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CUNA Regulatory Comment Call

September 26, 2003

EXECUTIVE SUMMARY

• NCUA has issued a proposal amending the rules regarding the conversion of insured credit unions to mutual savings banks. The proposal is intended to improve the disclosures that are given to members prior to the vote on whether to convert.
• The Board believes that in this era of Enron and WorldCom, there is a need for more transparency and disclosure. It is important for members to have sufficient knowledge regarding the potential impact of a conversion in order to make an informed decision.
• These disclosures will focus on the change in voting rights, any economic benefit that may accrue to a director or senior management and the risk to the members’ ownership interest if the credit union later converts to a stock institution.
• NCUA believes this proposal would enhance a member’s ability to make informed decisions about the conversion without increasing the regulatory burden for converting credit unions and would assist converting credit unions to more fully understand what the agency expects to be included in the notice to members.
• Comments will be due to NCUA by December 1, 2003. Please feel free to fax your responses by November 14, 2003 to CUNA at 202-638-7052; e-mail them to Associate General Counsel Mary Dunn at mdunn@cuna.com or to Assistant General Counsel Jeffrey Bloch at jbloch@cuna.com or mail them to Mary and Jeffrey in c/o CUNA’s Regulatory Advocacy Department, 601 Pennsylvania Avenue, N.W., South Building, Suite 600, Washington, DC 20004-2601. To obtain a copy of the proposal, please contact us.

BACKGROUND

• In 1998, the Credit Union Membership Access Act (CUMAA) amended the previous statutory provisions regarding conversions. Prior to CUMAA, NCUA was given considerable flexibility to regulate in this area but now the agency must follow specific requirements included in the Act.
• NCUA's prior rule provided that a conversion must be approved by a majority of all of the members of the credit union. Under CUMAA, only a majority of the members who actually vote on the proposed conversion need to approve the conversion.

DESCRIPTION OF THE PROPOSAL

• Under the current rules, the credit union intending to convert must provide three notices to members – at 90, 60 and 30 days prior to the membership vote on the conversion. The rules specify that member notice must adequately describe the purpose and subject matter of the vote on conversion. The majority of members who vote decide the issue of conversion. The credit union must provide for NCUA’s review a copy of the member notice, ballot and all other written materials that the credit union provides or intends to provide to its members in connection with the conversion. NCUA cannot disapprove of the conversion; if NCUA disapproves of the methods and procedures of the member vote, after the vote is conducted, then NCUA may direct that a new vote be taken.

• The proposal improves disclosure by informing members that:
  
  1) The one member one vote rule changes upon conversion. In contrast to credit unions, most thrifts allot votes based on the amount of a member’s deposits. Conversion from a credit union to a thrift could lead members to have lesser voting rights in the thrift than they had in the credit union.
  
  2) A later conversion from a mutual savings bank to a stock institution will result in a loss of ownership interest if the member does not purchase stock in the institution.
  
  3) There are conversion-related economic benefits a director or senior management official may receive, including an increase in compensation and any foreseeable stock-related benefits associated with a subsequent conversion to a stock institution.
• In addition, the notice must include an affirmative statement indicating whether at the time of conversion to a thrift the credit union intends to:
  
  1) Convert to a stock institution;
  
  2) Provide any compensation to previously uncompensated directors or increase compensation or provide other conversion-related benefits to directors or senior management officials; and
  
  3) Base member voting rights on account balances.

1. Do you agree that the proposed disclosures would enhance a member’s ability to make informed decisions about the conversion?
   Yes ______ No ______
   
   If not, are there additional/other disclosures that should be included in the notice to members?
   
   

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2. Do the proposed disclosures assist converting credit unions to more fully understand what the agency expects to be included in the notice to members?
   Yes ______ No ______
   
   Please explain why or why not.
   
   

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3. Would making the proposed disclosures in the notice to members significantly increase the regulatory burden for converting credit unions?
   Yes ______ No ______
   
   If yes, please quantify or further describe the burden.
   
   

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4. Other comments?
   
   

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