To: All Affiliated Credit Union CEOs
From: Michael J. DeFors - Directory Regulatory & Legal Affairs
Date: July 28, 2006
RE: NCUA Proposed Changes to Conversion Rule
At its June 22, 2006 Board meeting, the NCUA approved a Proposal to amend its rules regarding the conversion of insured credit unions to mutual savings banks or mutual savings associations. The proposed revisions are primarily intended to improve the information available to members and the board of directors as they consider a possible conversion.
This Proposal is a Notice of Proposed Rulemaking with a Request for Comments.
Please submit your comments to MCUL by August 7, 2006. Comments are due to CUNA by August 14, and to NCUA by August 28, 2006. You may access a copy of CUNA’s summary at: http://www.cuna.org/download/rcc_062706.pdf
SUMMARY OF KEY CHANGES
Note: Comment Questions follow but are referenced throughout.
Advance Notice to Members Required Prior to Board Vote . Requires a converting credit union to give advance notice to members that the board intends to vote on a conversion proposal and gives members the chance to share their views with directors before they vote on a conversion plan.
- This is a public notice and not an individual member notice. It must be placed in a local newspaper, on the credit union’s website in a clear and conspicuous manner, and posted in the credit union’s offices no later than 30 days before the board meeting. (Q-1)
- Notice must state that members may provide comment before the board votes and the board must review the comments before it votes.
Preliminary Approval of Disclosures Permitted . In addition to providing NCUA with copies of notice and materials it has or will send to members, the credit union is given authority to seek preliminary review and approval from the Regional Director of the methods and procedures applicable to the vote and its disclosures, including the public notice.
Board Must Certify that Conversion is in Best Interest of Members . Clarifies that credit union directors may vote in favor of a conversion proposal only if they have determined the conversion is in the best interests of the members; it requires the board of directors to submit a certification of same to NCUA and its support for the conversion proposal and plan.
-Each director that votes in favor of the conversion must sign the statement indicating he/she believes it is in the best interest of the members.
Boxed Disclosures . Simplifies the boxed-disclosures the credit union must currently provide to its members.
- Adds more definitive statements concerning the Rates on Loans and Savings Benefits to credit union members (that if the CU converts to a bank, members may experience adverse changes based on historical data), and Potential Profits by Officers and Directors in a conversion (that oftentimes a conversion is a two-step process that results in officers and directors profiting by obtaining stock in excess of that available to other members). (Qs-2 and 3)
Delivery of Boxed Disclosures . Puts new limitations on delivery of the boxed disclosures from “all communications” to delivery with the 90-, 60-, and 30-day member notices.
- The boxed-disclosures must be on a separate piece of paper and placed immediately after the cover letter.
Ballot Format . Provides for changes to the form of the ballot and that the ballot must be sent only with the 30-day member notice.
- Must inform members of the proposal they are voting on and that a “yes” vote is a vote in favor of converting, and a “no” vote is a vote against converting. May include a statement of the board’s recommendation, but no other information.
-The Proposal solicits comments re the possibility of using electronic ballots. (Q-7)
Voting Record Date . Requires the board to set a voting record date not less than 120 days before the board notifies the members it is considering adopting a conversion proposal.
-Purpose is to discourage professional depositors from profiting from a conversion
Member Requests to Disseminate Information to Membership . Requires that, after the board has approved an MSB conversion proposal, and upon the request of a member, a credit union must disseminate information from that requestor to other members at the requestor’s expense.
- Dissemination by mail (or email if member has agreed to this type of communications) (Q-5)
- If conversion-related materials are posted on the website, then the credit union shall permit members to post their opinions as well free of charge
-Requests must be delivered to the credit union within 35 days after the 90-day notice and the credit union must act on it within 7 days of receipt
-Requestor must agree to reimburse the credit union and provide an advance payment toward reimbursable costs
-Suggested cost/reimbursement figures depend on disclosure method requested (if by mail, 50 cents per eligible voter; if by email, then a flat rate of $200) (Q-4)
-Proposed communications must be proper (conversion-related and not impracticable to deliver, relate to personal grievance, nor are otherwise false or misleading with respect to any material fact); disputes to be resolved by Regional Director within designated timeline; if requested communication is delayed by the credit union, the final 30-day notice that includes the ballot must be delayed, as well as the special meeting, by the same number of days
Member Access to Books and Records . The Proposal clarifies NCUA’s current position that members of FCUs may request and be granted access to the books and records of a converting credit union under the same terms and conditions that a state-chartered for-profit corporation in the state where the FCU is located must grant access to its shareholders.
Vote Evaluation by Regional Director . Requires the NCUA Regional Director to make a determination to approve or disapprove the methods and procedures for the membership vote within 30 calendar days (up from 10 days) of the receipt of the credit union’s certification of the member vote. It permits any credit union dissatisfied with the determination, to appeal to the NCUA Board for a final agency determination under administrative law procedures.
Conversion Completion Timetable . Requires a credit union to complete a conversion within one year of the date of receipt of final approval from NCUA of the methods and procedures of the vote.
Voting and the Use of Raffles . Modifies the voting guidelines to include information on the use of voting incentives such as raffles.
-Credit union must use care in the design and execution of incentives
-Incentives must comply with all applicable state, federal and local laws; the incentive should not be unreasonable in size; and the materials promoting the incentive to members should make clear that they have an equal opportunity to participate in the incentive program regardless of whether they vote for or against the conversion
-Raffles are specifically permitted to remain (Q-8)
- The proposal requires the credit union board to publish a public notice in a local area newspaper, on the credit union’s website and in the credit union’s offices indicating its intent to hold a board meeting for purposes of voting on a conversion proposal. Do you believe these communication channels are appropriate? Should other channels be used in addition to or in lieu of these channels? Explain.
- The proposal is retaining disclosure language that, after conversion, a member may experience adverse changes in rates based on historic data re rates at thrifts. Do you agree with the proposed disclosure language? Please provide any comments on how rates, fees, and service levels may have changed in credit unions that have converted to banks. Explain.
- NCUA’s proposed “boxed disclosure” retains, but modifies the disclosure language about profiting by directors and officers to include stock options in a subsequent step. Do you agree with the proposed disclosure language? Provide any comment on compensation changes occurring in credit unions converting to banks.
- Do you believe that the amount of advanced payment required (if regular mail is used, then 50 cents times number of eligible members; if by email, flat rate of $200 regardless of number of members) from a member requesting to send a communication to other members is reasonable? Explain.
- Do you believe that the method of member-to-member communication is appropriate? Are there better alternatives for facilitating communication among members, such as:
- Sending an electronic communication to those members who have agreed to this and by mail to those who have not agreed to receive electronic communications? Provide information on the burdens to credit unions to organize multiple-method communications under the prescribed timelines.
- Sending the members the requestor’s contact information along with a statement that the requestor wishes to discuss the conversion with an indication whether the requestor generally supports, opposes or is neutral on the conversion.
- Requiring the requesting member to prepare the mailing materials.
- Referring to state corporate law for member access to membership mailing lists.
- Any other alternative method for facilitating communication.
- Should NCUA apply this method in Q-5 to all member communications and not just to those communications regarding a pending conversion to an MSB. Explain.
- The current rule requires the converting credit union to accept ballots either by mail or in-person. NCUA is considering amending the rule to permit credit unions, if they wish, to accept member ballots electronically. Do you support this change” Explain.
- Do you believe offering incentives to members, such as entry in a prize raffle, to encourage participation in a conversion vote detracts from the fairness of the vote? Explain.
- Please provide any other comments.
If you have any further questions, or to submit a response, please contact:
Michigan Credit Union League
112 East Allegan St., Suite 800
Lansing , MI 48933
Fax: (517) 482-3762
We Appreciate Your Response.