CUNA Regulatory Comment Call

April 18, 2007

EXECUTIVE SUMMARY

• NCUA has issued a proposed rule to standardize and clarify existing member inspection rights regarding federal credit union (FCU) books, records and minutes. The proposed rule, which would confer no new rights to members, provides that a group of FCU members, upon submission of a proper petition, would have the right to inspect and copy the non-confidential portions of the FCU’s books and financial accounting records as well as minutes of the meetings of the credit union’s members, board of directors, and committees.

• Under the proposal, at least one percent of the credit union’s members, with a minimum of 20 members and a maximum of 250 members, must sign an inspection petition to the credit union’s board.

• At the NCUA Board meeting when this proposal was approved for publication, Board Member Hyland stressed that this is a “general access rule” which balances the members’ legitimate need to access records with a credit union’s need to continue doing business.

• The issue of member inspection of records may arise, for example, in connection with a member vote on merger or charter conversion. Members of a merging or converting credit union may want to inspect the FCU’s books and records to inform themselves before voting and to determine if the directors are acting in the members’ best interests.

• The proposal tracks, in large part, the Office of Thrift Supervision’s (OTS) rule governing the right of shareholders to inspect the books, records, and minutes of federal stock savings associations.

• Comments on the proposed rules are due to NCUA by June 22, 2007. Please submit your comments to CUNA by June 11, 2007. Please feel free to fax your responses to CUNA at 202-638-7052; e-mail them to Deputy General Counsel Mary Dunn at mdunn@cuna.com or to Senior Regulatory Counsel Catherine Orr at corr@cuna.com; or mail them to Mary or Catherine in c/o CUNA's Regulatory Advocacy Department, 601 Pennsylvania Avenue, NW, 6th Floor - South Building, Washington, DC 20004. You may also contact us at 800-356-9655, ext. 6743, if you would like a copy of the proposal, or you may access it on the Internet at:
  http://a257.g.akamaitech.net/7/257/2422/01jan20071800/edocket.access.gpo.gov/2007/pdf/E7-7610.pdf

BACKGROUND

• NCUA’s long-standing policy, expressed in several legal opinion letters, is that FCU members have the right to inspect the books and records of the FCU to the same extent that shareholders are permitted to inspect corporate records under state corporation law. The opinion letters direct FCUs, therefore, to look to the corporation law of the state where they are located for inspection rights – the types of information and documents and degree of access available to members/shareholders. This proposal would replace those series of legal opinions to provide a consistent standard regardless of the FCU’s location.

• The most recent NCUA legal opinion letter on the subject may be found here.

DESCRIPTION OF THE PROPOSAL

• According to the proposal, a group of members of an FCU may submit a petition to the credit union’s board requesting to inspect and copy the credit union’s books and records of account and minutes of the meetings of the credit union’s members, board of directors, and committees.

• The Board intends the phrase “minutes” to broadly cover any summary or recording of the meetings and all materials considered by the meeting participants.

• The term “records of account” would refer to financial accounting records.

• Unless a regional director imposes conditions on a particular request for records, the member’s right to inspect FCU minutes and records encompasses the right to make copies. Petitioners may then disseminate the information to other FCU members or obtain an expert analysis of the materials.

• The petition must state with specificity the records to be inspected as well as a legitimate purpose for the inspection. The reason for the inspection must be related to the business of the credit union, such a protecting the financial interests of the members.

• In addition, the petition must name the petitioners that will pay for the costs of locating and duplicating the material requested in the petition or else state that the group as a whole will reimburse the FCU for those costs. The costs must be directly related to searching for and copying the materials; further, those costs must be reasonable.

• The petitioning group must represent at least one percent of the credit union’s membership. Further, the group would have to represent at least 20 members, but not more than 250, regardless of the size of a credit union's membership.

• An FCU has 14 days to respond to an inspection petition. The FCU must either permit inspection and copying of all requested material or notify the petitioners in writing that it is not able to do so and the reason(s) why.
  
  

• The proposal states that members do not have the right to inspect portions of the books, records, or minutes of an FCU under certain circumstances: if federal law or regulation prohibits disclosure of that portion; if that portion contains nonpublic personal information (such as Social Security numbers); or if that portion contains information about credit union employees or officials the release of which would constitute an unwarranted invasion of personal privacy.
• There is an exception to the above prohibition on disclosure of information about credit union employees or officials. Given the financial interests of members in the sound management of the credit union, members may inspect materials describing the qualifications, compensation and benefits of senior executive officers.

• An FCU may require the petitioners to pay the direct (such as clerk time and per-page copying costs) and reasonable costs for searching and duplicating the requested material. However, the FCU may not charge the petitioners for indirect costs (such as overhead costs) or legal fees.

• Either the petitioning members or the FCU may submit a dispute over the inspection petition or the associated costs to the regional director.
• The regional director, after hearing each party’s viewpoint, will direct the credit union either to withhold the materials that were under dispute or make them available to the petitioners for inspection and copying, with conditions attached if circumstances warrant.
• The decision of the regional director may not be appealed to the NCUA Board.

1. Do you agree that this proposal does not represent a significant departure from existing practice that FCU’s must permit inspection under the same terms and conditions that state law requires for shareholders to inspect corporation records?
   
   Yes ______ No ______
   
   If yes, in what ways is it a significant departure?
   

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2. Is the proposed requirement that a minimum of one percent of the FCU’s members sign a petition to obtain access appropriate? (In some states this burden on the members might exceed the burden on shareholders to obtain access.)
   
   Yes ______ No ______
   
   Please explain.
   
   

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3. The proposal indicates that it will take an FCU that receives a petition authority approximately 20 hours to evaluate the petition, locate relevant documents, and make them available for inspection and copying. Does the figure of 20 hours seem reasonable?
   
   Yes ______ No ______
   
   Please explain.
   
   

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   Is the 14 day turn-around time to respond to a petition generally sufficient time for an FCU?
   
   Yes ______ No ______
   
   Please explain.
   
   

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4. Besides the three circumstances mentioned in the proposal, are there any other circumstances in which members do not/should not have the right to inspect portions of the books, records of minutes of an FCU?
   
   Yes ______ No ______
   
   If yes, what are those circumstances?
   
   

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5. Should the cost of the document search and duplication fall on the petitioners and not on the FCU as set forth in the proposal?
   
   Yes ______ No ______
   
   Please explain.
   
   

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6. NCUA does not believe that members will use this petition authority often. Do you agree?
   
   Yes ______ No ______
   
   Please explain.
   
   

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7. Other comments?
   
   

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