CUNA Opposes NCUA Rule on Insurance Conversion

September 28, 2004

FOR IMMEDIATE RELEASE
Contact:
Pat Keefe, CUNA
(202) 508-6765; pkeefe@cuna.com
pkeefe@cuna.com

State governments should be allowed to decide for themselves whether to permit state- chartered credit unions in their states to operate with private share insurance, CUNA has written to NCUA in opposing the agency's proposed rule on conversion of insured status and mergers of federally insured credit unions.

"CUNA is concerned that questions have arisen regarding the role of state regulators under the proposal and its uncertain impact on the dual chartering system for credit unions," CUNA wrote to the agency about the rule. Additionally, CUNA pointed out, while the proposed rule requires new disclosures on private insurance "NCUA did not address specific abuses in the supplementary information accompanying the proposal, leaving credit unions to question the need for new disclosures."

In the letter, CUNA noted a number of additional concerns that support the association's opposition to the proposal:

• The proposal could result in unbalanced disclosures because information in addition to NCUA's required disclosures - such as description of private insurance - would have to be pre-approved by an NCUA regional office.
• The proposal allows for no review process if a disagreement ensues between a credit union and the agency, or between a state regulator and NCUA.
• The proposal cites no abuses in the voting process, yet imposes costly and burdensome new requirements on credit unions for holding member votes on conversions.
• An independent third party is required under the proposal to administer the member vote, yet the role is unclear of the credit union's board, supervisory committee or other internal credit union body that would oversee the vote.

The complete text of CUNA's comment letter follows:

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September 27, 2004

Ms. Mary Rupp
Secretary to the Board
National Credit Union Administration
1775 Duke Street
Alexandria, VA 22314-3428

RE: Proposed Changes to 12 CFR Part 708b

Dear Ms. Rupp:

On behalf of the Credit Union National Association, I appreciate the opportunity to present our views on the National Credit Union Administration's proposal, "Mergers of Federally-Insured Credit Unions; Voluntary Termination or Conversion of Insured Status," 12 CFR Part 708b, which appeared in the Federal Register Thursday, July 29, 2004. CUNA is the largest national trade association serving credit unions; the association represents approximately 90% of the country's 9,300 state and federal credit unions.

SUMMARY OF CUNA'S VIEWS

• CUNA has a number of concerns with the current proposal and does not support it.
• CUNA supports the option for state governments to decide for themselves whether to permit their credit unions to operate with private share insurance. CUNA is concerned that questions have arisen regarding the role of state regulators under the proposal and its uncertain impact on the dual chartering system for credit unions.
• The proposal would require new disclosures regarding private insurance. CUNA has a longstanding policy to advocate full, fair, and timely disclosures to members, including ones on private insurance. However, NCUA did not address specific abuses in the supplementary information accompanying the proposal, leaving credit unions to question the need for new disclosures.
• CUNA is also concerned that the proposal, if adopted, could result in unbalanced disclosures due to the fact that information that is in addition to NCUA's required disclosures, such as descriptions of private insurance, would have to be preapproved by an NCUA regional office.
• More specifically, the proposal does not provide for a review process if there is a disagreement between NCUA and a credit union or between NCUA and the state regulator regarding the accuracy of the content of additional disclosures. Also, there are no parameters in the proposal as to how long regional offices may take to review additional disclosure materials.
• The supplementary information does not cite any abuses in the voting process yet would impose costly and burdensome new requirements on credit union regarding the voting process. In the absence of such abuses, extraordinary changes of this nature, which remove the election process from the credit union's board and management, are inconsistent with the agency's posture on regulatory relief as well as its general approach to regulation, and should not be adopted.
• The proposal would require the use of an independent third party to administer the member vote. The proposal leaves unclear the role of the credit union's board, supervisory committee or other internal credit union body, which would otherwise have overseen the vote.

DISCUSSION OF CUNA'S VIEWS

CUNA's comments were developed after extensive discussions and deliberations. Our Examination and Supervision Subcommittee held two recent conference calls and an in-person meeting focusing on this proposal. As part of its review, the Subcommittee met with NCUA Board Chairman JoAnn Johnson and Board Member Debbie Matz, and appreciated the opportunity to discuss the proposal.

The outcome of the Subcommittee's work on the proposal was to recommend CUNA not support it. CUNA's Governmental Affairs Committee also reviewed the proposal and did not support it, based on concerns discussed below.

Concerns about Role of State Regulators

As part of its Renaissance Commission report, CUNA restated its support for state governments to have the authority to decide for themselves whether to permit their credit unions to operate with private share insurance. In such states, the option for private insurance is an important vestige of dual chartering. CUNA is concerned that the proposal does not indicate what role NCUA envisions for state regulators beyond approval of member notices under 12 CFR 708b.205, and how NCUA would work with state regulators when a state chartered, federally insured credit union's share insurance is converted to private insurance.

Concerns about Imbalance in Disclosure Process

CUNA consistently supports the rights of members to receive full, fair and timely disclosures about their credit union and their accounts- including balanced disclosures regarding private insurance.

One concern raised by our policymakers is that while the proposal would allow information, in addition to that which NCUA prescribes, to be included in communications to members, all such additional information provided during the voting period would have to be preapproved by the NCUA regional office. As provided under the proposal, …"the Regional Director may withhold approval of such modifications or additions if he or she determines that the credit union, by inclusion or omission of information, would materially mislead or misinform its membership." While the goal of NCUA's review is to ensure accuracy, an objective CUNA supports, there is a concern that the language of the proposal would give NCUA considerable latitude to preclude information about private insurance.

In any event, the proposal does not address a process under which a credit union could appeal if there is a disagreement between it and the regional office or between NCUA and a state regulatory agency regarding the content of disclosures, including any additional information provided to supplement NCUA's required disclosures. Further, there is no time frame under which an NCUA regional office must review additional disclosures, which could result in lengthy delays in the disclosure process.

The supplementary information accompanying the proposal references concerns raised by the Government Accountability Office in its August 2003 report. However, the supplementary information does not describe the current problems and deficiencies NCUA seeks to address with the disclosure provisions, including the proposed requirement that the agency preapprove additional information provided to members regarding private insurance.

Concerns about the Voting Process

Under the proposal, credit unions seeking to convert to private insurance would be required to undertake extraordinary, costly measures regarding the members' vote on private insurance. Such measures include retaining an independent, third party to administer the member vote, leaving unclear the role of the credit union's board, supervisory committee or other internal credit union body, which would otherwise have overseen the vote. The supplementary information does not cite any abuses in the voting process to justify these requirements. While the use of the secret ballot may be beneficial to members, in the absence of such voting-process abuses CUNA does not support the changes to remove the election process from the oversight of the credit union's board and management. Because the need for the changes has not been documented and the requirements would be burdensome, we believe the adoption of such requirements is inconsistent with the agency's general approach to regulation and should not be pursued.

Conclusion

For the reasons discussed above, CUNA does not support the proposal and respectfully requests that the Board not approve it. If the Board concludes that such a rule is necessary, we urge the agency to redraft it based on the concerns raised during the comment period and reissue a new proposal for an additional comment period. Thank you for your consideration of our views.

Sincerely,
Juri Valdov
Chairman
CUNA Governmental Affairs Committee

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