[Federal Register Volume 82, Number 109 (Thursday, June 8, 2017)]
[Proposed Rules]
[Pages 26605-26615]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-11331]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 82, No. 109 / Thursday, June 8, 2017 /
Proposed Rules
[[Page 26605]]
NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Parts 701, 708a, and 708b
RIN 3133-AE73
Bylaws; Bank Conversions and Mergers; and Voluntary Mergers of
Federally Insured Credit Unions
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice of proposed rulemaking with request for comments.
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SUMMARY: The NCUA Board (Board) proposes to revise the procedures a
federal credit union (FCU) must follow to merge voluntarily with
another credit union. The proposed changes: Revise and clarify the
contents and format of the member notice; require merging FCUs to
disclose all merger-related financial arrangements for covered persons;
increase the minimum member notice period; and provide procedures to
allow reasonable member-to-member communications regarding the proposed
merger. The proposed changes also make conforming amendments to NCUA
regulations governing termination of federal share insurance when the
continuing credit union is not an FCU.
DATES: Comments must be received on or before August 7, 2017.
ADDRESSES: You may submit comments by any of the following methods
(Please send comments by one method only):
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
NCUA Web site: http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx. Follow the instructions for submitting comments.
Email: Address to [email protected]. Include ``[Your
name]--Comments on Voluntary Mergers of Federally Insured Credit
Unions'' in the email subject line.
Fax: (703) 518-6319. Use the subject line described above
for email.
Mail: Address to Gerard Poliquin, Secretary of the Board,
National Credit Union Administration, 1775 Duke Street, Alexandria,
Virginia 22314-3428.
Hand Delivery/Courier: Same as mail address.
Public Inspection: You can view all public comments on NCUA's Web
site at http://www.ncua.gov/Legal/Regs/Pages/PropRegs.aspx as
submitted, except for those we cannot post for technical reasons. NCUA
will not edit or remove any identifying or contact information from the
public comments submitted. You may inspect paper copies of comments in
NCUA's law library at 1775 Duke Street, Alexandria, Virginia 22314-
3428, by appointment weekdays between 9 a.m. and 3 p.m. To make an
appointment, call (703) 518-6546 or send an email to [email protected].
FOR FURTHER INFORMATION CONTACT: Elizabeth Wirick, Senior Staff
Attorney, or Benjamin M. Litchfield, Staff Attorney, Office of General
Counsel, 1775 Duke Street, Alexandria, VA 22314-3428 or telephone (703)
518-6540.
SUPPLEMENTARY INFORMATION:
I. Background
II. Section-by-Section Analysis
III. Conforming and Clarifying Amendments to Other NCUA Regulations
IV. Regulatory Procedures
I. Background
Section 205 of the Federal Credit Union Act (FCU Act) prohibits a
federally insured credit union (FICU) from merging or consolidating
with any other FICU without prior written approval of the Board.\1\
This includes the acquisition, either directly or indirectly, of the
assets or liabilities of any other FICU. In granting or withholding
approval for a merger, the Board is required to consider the following
statutory factors: The history, financial condition, and management
policies of the FICU; the adequacy of the FICU's reserves; the economic
advisability of the transaction; the general character and fitness of
the FICU's management; the convenience and needs of the members to be
served by the FICU; and whether the FICU is a cooperative association
organized for the purpose of promoting thrift among its members and
creating a source of credit for provident or productive purposes.\2\
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\1\ 12 U.S.C. 1785(b)(3).
\2\ 12 U.S.C. 1785(c).
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The Board adopted a voluntary merger rule pursuant to its authority
to administer the FCU Act.\3\ The voluntary merger rule requires credit
unions proposing to merge to submit a merger package that includes a
plan summarizing the details of the merger, including any ``merger-
related financial arrangements,'' and, for FCUs, proposed disclosures
to members.\4\ NCUA regional offices or, for corporate credit unions or
natural person credit unions with greater than $10 billion in assets,
the Office of National Examinations and Supervision (ONES), review the
merger package and, if the proposed merger meets the field of
membership and safety and soundness requirements, approve the
merger.\5\ The voluntary merger rule also requires merging FCUs to
inform their members about particular aspects of the merger plan and
give members the opportunity to vote on the merger.\6\
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\3\ 12 CFR 708b.
\4\ 12 CFR 708b.104.
\5\ 12 CFR 708b.105.
\6\ 12 CFR 708b.106.
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As with any maturing industry, the Board recognizes that credit
unions are experiencing a period of significant consolidation. Much of
this consolidation is occurring through voluntary mergers. This
increase in merger activity is a natural part of the business lifecycle
and can be driven by one or more of several factors including the
desire to provide members with additional products or services, the
difficulty in identifying successors for long-serving senior management
or volunteers, or the need for additional staff resources. As credit
unions seek to increase operating efficiencies through enhanced
economies of scale and scope, the Board expects this trend to continue.
Some credit unions may find themselves in the position of being a
potential merger partner with more than one credit union. In this
position, management must appropriately evaluate competing
opportunities and consider which merger partner would be in their
members' best interests in terms of member philosophy and continued or
expanded products or
[[Page 26606]]
services.\7\ Recent merger trends in the credit union industry,
however, suggest that some prospective merger partners may be seeking
to influence the merging credit union by offering financial incentives
to management and certain highly compensated employees to support the
merger that the Board believes should be disclosed to members.
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\7\ See 71 FR 77150, 77155 (Dec. 22, 2006). NCUA has previously
provided guidance on general duties of FCU directors in Letter to
Federal Credit Unions 11-FCU-02 (Feb. 2011).
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NCUA has analyzed recent voluntary merger transactions and is
seeking comments on revisions to the voluntary merger rule to address
these potential conflicts of interest. The proposed revisions address
the timing and contents of the notice provided to members of the
merging FCU, provide dissenting members with an opportunity to make
their views known to the general membership, address the material that
must be submitted to NCUA for review, and revise definitions. In
addition, the proposed rule reorganizes the current rule to improve
readability and clarity. These revisions will help ensure that a
merging FCU's member-owners have more complete and accurate information
regarding a proposed merger, including disclosure of financial
arrangements that could create conflicts of interest for credit union
management. The Board is asking for comment on all aspects of the
proposed rule.
The Board recognizes that the concerns addressed in the proposed
rule may not be limited to mergers where the merging credit union is an
FCU. Offering financial incentives to management and certain highly
compensated employees of a merging credit union to support a merger may
present safety and soundness risks, as well as member protection
issues, which endanger the continuing credit union regardless of
whether the merging credit union is an FCU or a federally insured,
state-chartered credit union (FISCU). Accordingly, the Board requests
specific comments on whether the proposed rule should also apply to
merging FISCUs.
II. Section-by-Section Analysis
Section 708b.2 Definitions
The Board proposes to require merging FCUs to disclose to members
any increase in compensation or benefits that any ``covered person''
will receive because of a merger. Accordingly, the proposed rule amends
Sec. 708b.2 by adding a definition for ``covered person,'' amending
the definition of ``merger-related financial arrangement,'' and
removing the definition of ``senior management official.'' In addition,
the proposed rule adds a definition of ``record date'' to clarify which
members are eligible to vote on a proposed merger.
Covered Person
The Board is proposing to expand the scope of the definition of
``merger-related financial arrangement'' to include compensation
arrangements with management and certain highly compensated employees
rather than just senior management officials or directors. In some
recent voluntary mergers involving smaller credit unions, the Board has
observed that the current definition of ``senior management official''
is under-inclusive, failing to capture some individuals who perform
significant managerial duties or exert substantial influence on credit
union decisions but do not have the title of chief executive officer,
assistant chief executive officer, or chief financial officer.
Often, a staff member with another title who is responsible for
functional areas such as lending or investments will play a similar
role as staff with titles covered under the current rule. The Board
believes that members have the right to know about all staff with
leadership roles and functions, regardless of title, who receive
increased compensation as a result of a merger transaction.
Accordingly, the Board is proposing to revise the definition of
``merger related financial arrangement'' to include payments made to
these individuals.
As a result, the Board is proposing to remove the definition of
``senior management official'' from Sec. 708b.2 and add a definition
for ``covered person.'' The term ``covered person'' would include the
credit union's chief executive officer or manager; the four most highly
compensated employees other than the chief executive officer or
manager; and any member of the board of directors or supervisory
committee.
The Board seeks specific comments on this approach including
whether the number of covered persons should be expanded to include
additional employees with management responsibility or who are in a
position of influence. For example, NCUA could require disclosure
regarding the ten most highly compensated employees to adequately
capture merger-related financial arrangements that may occur in mergers
involving large, sophisticated credit unions or lower the number to one
or two employees for smaller institutions. Alternatively, the Board
seeks specific comments on whether credit unions should be required to
disclose merger-related financial arrangements for all employees
regardless of management responsibility or level of influence. The
Board may adjust the definition of ``covered person'' in the final rule
based on the persuasiveness of the comments.
Merger-Related Financial Arrangement
The Board adopted a definition for ``merger-related financial
arrangement'' in 2010 as part of a rulemaking addressing, among other
things, conflicts of interest for senior management officials or
directors involved in bank conversions and voluntary mergers.\8\ The
definition is part of a disclosure regime designed to ensure that
members of a converting or merging credit union are aware of any
compensation or other benefits that senior management and directors may
receive as a result of a proposed conversion or merger.\9\
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\8\ 75 FR 81378 (Dec. 28, 2010).
\9\ 75 FR at 81384.
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The term ``merger-related financial arrangement'' is defined in the
current part 708b as any material increase in compensation (including
indirect compensation, for example, bonuses, deferred compensation, or
other financial rewards) or benefits that any board member or senior
management official of a merging credit union may receive in connection
with a merger transaction.\10\ A material increase means an increase
that exceeds 15% of the senior management official or director's
current compensation or $10,000, whichever is greater.
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\10\ 12 CFR 708b.2.
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This definition covers any compensation, of any sort, that meets
the 15% or $10,000 threshold that a senior management official or
director would not otherwise receive if the merging credit union does
not merge. Similar in scope to part 750, NCUA's regulation addressing
golden parachutes and indemnification payments, this includes
compensation paid by the continuing credit union or the merging credit
union.\11\ In determining whether
[[Page 26607]]
such compensation exists, NCUA applies a ``but for'' test to determine
whether the senior management official or director would not otherwise
receive the compensation but for the merger.
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\11\ The voluntary merger rule is also similar to the golden
parachute rule in its definition of ``payment.'' The golden
parachute rule defines ``payment'' as (a) any direct or indirect
transfer of any funds or any asset; (b) any forgiveness of any debt
or other obligation; (c) the conferring of any benefit; or (d) any
segregation of any funds or assets, the establishment or funding of
any trust or the purchase of or arrangement for any letter of credit
or other instrument, for the purpose of making, or pursuant to any
agreement to make, any payment on or after the date on which the
funds or assets are segregated, or at the time of or after such
trust is established or letter of credit or other instrument is made
available, without regard to whether the obligation to make such
payment is contingent on: (1) The determination, after such date, of
the liability for the payment of such amount; or (2) the
liquidation, after such date, of the amount of such payment. 12 CFR
750.1(i).
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In the years since adopting this definition, the Board has observed
that it has often been difficult for merging credit unions to determine
if a particular compensation increase meets the 15% or $10,000
threshold. For example, in some cases, a continuing credit union offers
a more robust package of benefits to its executives than the merging
credit union, and if a senior management official or director from the
merging credit union remains employed at the continuing credit union,
they will also receive those benefits. But when these benefits depend
on continued employment for an extended period, or are subject to
factors that are not yet known, as is the case with many pension plans,
comparing these potential future benefits to the thresholds may be
difficult.
To simplify compliance with the voluntary merger rule and ensure
that members have relevant information about the merger, the Board is
proposing to redefine ``merger-related financial arrangement'' to
include all increases in compensation or benefits that a covered person
has received during the 24 months prior to the date of the approval of
the merger plan by the boards of directors of both credit unions. The
definition would also include all future compensation or benefits that
would not be received but for the merger taking place, regardless of
the amount. While this may result in merging credit unions reporting
more information to members, the Board believes that the benefits to
members from the additional disclosures and the added clarity in the
rule outweigh the seemingly relatively minor burdens of any additional
reporting requirements. The proposed definition will apply to all
increases in compensation and benefits from either the merging or the
continuing credit union.
The Board has observed that some merging credit unions attempt to
define the term ``merger-related financial arrangement'' narrowly to
only include increases in compensation or benefits made around the same
time as the completion of the merger. This interpretation of what
constitutes a ``merger-related financial arrangement,'' however, is
inconsistent with NCUA's interpretation. The current definition of
``merger-related financial arrangement'' was never intended to only
apply to payments that are provided at the same time as the proposed
merger. Instead, the definition is broad in scope applying to any
increase in compensation or benefits that NCUA determines would not be
provided but for the merger regardless of whether that increase is made
before or after the completion of the merger. Accordingly, the Board
proposes to clarify the definition to make it unambiguous that the rule
applies both retrospectively and prospectively.
Under the current rule, the historical look back period is arguably
open-ended provided that NCUA believes that an arrangement is
sufficiently merger-related to warrant disclosure. However, it is
likely a rare occasion where merger conversations take place more than
two years before a merger package is submitted to NCUA for review.
Therefore, the Board is proposing to limit the historical look back
period to the immediate 24 months preceding the date of approval of the
merger plan by the boards of directors of both credit unions. To
simplify compliance, the Board is also proposing to require merging
FCUs to disclose all increases in compensation or benefits made during
the historical look back period regardless of whether that increase was
made because of the merger. This will help to avoid undue hardship on
merging FCUs. The Board requests comments on this aspect of the
proposed rule, including whether the Board should extend or shorten the
historical look back period. The Board could adjust the look back
period based on the persuasiveness of the comments.
While many merging FCUs make good faith efforts to comply with the
requirements of part 708b, the Board is aware of a few recent mergers
where merging FCUs were required to disclose severance payments that
appeared on their face to be structured as continued employment
agreements potentially to evade the disclosure requirements of the
voluntary merger rule. The Board seeks to clarify that under both the
current voluntary merger rule and the proposed rule, NCUA reserves the
right to review of any future compensation paid to covered persons of
the merging FCU by the continuing credit union if there are concerns
such compensation was tied to the merger.
The Board has also observed that some merging credit unions attempt
to define the term ``compensation'' narrowly to only include those
benefits specifically listed in the definition of ``merger-related
financial arrangement.'' This interpretation of what constitutes
compensation for purposes of the voluntary merger rule is in error. The
list of compensation and benefit arrangements included in the
definition of ``merger-related financial arrangement'' was never
intended to be an exhaustive, all-inclusive list. Accordingly, the
Board proposes to clarify the definition to make it unambiguous that
the rule applies to all compensation or benefits received in connection
with a merger transaction, including early payout of pension benefits
and increased insurance coverage.
The proposed revisions also require that the disclosure of merger-
related financial arrangements include the amount of the compensation
or benefits expressed in dollars, where possible. In several recent
mergers, credit unions have argued that expressing the increases as a
percentage is sufficient, but this fails to provide adequate context in
many cases. The Board agrees, however, that certain types of benefits,
such as pension plans contingent on future service and improvements in
insurance benefits, are not easily translated into a dollar figure. In
these cases, disclosing the existence of the additional compensation
will suffice. Also, for items such as pay raises, the Board agrees that
it is appropriate to express them as a dollar figure that will be
received over the course of a year instead of as an absolute dollar
amount. The Board seeks specific comments on this aspect of the
proposed rule including whether health care, retirement, and other
benefits offered on a nondiscriminatory basis to all employees of the
credit union should continue to be disclosed as merger-related
financial arrangements, and if so, how those benefits should be
addressed from a disclosure perspective.
Record Date
The Board is also adding a definition for ``record date'' to
clarify which members are eligible to vote on a proposed merger. For
various practical and legal considerations, it is commonplace for the
board of directors of a corporation to announce an official date by
which a shareholder must be an owner of the company in order to
participate in an annual meeting or corporate election. While the Board
has always interpreted NCUA's voluntary merger rule and the FCU Bylaws
to permit the directors of an FCU to set a record date, this authority
has never been explicitly stated in part 708b. By adopting this
definition and making corresponding changes to Sec. 708b.106, the
Board is clarifying the authority of
[[Page 26608]]
the directors of an FCU to set a record date.
Section 708b.105 Submission of Merger Proposal to NCUA
As part of the merger package, the proposed rule would require both
the merging and continuing credit union to submit board minutes to NCUA
that reference the merger during the 24 months preceding the date of
approval of the merger plan by the boards of directors of both credit
unions. In several recent mergers, review of board minutes has shed
light on potential conflicts of interest, including a situation where a
credit union chief executive officer voted on a merger proposal that
included significant merger-related compensation for himself. The board
minutes also provide helpful information on the types of alternatives
considered by the credit unions in addition to the merger proposal. The
Board seeks comments on this proposed requirement, including whether
the time period is the appropriate one.
In addition, the proposed rule would add a requirement that the
board of directors of the merging FCU and continuing credit union
certify that there are no merger-related financial arrangements other
than those disclosed to the members of the merging FCU in the member
notice.
Section 708b.106 Approval of the Merger Proposal by Members
The Board is also proposing amendments to Sec. 708b.106, which
sets out certain member notice requirements and procedures governing
the member vote when the merging credit union is an FCU. The proposed
rule will require member notices to be mailed at least 45 days, but no
more than 90 days, before the meeting to vote on the merger. The
proposed rule will also revise the content of the member notice to
provide additional information and clarity for members. Furthermore,
the proposed rule will establish procedures to allow for reasonable
member-to-member communication in advance of a proposed merger.
Timing Requirements for Member Notice
Members of an FCU that is proposing a voluntary merger must have
the opportunity to vote on the merger proposal at a meeting.\12\ The
current voluntary merger rule allows this meeting to be either a
special meeting or at the annual meeting if the FCU's regularly
scheduled annual meeting will occur within 60 days after NCUA's
approval of the proposed merger.\13\ Members must receive notice of the
meeting as required by the FCU Bylaws.
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\12\ 12 CFR 708b.106.
\13\ 12 CFR 708b.106(a)(1).
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The FCU Bylaws require that FCUs mail notices of annual meetings at
least 30 days, but not more than 75 days, before the annual
meeting.\14\ In contrast, the FCU Bylaws only require FCUs to mail
notices for special meetings at least 7 days before the meeting.\15\
Thus, if the merger proposal is to be considered at a special meeting,
members may have only a few days advance notice of a meeting under the
current voluntary merger rule and the FCU Bylaws.
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\14\ 12 CFR 701, App. A, Art. IV, Sec. 2.
\15\ Id.
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The Board is concerned that the current voluntary merger rule's
reference to the provisions of the FCU Bylaws may, in many cases,
result in an insufficient notice period for members of a merging FCU.
Members who cannot or do not wish to attend the merger meeting need
time to return their mail ballot so it is received before the date and
time of the meeting. If an FCU uses a third-party teller of elections,
the teller may not be located in the same area as the FCU or member,
and return mail could take additional time. Even if the FCU, member and
teller are in the same area, seven days may be insufficient. For
example, the Board is aware that in at least one recent proposed
merger, an FCU complied with the regulation and mailed the member
notices seven days before the meeting, but with mail delays due to a
federal holiday during the seven-day period, members did not receive
the special meeting notice in time to mail it back before the special
meeting.
In addition to allowing time for mail delivery and return mail,
members need time to consider fully the ramifications of the merger,
including the question of whether to transfer their credit union's
field of membership and net worth to another credit union. The contents
of the member disclosure may also raise questions that members want the
FCU's leadership to address before the merger vote. In at least one
recent merger where the merging FCU mailed member notices several weeks
before the special meeting, far longer than required under the current
regulation, members were dissatisfied with the notice period and
contacted NCUA. Allowing additional time between the time the merging
FCU sends the member notice and the meeting will provide the merging
FCU's membership with adequate time to consider the merger and provide
the credit union leadership the time necessary to address any member
questions.
Accordingly, the proposed rule would replace the reference to the
FCU Bylaws for the timing of the delivery of the member notice with a
requirement that the member notice be mailed at least 45 days, but no
more than 90 days, before the meeting to vote on the merger. The
proposed rule would also revise the notice requirement in Article IV of
the FCU Bylaws to be consistent.
The Board believes a notice period of at least 45 days is
sufficient to provide for members to respond to a proposed merger, make
inquiries, and plan to attend the merger meeting, but not so much time
as to be inefficient or that members will forget about the merger
meeting and opportunity to vote. Furthermore, the proposed requirement
for a notice period of at least 45 days is no more rigorous than the
notice requirements for other similar transactions. For example, credit
unions seeking to merge into a bank must provide members with clear and
conspicuous disclosures 90 days prior to the date of the membership
vote on the merger and, again, 30 days before the date of the
membership vote on the merger.\16\
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\16\ 12 CFR 708a.305(a).
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However, the Board recognizes that under certain circumstances 45
days may be too long for a merging FCU to wait to complete a merger.
For example, a merging FCU may have operational or financial
difficulties that do not yet rise to the level of putting the merging
FCU in danger of insolvency but nevertheless require a merger to be
completed within a shorter period of time. On the other hand, 45 days
may not be enough time for a merging FCU to complete a contentious
merger where there are multiple member-to-member communications that
the credit union wishes NCUA to review. Accordingly, the Board seeks
specific comments on whether stakeholders agree with the proposed
changes regarding the timing of notices. The Board may adjust the
timing of notices depending on the persuasiveness of the comments.
Contents of Member Notice
The Board is also proposing to revise the voluntary merger rule's
requirements related to the content of the member notice. The Board has
received many questions about the meaning of the current requirements
and what, precisely, merging FCUs must disclose. The proposed revisions
will update the rule to reflect present-day concerns, add clarity, and
make it easier
[[Page 26609]]
for members to understand the basic elements of the merger transaction.
The current voluntary merger rule's requirements in this area are
based on the Board's responsibility to ensure that the merger meets the
convenience and needs of the members \17\ and an FCU board acts in the
members' best interests.\18\ In assessing the effects of a proposed
merger, members need to know how the merger will affect their access to
the continuing credit union, which includes details such as whether the
continuing credit union plans to keep open the office locations of the
merging FCU and the other office locations of the continuing credit
union. Members also need to know whether certain benefits such as
savings life insurance or credit life insurance will continue after the
proposed merger.
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\17\ 12 U.S.C. 1785(c)(4).
\18\ 12 CFR 701.4(b)(1).
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Members must also know how the merger will affect the products and
services that members currently receive from the merging FCU.
Furthermore, members' interests in the transaction extend beyond
practical matters of access and services, because the merging FCU's net
worth belongs to the members. Members need to understand how much of
the merging FCU's net worth will transfer to the continuing credit
union. Members also have a right to know if the management and other
covered persons of their credit union will personally benefit from the
merger transaction. This critical issue is discussed in some detail
above.
To ensure that the member notice contains all relevant information
in a format members can easily understand, the proposed rule would
restructure the current voluntary merger rule's paragraph describing
the summary of the merger plan into a list of shorter, easier to read,
paragraphs. The proposed changes would improve readability and clarify
exactly what information NCUA requires merging FCUs to disclose to
their members. The proposal would also simplify certain items listed in
the current rule.
One clarification relates to the physical locations of the
continuing credit union. Current Sec. 708b.106(a)(2)(iv) requires a
list of the names and locations of the continuing credit union and its
branches. The Board is aware that an important issue to members of the
merging FCU is whether the locations of the continuing credit union
will be convenient. This means the members need to know whether the
continuing credit union plans to maintain the current location(s) of
the merging FCU and the location of the continuing credit union's
branches. Yet the current rule does not explicitly require this
information, and the Board has noted member notices in several recent
mergers where the location information provided to members was
incomplete or inaccurate. Many member notices listed the names and
locations without providing addresses. The Board has also discovered
errors in several other recent member notices that incorrectly
identified locations.
The proposed revisions to Sec. 708b.106 require specific
disclosures about the continuing credit union's plans for the locations
of the merging FCU and a list, including street address, of the
continuing credit union's locations. As it could be impractical for a
continuing credit union to list all its branches, the proposal requires
a list of locations that are in reasonable proximity to the location(s)
of the merging FCU. These proposed revisions will ensure that members
understand how they will be able to access physical locations of their
credit union after the merger.
The proposed revisions would also address the meaning of ``an
analysis of share values'' and ``explanation of any share adjustment.''
These terms mean that the member notice should inform members about the
net worth of the merging FCU relative to the net worth of the
continuing credit union, and whether any of the merging FCU's net worth
will be returned to members of the merging FCU in the transaction. An
FCU would be permitted to include a short statement explaining its net
worth level, subject to review by NCUA as part of its overall review of
the merging FCU's disclosures.
As the Board has previously noted, a merging FCU may have a higher
net worth ratio because it did not expend its capital offering
additional services or providing better facilities.\19\ In these cases,
it may be appropriate for the merger partners to consider whether the
members of the merging FCU should receive some of this net worth
through a share adjustment.
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\19\ 75 FR 15574, 15584 (Mar. 29, 2010).
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On the other hand, the credit unions may appropriately determine
that offering additional or improved services or facilities to members
of the merging FCU offsets the higher net worth of the merging FCU. The
Board emphasizes that it is not requiring or encouraging share
adjustments, but simply requiring merging FCUs to provide a more
detailed explanation of how much of the merging FCU's net worth will
transfer to the continuing credit union and how much, if any, will be
rebated to the members of the merging FCU through a share adjustment.
The updated language in the proposed rule is designed to be easier for
members to work with than the current voluntary merger rule's
terminology of ``share values'' and ``share adjustment.''
Another proposed revision relates to how credit unions present the
member notice information. If the member notice fails to present
critical information or presents it in such a way as to obscure
critical details, then members will not be able to make a fully
informed decision. Accordingly, merging FCUs must present information
to their members in a way that is legible and easily understood.
The Board has observed several member notices in recent mergers
that were deficient in this respect. In some recent mergers, FCUs
provided member notices that refer to multi-page attachments for
critical information such as an explanation of share adjustments or
merger-related financial arrangements. While the current voluntary
merger rule does not explicitly prohibit this practice, allowing it to
continue hinders the goal of having merging FCUs fully inform their
members about how the merger is likely to affect them.
The proposed revisions would require that the member notice include
at least a summary statement for each component of the merger that is
required to be disclosed without referring members to a separate
attachment, although credit unions may provide additional information
or explanations in the attachments. Members should not be made to page
through voluminous and wordy attachments to ascertain the core details
of the merger transaction that most affect them and their membership
interests.
In most cases, an adequate and informative member notice will need
to be no more than a couple of sentences or a short paragraph for each
aspect of the merger. The proposed amendments would retain the existing
requirement to supply current and consolidated financial statements to
members, but the proposed rule would require these statements to be
separate documents as they are generally presented as tables and can
distract from other important disclosures in the member notice. FCUs
would also provide the ballot for the merger proposal as a separate
document consistent with existing requirements in
[[Page 26610]]
NCUA's bank conversions and mergers rule, part 708a.\20\
---------------------------------------------------------------------------
\20\ 12 CFR 708a.104(a) (``A ballot must be included in the same
envelope as the 30-day notice and only in the 30-day notice.'').
---------------------------------------------------------------------------
The changes to the contents of the member notice are proposed with
the objective of helping to ensure members have adequate information to
evaluate the proposed merger without imposing any significant
additional burden on merging or continuing credit unions. If the
proposed changes are adopted as a final rule, NCUA will issue a revised
version of the credit union merger manual with updated forms
corresponding to the changes. The use of a pre-approved, standardized
format will speed NCUA's review and approval process.
The Board specifically invites comment on whether the proposed
changes to the member notice are needed and sufficiently targeted to
assist members in understanding the proposed merger transaction. The
Board also invites comment on whether the member notice should be
narrowed or expanded to include other items, such as ATM access and
comparisons of fees for commonly used services.
Member-to-Member Communications
The proposed rule also includes a new paragraph that establishes
procedures to allow for member-to-member communications in advance of a
member vote on a proposed merger consistent with existing requirements
in NCUA's bank conversions and mergers rule.\21\ As part of the member
notice, FCUs would be required to inform members that if they wish to
provide their opinions about the proposed merger to other members, they
can submit their opinions in writing to the merging FCU within 30
calendar days of receipt of the notice, and the FCU will forward those
opinions to other members.
---------------------------------------------------------------------------
\21\ See 12 CFR 708a.104(f).
---------------------------------------------------------------------------
The interaction of the timeframes for: (1) The submission and
receipt of the member-to-member communication with (2) the minimum
required time period for receipt of the member notice before the member
vote is taken, will work well in the vast majority of voluntary
mergers. However, the Board is aware that, in some cases, the timing
could force a merging FCU to postpone the date of the member vote. For
example, if a merging FCU provides the minimum notice period of 45
days, and a member uses the maximum of the 30 days permitted to submit
a member-to-member communication, there would be no time for the
merging FCU to send the member-to-member communication and still comply
with the requirement that members receive the member-to-member
communication at least 15 days before the vote.
Accordingly, the Board encourages members desiring to communicate
with other members about the merger to submit their communication as
soon as possible during the 30-day period allotted. Similarly, merging
FCUs that anticipate a member-to-member communication may want to
provide the member notice earlier than 45 days before the vote to avoid
having to postpone the vote.
The Board believes that the timeframes of the proposed rule allow
merging FCUs the flexibility to choose a time for sending the member
notice that fits their particular circumstances. The leadership of the
merging FCU will be in the best position to anticipate whether to
expect a member-to-member communication. If a merging FCU believes that
no member-to-member communication will occur, then sending notice to
members 45 days before the vote may be sufficient although subject to
potential problems. If, however, a merging FCU anticipates needing
additional time to transmit or to contest a member-to-member
communication, it can choose to send the notice to members earlier than
45 days before the vote.
As with the time period for the member notice, the Board is also
open to changing the proposed rule's requirements for the timeframes
related to member-to-member communications to reasonably longer or
shorter periods of time based on the persuasiveness of the comments
received.
The member notice must provide contact information at the merging
FCU for delivery of such communications, must explain that members must
agree to reimburse the credit union's costs of transmitting the
communication, and must refer members to this provision of the
voluntary merger rule for further information about the communication
process. The merging FCU must ensure that members receive all
appropriate communications from other members no later than 15 days
before the member vote on the proposed merger.
Consistent with the bank conversions and mergers rule, a merging
FCU may, at its option, include a statement with the member-to-member
communication notifying members that the communication represents the
opinion of a member of the merging FCU and does not necessarily reflect
the views of the management or directors of the FCU.\22\ To avoid
potentially misleading member communications, a merging FCU should
submit member-to-member communications to the appropriate regional
director or director of ONES within seven days of receipt of the
communication if it believes that the communication is false or
misleading with respect to any material fact, omits material facts
necessary to make the statements in the communication true or accurate,
relates to a personal claim or grievance, or otherwise is not proper.
An FCU, however, may not add any additional information to the member
communication without prior approval of a regional director or the
director of ONES.
---------------------------------------------------------------------------
\22\ 12 CFR 708a.104(f)(3)(i).
---------------------------------------------------------------------------
While these requirements were previously reserved only for credit
union to bank conversions, the Board is proposing these procedures for
credit union to credit union mergers as well. The Board has observed in
a recent merger a significant disparity between the high number of
members voting to approve the proposed merger by mailed ballot compared
to the low number of members voting to approve the merger in person at
a member meeting. While such procedures are permissible under NCUA's
regulations, the Board is concerned that members voting by mailed
ballot do not benefit from the rigorous debate that may take place
during a member meeting where members are free to discuss the proposed
merger openly with management or the directors of the FCU.
This proposed addition to the voluntary merger rule allows members
to communicate with other members in advance of the merger vote, and
provides the opportunity for members to share ideas with other members
who may be unable to attend the member meeting. These new procedures
will allow for healthy member debate of a proposed merger prior to a
member vote. While this may result in additional administrative burdens
on merging FCUs, the Board believes that requiring merging FCUs to
facilitate member-to-member communications is the least restrictive
means to achieve this compelling objective of ensuring that members
vote on a proposed merger with all information reasonably available to
them.
Sections 708b.202 and 204 Notice to Members of Proposal To Terminate on
Convert Insurance
To be consistent throughout the regulations, the Board is also
proposing to amend the timing of the member notice requirement for
federally insured
[[Page 26611]]
credit unions seeking to terminate federal share insurance or convert
to non-federal share insurance, through merger or otherwise. NCUA
regulations currently require that the credit union mail notices to
members at least seven days, but not more than 30 days, before the
membership vote that will result in the loss of federal share
insurance.\23\ The proposal would change the required time for mailing
the notice to at least 45 days, but not more than 90 days, before the
member vote. This is consistent with the member notice period for
voluntary mergers.
---------------------------------------------------------------------------
\23\ 12 CFR 708b.202, 204.
---------------------------------------------------------------------------
III. Conforming and Clarifying Amendments to Other NCUA Regulations
Appendix A to Part 701 Federal Credit Union Bylaws
As discussed above, the Board proposes to require the merging FCU
to mail member notices at least 45 days, but no more than 90 days,
before the meeting to vote on a proposed merger. Accordingly, the Board
is proposing to amend Article IV of the FCU Bylaws to be consistent
with the proposed amendments to part 708b.
Sections 708a.104 and 708a.305 Conversions and Mergers Into Banks;
Disclosures and Communications to Members
The Board proposes to clarify the member-to-member communication
requirements in Sec. 708a.104(f)(3) and (g)(3) of NCUA's bank
conversions and mergers rule, part 708a, to address circumstances where
a member wishes to reply to a member-to-member communication sent by
email. Part 708a, in relevant part, sets out the parameters and
procedures by which a FICU may convert to a mutual savings bank or
merge into a bank.
The clarification addresses circumstances where a member receiving
a member-to-member communication by email attempts to reply to that
communication. The source of the sent member-to-member communication
may not be clear to members receiving it. For example, in one recent
bank conversion attempt, members responding to a member-to-member
communication unknowingly sent their responses to the converting credit
union because it was not clear to them that the credit union was the
actual sender, on behalf of the communicating member, of the email
rather than the communicating member.
The Board is aware that if a FICU converting to or merging into a
bank sends the member-to-member communication, on behalf of the
communicating member, from its own email system, it is difficult to
have the ``reply'' function direct a reply email back to the
communicating member. The Board also realizes that some members
replying to a member-to-member communication may wish to contact the
credit union and not the communicating member. Accordingly, the Board
is not proposing to dictate where replies to an emailed member-to-
member communication are directed, but to require disclosure to inform
members about where the reply goes.
This requirement could be satisfied in a variety of ways. For
example, if a reply would go to the credit union's third-party email
provider, the converting or merging FICU could send a message stating
that if the member wants to contact either the credit union or the
communicating member, they should do so using the respective email
addresses for the credit union or the communicating member. The Board
does not want FICUs to have to alter email systems and technologies to
forward member-to-member communications.
As discussed above, with respect to FCUs seeking to merge with
other FICUs pursuant to part 708b, the Board also proposes to require
merging FCUs to facilitate member-to-member communications.
Accordingly, the clarification made to part 708a regarding member-to-
member communications involving bank conversions or mergers would also
be incorporated in a similar way into the proposed amendments to part
708b.
IV. Regulatory Procedures
1. Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
of any significant economic impact a regulation may have on a
substantial number of small entities (primarily those under $100
million in assets).\24\ As discussed below, the proposed rule only
impacts a small number of small FCUs and FICUs and imposes costs that
are either absorbed by other parties or offset by decreases in
regulatory compliance burden.
---------------------------------------------------------------------------
\24\ 5 U.S.C. 603(a).
---------------------------------------------------------------------------
Number of Small Entities Affected
The proposed rule will not affect a substantial number of small
entities. Based on recent experience, the requirements for merging FCUs
in subpart A of part 708b will only apply to about 138 small FCUs each
year. With nearly 3,000 small FCUs currently in the credit union
system, this is not a substantial number of small FCUs.
The requirements for bank conversions or terminating federal share
insurance coverage in subpart B of part 708b will apply to even fewer
small FICUs. In recent experience, bank conversions have all involved
FICUs with greater than $100 million in assets. While some small FICUs
may seek to convert to banks, the Board does not believe that this
number will be substantial. Likewise, while a majority of the FICUs
terminating federal share insurance coverage have less than $100
million in assets, only an average of 5 small FICUs terminate federal
share insurance coverage each year.
Economic Impact on Small Entities
The economic impact of the proposed rule will also be minimal. In
almost all cases, a small FCU merges into a much larger FICU. The
larger FICU often assists the small FCU with each step in the merger
process keeping the economic impact on the small FCU to a minimum.
Additionally, subpart A of part 708b will require communicating members
to reimburse small FCUs for reasonable expenses decreasing the likely
economic impact of the new member-to-member communication requirements.
Moreover, the requirement to disclose all merger-related financial
arrangements will, in some instances, simplify compliance for merging
FCUs with such arrangements. Merging FCUs will no longer be required to
determine whether the merger-related financial arrangement is a
``material'' increase in compensation or whether the employee is a
``senior management official'' as defined in current Sec. 708b.2. As
discussed above, a number of small FCUs have struggled with this
analysis in recent mergers despite good faith efforts to comply with
the voluntary merger rule.
Furthermore, the slight increase in the overall time period
required to consummate mergers or terminate federal share insurance in
subparts A and B of part 708b should not have a significant impact on
small FCUs and FICUs.
Accordingly, NCUA certifies that this regulation will not have a
significant economic impact on a substantial number of small
entities.\25\
---------------------------------------------------------------------------
\25\ 5 U.S.C. 605(a).
---------------------------------------------------------------------------
2. Paperwork Reduction Act
In accordance with the requirements of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501, et seq.) (PRA), the
[[Page 26612]]
NCUA may not conduct or sponsor, and the respondent is not required to
respond to, an information collection unless it displays a currently
valid Office of Management and Budget (OMB) control number.
Information collection requirements for parts 708a and 708b are
assigned OMB control numbers 3133-0182 and 3133-0024, respectively.
Proposed revisions to these currently approved collections due to these
proposed amendments have been submitted to OMB for approval in
accordance with 5 CFR 1320.11.
The Board invites comment on (a) whether the collections of
information are necessary for the proper performance of the agency's
function, including practical utility; (b) the accuracy of estimates of
the burden of the information collections, including the validity of
the methodology and assumptions used; (c) ways to enhance the quality,
utility, and clarity of the information being collected, and (d) ways
to minimize the burden of the information collection on respondents,
including through the use of automated collection techniques or other
forms of information technology.
All comments are a matter of public record. Comments regarding the
information collection requirements of this rule should be sent to (1)
Dawn Wolfgang, NCUA PRA Clearance Officer, National Credit Union
Administration, 1775 Duke Street, Suite 5067, Alexandria, Virginia
22314-3428, or Fax No. 703-519-8579, or Email at [email protected]
and the (2) Office of Information and Regulatory Affairs, Office of
Management and Budget, Attention: Desk Officer for NCUA, New Executive
Office Building, Room 10235, Washington, DC 20503, or email at
[email protected].
Titles: 12 CFR part 708a, Bank Conversions and Mergers (OMB No.
3133-0182) and 12 CFR part 708b, Mergers of Federally-Insured Credit
Unions; Voluntary Termination or Conversions of Insured Status (OMB No.
3133-0024).
Frequency: Event generated.
Affected Public: FICUs (708a); FCUs (708b).
Part 708a: The Board proposes to clarify the member-to-member
communication requirements in Sec. Sec. 708a.104(f)(3) and
708a.305(g)(3) to address circumstances where a member wishes to reply
to a member-to-member communication sent by email. If applicable, the
converting credit union must notify members using the ``reply'' feature
that the email has been directed to an address other than the
requesting member's and identify to whom the response was sent. This
provision is also included under Sec. 708b.106(d)(5).
Part 708b: The Board is proposing to add a requirement that, where
the merging credit union is an FCU, the merging and continuing credit
unions include at least two years of board minutes in the merger
package submitted to NCUA under Sec. 708b.104(a). The merger package
would also include a new certification from both credit unions that
there are no merger-related financial arrangements other than those
that would be disclosed to the merging FCU's members. The proposed rule
would also amend the contents of the member notice for members of
merging FCUs in Sec. 708b.106(b) to require a detailed description of
any merger-related financial arrangements involving a covered person
and additional information about the physical locations of the merging
and continuing credit unions.
Additionally, proposed Sec. 708b.106(d) would establish a
mechanism for member-to-member communications and require a merging FCU
to ensure that its members receive any member-to-member communication
at least 15 calendar days before a vote. Should the merging FCU believe
the member's request is not proper, it must submit the request to the
regional director for determination.
Estimated Number of Respondents: 1 (708a); 138 (708b).
Estimated Total Burden Hours: 712 (708a; increase of 2 hours);
8,120 (708b; increase of 558 hours).
3. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to
consider the impact of their actions on state and local interests.
NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5),
voluntarily complies with the executive order to adhere to fundamental
federalism principles. The final rule does not have substantial direct
effects on the states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. NCUA has
therefore determined that this final rule does not constitute a policy
that has federalism implications for purposes of the executive order.
4. Assessment of Federal Regulations and Policies on Families
NCUA has determined that this rule will not affect family well-
being within the meaning of section 654 of the Treasury and General
Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681
(1998).
List of Subjects
12 CFR Part 701
Advertising, Credit, Credit unions, Fair housing, Insurance,
Reporting and recordkeeping requirements.
12 CFR Part 708a
Credit unions, Conversions, Mergers of credit unions, Reporting and
recordkeeping requirements
12 CFR Part 708b
Credit unions, Mergers of credit unions.
By the National Credit Union Administration Board, on May 25,
2017.
Gerard Poliquin,
Secretary of the Board.
For the reasons discussed above, the National Credit Union
Administration proposes to amend 12 CFR parts 701, 708a and 708b as
follows:
PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS
0
1. The authority citation for part 701 is revised to read as follows:
Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759,
1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section
701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also
authorized by 15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610.
Section 701.35 is also authorized by 42 U.S.C. 4311-4312.
0
2. Revise the first sentence of paragraph a. of Section 2 of Article IV
of appendix A to part 701 to read as follows:
Appendix A to Part 701--Federal Credit Union Bylaws
* * * * *
Article IV. Meetings of Members
* * * * *
Section 2. Notice of meetings required. a. The secretary must
give written notice to each member of meetings: At least 30 but no
more than 75 days before the date of the annual meeting; at least 7
days before the date of any special meeting; and at least 45 but no
more than 90 days before the date of any meeting to vote on a merger
with another credit union or a conversion to or merger with a bank.
* * *
* * * * *
PART 708a--BANK CONVERSIONS AND MERGERS
0
3. Revise the authority citation for part 708a to read as follows:
Authority: 12 U.S.C. 1752(7), 1766, 1785(b), 1785(c), and 1789.
[[Page 26613]]
0
4. Add Sec. 708a.104(f)(3)(iii) to read as follows:
Sec. 708a.104 Disclosures and communications to members.
* * * * *
(f) * * *
(3) * * *
(iii) If use of any ``reply'' or ``reply to'' function in a
member's emailed material causes an email to be directed to any email
address other than the requesting member's email address (such as the
credit union's email address), the converting credit union must notify
members using the ``reply'' or ``reply to'' function that the email has
been directed to an address other than the requesting member's and
identify to whom the response was sent.
* * * * *
0
5. Add Sec. 708a.305(g)(3)(iii) to read as follows:
Sec. 708a.305 Disclosures and communications to members.
* * * * *
(g) * * *
(3) * * *
(iii) If use of any ``reply'' or ``reply to'' function in a
member's emailed material causes an email to be directed to any email
address other than the requesting member's email address (such as the
credit union's email address), the converting credit union must notify
members using the ``reply'' or ``reply to'' function that the email has
been directed to an address other than the requesting member's and
identify to whom the response was sent.
* * * * *
PART 708b--MERGERS OF FEDERALLY-INSURED CREDIT UNIONS; VOLUNTARY
TERMINATION OR CONVERSION OF INSURED STATUS
0
6. The authority citation for part 708b is revised to read as follows:
Authority: 12 U.S.C. 1752(7), 1766, 1785, 1786, and 1789.
0
7. Amend Sec. 708b.2 as follows:
0
a. Add a definition in alphabetical order for ``covered person''.
0
b. Revise the definition of ``merger-related financial arrangement''.
0
c. Add a definition in alphabetical order for ``record date''.
0
d. Remove the definition for ``senior management official''.
The additions and revision read as follows:
Sec. 708b.2 Definitions.
* * * * *
Covered person means the chief executive officer or manager (or a
person acting in a similar capacity); the four most highly compensated
employees other than the chief executive officer or manager; and any
member of the board of directors or the supervisory committee.
* * * * *
Merger-related financial arrangement means any increase in
compensation or benefits that any covered person of a merging credit
union has received during the 24 months prior to the date of the
approval of the merger plan by the boards of directors of both credit
unions. It also means any increase in compensation or benefits that any
covered person of a merging credit union will receive in the future
because of the merger. This definition includes all direct and indirect
compensation, such as salary, bonuses, deferred compensation, early
payout of retirement benefits, increased insurance benefits, or any
other financial rewards or benefits.
* * * * *
Record date means a date announced by the board of directors of a
merging credit union as the official date by which a person must have
been a member of the merging credit union in order to be eligible to
vote on a proposed merger.
* * * * *
0
8. Amend Sec. 708b.104 by revising paragraphs (a)(8) and (9) and
adding paragraphs (a)(10) and (11) to read as follows.
Sec. 708b.104 Submission of merger proposal to NCUA.
(a) * * *
(8) If the merging credit union's assets on its latest call report
are equal to or greater than the threshold amount established and
published in the Federal Register annually by the Federal Trade
Commission under 15 U.S.C. 18a(a)(2)(B)(i), a statement about whether
the two credit unions intend to make a Hart-Scott-Rodino Act premerger
notification filing with the Federal Trade Commission and, if not, an
explanation why not;
(9) For mergers where the continuing credit union is not federally
insured and will not apply for federal insurance:
(i) A written statement from the continuing credit union that it
``is aware of the requirements of 12 U.S.C. 1831t(b), including all
notification and acknowledgment requirements''; and
(ii) Proof that the accounts of the credit union will be accepted
for coverage by the nonfederal insurer (if the credit union will have
nonfederal insurance);
(10) For mergers where the merging credit union is a federal credit
union, board minutes for the merging and continuing credit union that
reference the merger during the 24 months prior to the date of the
approval of the merger plan by the boards of directors of both credit
unions; and
(11) For mergers where the merging credit union is a federal credit
union, a certification from the merging credit union and the continuing
credit union that there are no merger-related financial arrangements
other than those disclosed in the notice required under paragraph
(a)(4) of this section in connection with the proposed merger.
* * * * *
0
9. Revise Sec. 708b.106 to read as follows:
Sec. 708b.106 Approval of the merger proposal by members.
(a) Advance notice of member vote. If the merging credit union is a
federal credit union, members must receive at least 45 calendar days,
but no more than 90 calendar days, advance written notice of any member
meeting called to vote on the merger proposal.
(b) Contents of member notice. While the merging credit union may
refer members to attachments for additional information or explanation,
the notice provided to members pursuant to paragraph (a) of this
section shall, at a minimum, contain the following:
(1) A statement of the purpose of the meeting and the time and
place;
(2) A statement of the right of members to vote on the merger
proposal in person or by mail ballot to be received no later than the
date and time announced for the member meeting called to vote on the
merger proposal;
(3) A statement of the right of members to communicate with other
members by mail or email pursuant to paragraph (d) of this section;
(4) A summary of the merger plan, including but not necessarily
limited to:
(i) A statement that the merging credit union does or does not have
a higher net worth percentage than the continuing credit union;
(ii) A statement as to whether the members of the merging credit
union will receive a share adjustment or not, including a summary of
reasons for the decision and, at the merging credit union's discretion,
a short explanation about the capital level;
(iii) An explanation of any changes in insurance such as life
savings protection insurance or loan protection insurance;
(iv) An explanation of any changes related to federal share
insurance (if the continuing credit union is not federally insured);
and
(v) A detailed description of all merger-related financial
arrangements
[[Page 26614]]
involving a covered person (e.g., the amount of any increase in the
covered person's compensation, bonus, deferred compensation, insurance
benefits, or other financial benefits including early payouts of
retirement benefits provided because of the merger). This description
must include the recipient's name and title as well as, at a minimum,
the amount of the merger-related financial arrangement expressed, where
possible, as a dollar figure;
(5) A statement of the reasons for the proposed merger; and
(6) A statement identifying the physical locations of the merging
credit union by street address, stating whether each location is to be
closed or retained, and a list of branches of the continuing credit
union by street address that are located in reasonable proximity to the
merging credit union's locations.
(c) Additional documents. The notice provided to members pursuant
to paragraph (a) of this section shall be accompanied separately by the
following documents:
(1) The current financial statements for each credit union and a
consolidated financial statement for the continuing credit union;
(2) Any additional information or explanatory material that the
merging credit union wishes to provide that does not detract from the
required disclosures and gives further detail to members regarding
information disclosed pursuant to paragraph (b) of this section; and
(3) A Ballot for Merger Proposal.
(d) Member-to-member communications. Within 30 calendar days of
receiving the notice provided to members pursuant to paragraph (a) of
this section, members may jointly or individually make a written
request to the merging credit union that the credit union mail or email
a requesting member or members' merger-related communications to other
members eligible to vote provided that the member or members agree to
reimburse the credit union for reasonable expenses, excluding overhead,
of mailing or emailing the communications on behalf of the requesting
member(s). The merging credit union must ensure that members receive
all merger-related communications at least 15 calendar days prior to
any member meeting called to vote on the merger proposal.
(e) Additional procedures governing member-to-member
communications. Member-to-member communication requests pursuant to
paragraph (d) of this section are governed by these additional
procedures:
(1) A member request must indicate if the member wants the
materials mailed or emailed. If the member requests the materials to be
mailed, the credit union must mail the materials to all eligible
members. If a member requests the materials to be emailed, the credit
union will email the materials to all members who have agreed to accept
communications electronically from the credit union. The merging credit
union will inform the member of the percentage of members for whom it
does not have an email address.
(2) The merging credit union may, at its option, include the
following statement with a member's materials:
On (date), the board of directors of (name of merging credit union)
adopted a proposal to merge with (name of continuing credit union).
Credit union members who wish to express their opinions about the
proposed merger to other members may provide those opinions to (name of
credit union). By law, the credit union, at the requesting members'
expense, must then send those opinions to the other members. The
attached document represents the opinion of a member of this credit
union. This opinion is a personal opinion and does not necessarily
reflect the views of the management or directors of the credit union.
(3) The merging credit union may not add anything other than the
statement allowed by paragraph (e)(2) of this section to the member
communication without prior approval of the regional director.
(4) After consultation with the regional director according to
paragraph (f) of this section, the merging credit union is not required
to mail or email materials that:
(i) Due to size or similar reasons are impracticable to mail or
email;
(ii) Are false or misleading with respect to any material fact;
(iii) Omit a material fact necessary to make the statement in the
material not false or misleading;
(iv) Relate to a personal claim or personal grievance, or solicit
personal gain or business advantage by or on behalf of any party;
(v) Relate to any matter, including a general economic, political,
racial, religious, social, or similar cause that is not materially
related to the proposed merger;
(vi) Directly or indirectly and without expressed factual
foundation impugn a person's character, integrity, or reputation;
(vii) Directly or indirectly and without expressed factual
foundation make charges concerning improper, illegal, or immoral
conduct; or
(viii) Directly or indirectly and without expressed factual
foundation make statements impugning the safety and soundness of the
credit union.
(5) If use of any ``reply'' or ``reply to'' function in a member's
emailed material causes an email to be directed to any email address
other than the requesting member's email address (such as the credit
union's email address), the converting credit union must notify members
using the ``reply'' or ``reply to'' function that the email has been
directed to an address other than the requesting member's and identify
to whom the response was sent.
(f) Consultation with regional director regarding improper member
communications. If the merging credit union believes some or all of the
member or members' request is not proper, it must submit the member
materials to the regional director within 7 calendar days of receipt.
The credit union must include with its transmittal letter a specific
statement of why the materials are not proper and a specific
recommendation for how the materials should be modified, if possible,
to make them proper. The regional director will review the
communication, communicate with the requesting member, and respond to
the credit union within 7 calendar days with a determination on the
propriety of the materials. The credit union must then immediately mail
or email the material to the members if so directed by NCUA.
(g) Clear and conspicuous disclosures required. Any information
required by paragraph (b) of this section to be disclosed on the notice
provided to members pursuant to paragraph (a) of this section shall be
legible, written in plain language, designed to be understood by
ordinary consumers, and in the language in which most transactions are
conducted for that member.
(h) Approval of a proposal to merge. Approval of a proposal to
merge a federal credit union into a federally insured credit union
requires the affirmative vote of a majority of the members of the
merging credit union, as of a certain record date established by the
board of directors, who vote on the proposal. If the continuing credit
union is not federally insured, the requirements of subpart B of this
part also apply and the merging credit union must use the form notice
and ballot in subpart C of this part unless the regional director
approves the use of different forms.
0
10. Revise Sec. 708b.202(b) to read as follows:
Sec. 708b.202 Notice to members of proposal to terminate insurance.
* * * * *
[[Page 26615]]
(b) The credit union must deliver the notice in person to each
member, or mail it to each member at the address for the member as it
appears on the records of the credit union, at least 45 days, but not
more than 90 days, before the date of the vote. Members must be
permitted to vote by mail ballot. The credit union may provide the
notice of the proposal and the ballot to members at the same time.
* * * * *
0
11. Revise Sec. 708b.204(b) to read as follows:
Sec. 708b.204 Notice to members of proposal to convert insurance.
* * * * *
(b) The credit union must deliver the notice in person to each
member, or mail it to each member at the address for the member as it
appears on the records of the credit union, at least 45 days, but not
more than 90 days, before the date of the vote. Members must be
permitted to vote by mail ballot. The credit union may provide the
notice of the proposal and the ballot to members at the same time.
* * * * *
[FR Doc. 2017-11331 Filed 6-7-17; 8:45 am]
BILLING CODE 7535-01-P