrowed directly from the 
Office of Thrift Supervision regulations. 12 CFR 563.22(h). They are 
practical and reasonable and are not overly burdensome to credit 
unions.
    One commenter acknowledged that CUMAA specifically mandates NCUA to 
administer the member vote on conversion and review the methods by 
which the vote is taken and the procedures applicable to the membership 
vote. This commenter suggested, however, that NCUA has gone beyond this 
mandate by requiring a credit union to provide NCUA with copies of the 
written materials it has sent or intends to send to its members in 
connection with the conversion. This same commenter stated that NCUA 
has also gone beyond its statutory authority by reviewing whether 
notices to members are inaccurate or misleading and whether they are 
sent to members timely. NCUA believes a practical and unintrusive way 
to review the methods and procedures is to review the notice and other 
materials a converting credit union gives to its members. NCUA further 
believes it has the responsibility to ensure compliance with statutory 
time frames and the factual and legal accuracy of statements in those 
materials.
    One commenter noted that CUMAA provides that a converting credit 
union is to submit its notice to NCUA during the 90-day period 
preceding the date of the ``completion of the conversion,'' but the 
regulation requires notice during the 90-day period preceding the date 
of the ``membership vote on the conversion.'' NCUA purposefully used 
this language in the regulation. The date of completion of the 
conversion is not a date certain. Numerous events must occur throughout 
the conversion process that involve action by the converting credit 
union, NCUA, and the regulator that will supervise the credit union 
after conversion. The timing of these events can vary from conversion 
to conversion and cannot be predicted with any degree of certainty. 
Therefore, it is not practically feasible to calculate the notice 
period in relation to the date of completion of the conversion. In 
other sections of CUMAA, notice periods have been stated in relation to 
the date of the membership vote which is fixed in time. Accordingly, 
NCUA calculates the notice period provided in this section in relation 
to the fixed date of the membership vote. This enables practical 
application of the rule and is consistent with the other notice 
provisions in CUMAA.
    Three commenters noted that throughout the rule, notice periods are 
stated in relation to the date of the ``membership vote on the 
conversion,'' but in Sec. 708a.5(c), the notice period is stated in 
relation to the date of the ``completion of the conversion''. This 
inconsistency is inadvertent and is revised in the final rule so that 
all notice periods are stated in relation to the date of the 
``membership vote on the conversion.''

Comments to Sec. 708a.6--Certification of the Membership Vote

    One commenter suggested deleting the requirement that a converting 
credit union certify that the written materials sent to members are 
identical to those sent to NCUA for its review. Another commenter 
stated that converting credit unions should neither be required to 
provide copies to NCUA of new or revised materials sent to members that 
were not previously sent to NCUA, nor required to provide an 
explanation of the reasons for using new or revised documents. As noted 
above, reviewing the information that is provided to members by their 
credit union is central to administering the member vote on conversion 
and reviewing the methods by which the vote was taken and the 
procedures applicable to the member vote. Accordingly, the requirements 
of this section are necessary for NCUA to fulfill these statutory 
responsibilities.

Comments to Sec. 708a.9--Completion of Conversion

    Two commenters stated that NCUA does not have the authority to 
require the board of directors of the newly chartered mutual savings 
bank or mutual savings association to certify to NCUA that the 
conversion transaction has been completed. NCUA agrees. The purpose of 
this provision is to obtain notice of the completion of the conversion 
transaction so that NCUA may cancel the former credit union's insurance 
certificate, provide for the return of its 1% insurance deposit in 
accordance with 12 CFR 741.4(j), and if applicable, cancel its federal 
charter. The final rule reflects this change.

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 
final 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

[[Page 28735]]

in part 708a constitute a collection of information under the Paperwork 
Reduction Act. NCUA submitted a copy of this rule to the Office of 
Management and Budget (OMB) for its review. OMB has assigned control 
number 3133-0153 to this information collection.

Executive Order 12612

    Executive Order 12612 requires NCUA to consider the effect of its 
actions on state interests. This 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 has 
reviewed this rule and has determined that it is not major for 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 May 19, 
1999.
Becky Baker,
Secretary of the Board.

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

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

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

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

    2. Section 708a.4 is amended by revising the last sentence of 
paragraph (b) to read as follows:


Sec. 708a.4  Voting procedures.

* * * * *
    (b) * * * The notice to members must be submitted 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 submitted not 
less than 30 calendar days before the date of the vote.
* * * * *
    3. Section 708a.5 is amended by revising the first sentence of 
paragraph (c) to read as follows:


Sec. 708a.5  Notice to NCUA.

* * * * *
    (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 the membership vote on the conversion. * * 
*
    4. Section 708a.9 is amended by revising paragraph (b) to read as 
follows:


Sec. 708a.9  Completion of conversion.

* * * * *
    (b) Upon notification by the board of directors of the mutual 
savings bank or mutual savings association that the conversion 
transaction has been completed, the NCUA will cancel the insurance 
certificate of the credit union and, if applicable, the charter of the 
federal credit union.

[FR Doc. 99-13307 Filed 5-26-99; 8:45 am]
BILLING CODE 7535-01-U