NCUA Passes Financial Literacy Requirement For Boards

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ALEXANDRIA, Va.-The NCUA Board last week approved a new financial literacy rule for the nation's 75,000 volunteer credit union directors requiring for the first time that each director obtain a minimum ability to read a credit union income statement and balance sheet.

The new requirement comes amid growing credit union losses and increasing sophistication of credit union finances. The required level of financial literacy will depend on the complexity of the credit union.

Directors will be given six months to receive training in financial literacy with NCUA providing both Internet-based and as many as 50 regional training sessions in the coming months.

"I think we can all agree that volunteers are the heart and soul of the credit union community," said NCUA Chairman Debbie Matz, who emphasized that directors should have a minimum of competence in basic finance and an ability to read and understand their credit union's balance sheet. She said NCUA is not planning hardcore efforts to police the new requirements, at first. "It's not going to be a game of gotcha; examiners are not going to go around quizzing volunteers," she added.

The new rules also include additional provisions on a director's fiduciary responsibility to his or her credit union and prohibit a credit union from indemnifying a director in cases of gross negligence. A credit union may, however, provide legal assistance to a director being sued if the credit union officers believe the director acted in good faith. These new provisions were prompted by several recent conversions to mutual savings banks when members sought to sue their directors over the squandering of credit union resources during expensive conversion fights.

The new rules also includes new requirements for voting on credit union conversions to banks, stepping up requirements for independent third-party oversight of conversion votes; barring credit union employees from helping members fill out secret ballots; and preventing officers from seeing and using interim vote counts, something that occurred during several controversial conversion to bank ballots.

The new rule will also require in case of conversions to banks that credit unions provide members with an option of paying out a credit union's capital in a liquidating dividend; that it obtain and present to members a pre-conversion valuation by an independent third party; and that final member votes to convert to banks receive the affirmative vote of at least 20% of all members. It also requires that credit unions disclose during the conversion process what role, if any, current officers and directors will play once the conversion to bank is completed, and any compensation they may earn as a result, and what effect the conversion will have on the future availability of services to members.

NCUA Board Member Gigi Hyland voted against the rule, saying she is concerned that the requirements on fiduciary duties and financial literacy are not detailed enough. "This might cause more confusion down the road," said Hyland. She said she is worried about what effect NCUA's requirements may have when a director is sued.

The new rule will also require that in regular credit union mergers into other credit unions that any material increase in officer pay as a result of the merger be disclosed to members.

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