[Federal Register Volume 63, Number 228 (Friday, November 27, 1998)]
[Rules and Regulations]
[Pages 65532-65536]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31599]
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NATIONAL CREDIT UNION ADMINISTRATION
12 CFR Part 708a
Conversion of Insured Credit Unions to Mutual Savings Banks
AGENCY: National Credit Union Administration (NCUA).
ACTION: Interim final rule with request for comments.
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SUMMARY: The NCUA is revising its rules that govern the conversion of
insured credit unions to mutual savings banks or savings associations,
if the savings associations are in mutual form. These revisions will
simplify the charter conversion process and reduce regulatory burden
for insured credit unions that choose to convert. NCUA is making these
revisions in compliance
[[Page 65533]]
with recent federal legislation that mandates such revisions.
DATES: This rule is effective November 27, 1998. Comments must be
received on or before February 25, 1999.
ADDRESSES: Direct comments to Becky Baker, Secretary of the Board. Mail
or hand-deliver comments to: National Credit Union Administration, 1775
Duke Street, Alexandria, Virginia 22314-3428. Fax comments to (703)
518-6319. Please send comments by one method only.
FOR FURTHER INFORMATION CONTACT: Frank S. Kressman, Staff Attorney,
Division of Operations, Office of General Counsel, at the above address
or telephone: (703) 518-6540.
SUPPLEMENTARY INFORMATION:
Background
The Credit Union Membership Access Act (the Membership Access Act)
was enacted into law on August 7, 1998. Public Law 105-21. Section 202
of the Membership Access Act amends the provisions of the FCU Act
concerning conversion of insured credit unions to mutual savings banks
or mutual savings associations. Pursuant to the amendments, NCUA is
required to promulgate final rules regarding charter conversions within
six months that are: (1) consistent with the Membership Access Act; (2)
consistent with the charter conversion rules promulgated by other
financial regulators; and (3) no more or less restrictive than rules
applicable to charter conversions of other financial institutions.
Accordingly, NCUA is revising part 708a to implement the provisions of
Sec. 202 of the Membership Access Act. NCUA does not interpret the
Membership Access Act to preclude state regulatory authorities from
imposing more restrictive charter conversion rules on federally insured
state-chartered credit unions.
Interim Final Rule
The NCUA Board is issuing this rule as an interim final rule
because there is a strong public interest in having rules in place
consistent with the requirements of Sec. 202 of the Membership Access
Act. If this rule were not effective immediately, there would be no
such rule in place to process credit union conversions to mutual
savings banks. Accordingly, for good cause, the Board finds that,
pursuant to 5 U.S.C. 553(b)(3)(B), notice and public procedures are
impracticable, unnecessary, and contrary to the public interest; and,
pursuant to 5 U.S.C. 553(d)(3), the rule shall be effective immediately
and without 30 days advance notice of publication. Although the rule is
being issued as an interim final rule and is effective immediately, the
NCUA Board encourages interested parties to submit comments.
Section by Section Analysis
Section 708a.1 Definitions
This section defines a number of terms used throughout part 708a.
Although the former part 708a did not contain a section specifically
designated for definitions, former Sec. 708a.2(c)(2) defined ``senior
management official.'' Revised Sec. 708a.1 expands on that definition
to include, at the end of the definition, the phrase ``and any other
senior executive officer as defined by the appropriate federal banking
agency pursuant to section 32(f) of the Federal Deposit Insurance
Act.'' 12 U.S.C. 1831i(f).
Section 708a.2 Authority to Convert
This section restates a portion of the Membership Access Act that
provides an insured credit union may convert to a mutual savings bank
or a savings association that is in mutual form without the prior
approval of NCUA. Although the Membership Access Act eliminates the
need for credit unions to obtain NCUA's prior approval, it requires
NCUA to administer the membership vote. Also, the vote must be verified
by the federal or state agency having jurisdiction over the credit
union after the conversion. As provided in Sec. 708a.7 discussed below,
if NCUA disapproves of the methods or procedures applicable to the
membership vote, it may require that another vote be taken. This
section also states that conversions require the approval of the credit
union's members and are subject to the laws governing mutual savings
banks and savings associations and the other requirements of this part.
Section 708a.3 Board of Directors and Membership Approval
This section provides that the board of directors must approve the
proposal to convert by a majority vote and must set a date for a
membership vote on the proposal. Membership approval requires an
affirmative vote of a majority of those members who vote on the
proposal. Former Sec. 708a.5 required a majority vote of the entire
membership, not just a majority of those members choosing to vote. The
former requirements for NCUA approval of a detailed plan and disclosure
statement have been deleted.
Section 708a.4 Voting Procedures
This section sets out the voting and notice requirements for the
membership vote on the proposal to convert. It provides that members
eligible to vote on the proposal to convert may do so in person at the
meeting designated for the vote on the proposal or by written ballot
filed by the member. It also provides that the credit union must
provide members with notice to the members 90, 60, and 30 calendar days
before the date of the vote and a ballot not less than 30 calendar days
before the date of the vote. This section describes the basic
requirements for the content of the notice, namely, that the notice
must adequately state the purpose and subject matter of the proposal
and inform members that they may vote either at the meeting or by
submission of a written ballot. The notice must set out the date, time,
and place for the meeting.
Section 708a.5 Notice to NCUA
This section requires the credit union to provide NCUA with notice
of its intent to convert during the 90 calendar day period preceding
the date for the membership vote. A credit union may fulfill this
notification requirement by providing the NCUA a letter describing the
material features of the conversion or a copy of the filing made with
another federal or state regulatory agency seeking that agency's
approval of the conversion. With the notice to NCUA, a credit union
must include a copy of the notice, ballot and all other written
materials it has provided or intends to provide to members so that NCUA
can fulfill its oversight responsibility regarding the methods and
procedures of the membership vote. If it chooses, a credit union may
provide notice of intent to convert prior to the 90 calendar day period
preceding the membership vote. If a credit union submits its notice of
intent early, the Regional Director will review it and let the credit
union know within 30 calendar days if there is a problem with the
methods and procedures for the membership vote. This preliminary review
is intended to provide time to credit unions, for example, to correct
any defects in the notice to members or other problems in connection
with the proposed membership vote. In any event, the credit union will
still have to comply with the requirement of verifying the membership
vote once it is taken and the Regional Director will still have the
right to require a new vote if it is determined that the methods and
procedures of the membership vote were not conducted properly.
[[Page 65534]]
Section 708a.6 Certification of Vote on Conversion Proposal
This section requires the board of directors of the converting
credit union to certify to NCUA the results of the membership vote
within 10 calendar days after the vote is taken. The board of directors
is also required at this time to certify that all notices, ballots and
other written materials provided to members were identical to those
submitted to NCUA pursuant to Sec. 708a.5 or to provide copies of any
new or revised materials and an explanation of the reason for the
changes.
Section 708a.7 NCUA Oversight of Methods and Procedures of Membership
Vote
The Membership Access Act specifically requires NCUA to participate
in the conversion process by overseeing the membership vote concerning
the charter conversion. This oversight function centers on reviewing
the methods by which the membership vote was taken and the procedures
applicable to the membership vote. The Membership Access Act provides
that if, upon review of the membership vote, NCUA disapproves of the
methods by which the vote was taken or the procedures applicable to the
membership vote, then NCUA is authorized to direct a new membership
vote be taken on the proposal to convert. NCUA interprets ``methods and
procedures'' of the membership vote to include determining that the
notice that the credit union sends to its members is accurate and not
misleading, that all required notices were timely, and that the
membership vote was conducted in a fair and legal manner.
This section provides that, once the Regional Director receives a
certification from the converting credit union of the results of the
membership vote, the Regional Director will have 10 calendar days to
issue a determination regarding the methods and procedures applicable
to the membership vote. This section also sets out that the Regional
Director's review of the methods and procedures will consider whether
the notice was accurate and not misleading, that all required notices
were provided and that the membership vote was conducted in a fair and
legal manner.
Section 708a.8 Other Regulatory Oversight of Methods and Procedures of
Membership Vote
The Membership Access Act requires the federal or state regulatory
agency that will have jurisdiction over the financial institution after
conversion to verify the membership vote, and has authorized that
agency to direct a new membership vote be taken on the proposal to
convert if it disapproves of the methods by which the vote was taken or
the procedures applicable to the membership vote.
Section 708a.9 Completion of Conversion
This section provides that upon receipt of the approvals discussed
in Sec. 708a.7 and Sec. 708a.8, the credit union may complete the
conversion transaction. The board of directors of the newly chartered
mutual savings bank or mutual savings association is required to
certify completion of the conversion transaction to NCUA within 30
calendar days of the effective date of the conversion. Upon receipt of
such certification, the NCUA will cancel the credit union's insurance
certificate and federal charter, if applicable.
Section 708a.10 Limit on Compensation of Officials
This section provides that directors and senior management
officials of a credit union may not receive any economic benefit from
the conversion of their credit union other than compensation and
benefits paid to them in the ordinary course of business. This section
is intended to insure that decisions to convert are based on proper and
appropriate business judgment.
Regulatory Procedures
Regulatory Flexibility Act
The Regulatory Flexibility Act requires NCUA to prepare an analysis
to describe any significant economic impact any proposed regulation may
have on a substantial number of small entities (primarily those under
$1 million in assets). The NCUA has determined and certifies that this
interim rule will not have a significant economic impact on a
substantial number of small credit unions. Accordingly, the NCUA has
determined that a Regulatory Flexibility Analysis is not required.
Paperwork Reduction Act
The NCUA Board has determined that the notice and disclosure
requirements in part 708a constitute a collection of information under
the Paperwork Reduction Act. NCUA is submitting a copy of this interim
final rule to the Office of Management and Budget (OMB) for its review.
The interim final rule requires an insured credit union that
intends to convert to a mutual savings bank or savings association to
provide notice and disclosure of its intent to convert to its members
and NCUA. It also requires the credit union to provide additional
information to NCUA at various points in the conversion process. These
notice and disclosure requirements are mandated by the Membership
Access Act. They are also necessary to insure safety and soundness in
the credit union industry, and to protect the interests of credit union
members in the charter conversion context.
The NCUA Board estimates that it will take an average of 15 to 20
hours to comply with the notice and disclosure requirements of part
708a. The NCUA Board also estimates that fewer than 10 insured credit
unions will convert per year, so that the total annual collection
burden is estimated to be no more than 200 hours.
The Paperwork Reduction Act of 1995 and OMB regulations require
that the public be provided an opportunity to comment on information
collection requirements, including an agency's estimate of the burden
of the collection of information. The NCUA Board invites comment on:
(1) whether the collection of information is necessary; (2) the
accuracy of NCUA's estimate of the burden of collecting the
information; (3) ways to enhance the quality, utility, and clarity of
the information to be collected; and (4) ways to minimize the burden of
collection of information. Comments should be sent to: OMB Reports
Management Branch, New Executive Office Building, Room 10202,
Washington, D.C. 20503; Attention: Alex T. Hunt, Desk Officer for NCUA.
Please send NCUA a copy of any comments you submit to OMB.
Executive Order 12612
Executive Order 12612 requires NCUA to consider the effect of its
actions on state interests. The final rule, as does the current rule,
applies to all federally insured credit unions, including federally
insured state chartered credit unions. However, since the final rule
reduces regulatory burden, NCUA has determined that the final rule does
not constitute a ``significant regulatory action'' for purposes of the
Executive Order.
Small Business Regulatory Enforcement Fairness Act
The Small Business Regulatory Enforcement Fairness Act of 1996
(Pub. L. 104-121) provides generally for congressional review of agency
rules. A reporting requirement is triggered in instances where NCUA
issues a final rule as defined by Section 551 of the Administrative
Procedures Act. 5 U.S.C. 551. The Office of Management and Budget is
reviewing this rule to determine whether it is major for
[[Page 65535]]
purposes of the Small Business Regulatory Enforcement Fairness Act of
1996.
List of Subjects in 12 CFR Part 708a
Charter conversions, Credit unions.
By the National Credit Union Administration Board on November
19, 1998.
Becky Baker,
Secretary of the Board.
For the reasons set forth above, 12 CFR part 708a is revised to
read as follows:
PART 708a--CONVERSION OF INSURED CREDIT UNIONS TO MUTUAL SAVINGS
BANKS
Sec.
708a.1 Definitions.
708a.2 Authority to convert.
708a.3 Board of directors and membership approval.
708a.4 Voting procedures.
708a.5 Notice to NCUA.
708a.6 Certification of vote on conversion proposal.
708a.7 NCUA oversight of methods and procedures of membership vote.
708a.8 Other regulatory oversight of methods and procedures of
membership vote.
708a.9 Completion of conversion.
708a.10 Limit on compensation of officials.
Authority: 12 U.S.C. 1766, 12 U.S.C. 1785(b).
Sec. 708a.1 Definitions.
As used in this part:
(a) Credit union has the same meaning as insured credit union in
section 101 of the Federal Credit Union Act.
(b) Mutual savings bank and savings association have the same
meaning as in section 3 of the Federal Deposit Insurance Act.
(c) Federal banking agencies has the same meaning as in section 3
of the Federal Deposit Insurance Act.
(d) Senior management official means a chief executive officer, an
assistant chief executive officer, a chief financial officer, and any
other senior executive officer as defined by the appropriate federal
banking agency pursuant to section 32(f) of the Federal Deposit
Insurance Act, 12 U.S.C. 1831i(f).
Sec. 708a.2 Authority to convert.
An insured credit union, with the approval of its members, may
convert to a mutual savings bank or a savings association that is in
mutual form without the prior approval of the NCUA, subject to
applicable law governing mutual savings banks and savings associations
and the other requirements of this part.
Sec. 708a.3 Board of directors and membership approval.
(a) The board of directors must approve a proposal to convert by
majority vote and set a date for a vote on the proposal by the members
of the credit union.
(b) The membership must approve the proposal to convert by the
affirmative vote of a majority of those members who vote on such
proposal.
Sec. 708a.4 Voting procedures.
(a) A member may vote on the proposal to convert in person at a
special meeting held on the date set for the vote or by written ballot
filed by the member.
(b) A credit union that proposes to convert must provide written
notice of its intent to convert to each member who is eligible to vote
on the conversion. The notice to members must be sent by registered,
certified, or regular mail with postage prepaid and postmarked 90
calendar days, 60 calendar days, and 30 calendar days before the date
of the membership vote on the conversion and a ballot must be sent not
less than 30 calendar days before the date of the vote.
(c) The notice to members must adequately describe the purpose and
subject matter of the vote to be taken at the special meeting or by
submission of the written ballot. The notice must clearly inform the
member that the member may vote at the special meeting or by submitting
the written ballot. The notice must state the date, time, and place of
the meeting.
Sec. 708a.5 Notice to NCUA.
(a) The credit union must provide the Regional Director for the
region where the credit union is located with notice of its intent to
convert during the 90 calendar day period preceding the date of the
membership vote on the conversion.
(b) The credit union must give notice to the Regional Director by
providing a letter describing the material features of the conversion
or a copy of the filing the credit union has made with another federal
or state regulatory agency in which the credit union seeks that
agency's approval of the conversion. The credit union must include with
the notice to the Regional Director a copy of the notice the credit
union provides to members under Sec. 708a.4, as well as, the ballot
form and all written materials the credit union has distributed or
intends to distribute to the members.
(c) If it chooses, the credit union may provide the Regional
Director notice of its intent to convert prior to the 90 calendar day
period preceding the date of completion of the conversion. In this
case, the Regional Director will make a preliminary determination
regarding the methods and procedures applicable to the membership vote.
The Regional Director will notify the credit union within 30 calendar
days of receipt of the credit union's notice of intent to convert if
the Regional Director disapproves of the proposed methods and
procedures applicable to the membership vote. The credit union's prior
submission of the notice of intent does not relieve the credit union of
its obligation to certify the results of the membership vote required
by Sec. 708a.6 or eliminate the right of the Regional Director to
disapprove the actual methods and procedures applicable to the
membership vote if the credit union fails to conduct the membership
vote in a fair and legal manner.
Sec. 708a.6 Certification of vote on conversion proposal.
The board of directors of the converting credit union must certify
the results of the membership vote to the Regional Director within 10
calendar days after the vote is taken. The board of directors must also
certify at this time that the notice, ballot and other written
materials provided to members were identical to those submitted
pursuant to Sec. 708a.5 or provide copies of any new or revised
materials and an explanation of the reasons for the changes.
Sec. 708a.7 NCUA oversight of methods and procedures of membership
vote.
(a) The Regional Director will issue a determination that the
methods and procedures applicable to the membership vote are approved
or disapproved within 10 calendar days of receipt from the credit union
of the certification of the result of the membership vote required
under Sec. 708a.6.
(b) If the Regional Director disapproves of the methods by which
the membership vote was taken or the procedures applicable to the
membership vote, the Regional Director may direct that a new vote be
taken.
(c) The Regional Director's review of the methods by which the
membership vote was taken and the procedures applicable to the
membership vote includes determining that the notice to members is
accurate and not misleading, that all notices required by this section
were timely, and that the membership vote was conducted in a fair and
legal manner.
[[Page 65536]]
Sec. 708a.8 Other regulatory oversight of methods and procedures of
membership vote.
The federal or state regulatory agency that will have jurisdiction
over the financial institution after conversion must verify the
membership vote and may direct that a new vote be taken, if it
disapproves of the methods by which the membership vote was taken or
the procedures applicable to the membership vote.
Sec. 708a.9 Completion of conversion.
(a) Upon receipt of approvals under Sec. 708a.7 and Sec. 708a.8 of
this part, the credit union may complete the conversion transaction.
(b) Within 30 calendar days after the effective date of the
conversion, the board of directors of the mutual savings bank or mutual
savings association must certify completion of the transaction to the
Regional Director. NCUA will cancel the insurance certificate of the
credit union and, if applicable, the charter of the federal credit
union.
Sec. 708a.10 Limit on compensation of officials.
No director or senior management official of an insured credit
union may receive any economic benefit in connection with the
conversion of the credit union other than compensation and other
benefits paid to directors or senior management officials of the
converted institution in the ordinary course of business.
[FR Doc. 98-31599 Filed 11-25-98; 8:45 am]
BILLING CODE 7535-01-U
