More Information: Amendments Proposed To Conversion Rules

Register now

The NCUA Board last week proposed amendments to its rules that would allow greater member involvement in decisions to convert to a mutual savings bank and, at the same time, reduce the opportunities for outsiders to profit from those conversions.

The proposals, issued for a 60-day comment period, would require that credit unions notify members before the board of directors votes to convert the CU and to provide an outlet for members to communicate with the board, such as a public comment period, before the members vote on the conversion. The changes would also require the board to share information and details of the benefits and liabilities of a conversion with requesting members, at the member's expense.

The proposal would also reduce the mail balloting from a 90-day period in advance of a special meeting, to just 30 days. This would limit the opportunities for outsiders, such as speculators expecting the institution to eventually sell stock in an initial public offering, from obtaining membership via deposits and thus, gaining priority in any subsequent IPO. It would also reduce the chances of the outsiders gaining voting rights in the conversion and diluting the other members? votes.

The proposal also simplifies the so-called box disclosures required on all conversion ballots and states that directors have a fiduciary duty to act in the interests of the members, something that has been disputed in recent conversions.

The proposed rules, said NCUA Chairman JoAnn Johnson, "demonstrates that NCUA is committed to self-determination by the member-owners of the credit union," and "to a fair and transparent" voting process.

The proposed rules, said NCUA Board member Rodney Hood, will play a greater role in keeping the members informed throughout the process.

Paul Peterson, an NCUA staff attorney who drafted the proposal, said the agency is convinced that it is much more than a monitor of safety and soundness of credit unions, but also serves as a guardian of consumer protection for credit union members. "We believe that extends to the bank conversion process," he said.

NCUA Board Member Gigi Hyland issued a statement that said, "I urge the public to provide specific and detailed comments on this proposal. As I have stated on many occasions, if you believe in credit unions, you believe in the ability of the members to choose their financial institution. But they can only make that choice if given all the facts in a fair and timely manner."

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER