NCUA Proposes New Rules On Conversions

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Prompted by the failed conversion of Columbia Credit Union to a mutual savings bank, the NCUA board proposed new rules last week that will both broaden the rules required for such conversions and the related voting requirements.

The proposals, the second time this year the board has moved to tighten voting related to charter conversions, will require all ballots be held in secret and that an independent third party count the ballots. These two provisions were proposed after NCUA, which invalidated the Columbia vote, found that some employees/members at the Vancouver, Wash.-based credit union may have been intimidated by management into voting for the conversion, and that members of senior management were counting the ballots behind closed doors.

The proposal issues for a 60-day public comment period, will also require expanded disclosures on the costs of the conversion, its effects on the voting rights of members/depositors, and whether the credit union plans to go public through a stock offering some time in the future.

Earlier this year NCUA approved another initiative requiring greater disclosures on conversions to mutual savings banks, including the potential for any financial gain by management and directors from the conversion.

Board member Debbie Matz said some of the proposals made by the board were based on the investigation of the Columbia conversion vote.

NCUA chairman JoAnn Johnson applauded the conversion proposal, calling it, "A well intended proposal aimed at aiding full disclosure."

Insurance Conversions

In addition, the board issued for comment a separate proposal that will expand the disclosures related to a credit union seeking to move from the National Credit Union Share Insurance Fund (NCUSIF), to private deposit insurance, of which American Share Insurance, Dublin, Ohio, is the primary provider.

The proposal would also require such disclosures in cases where a federally insured credit union merges into a privately insured credit union. That proposal would also require confidential balloting and an independent party to count the votes.

During NAFCU's annual meeting one week earlier, Johnson said she believed that in many conversions to private insurance members are not fully aware their deposits will no longer have government backing.

Separately, the NCUA board approved a final rule that will allow all credit unions to act as a trustee or a custodian for tax-deductible Health Savings Accounts. Credit unions were approved as participants in HSAs under the Medicare Act of 2003.

Also approved was a final rule was a measure allowing student credit unions to participate in NCUA's Community Development Revolving Loan Program, which provides low-interest loans and mall technical assistance grants to low-income credit unions.

The board also finally approved the hiring of a chief economist and an assistant. NCUA has been without a chief economist for more than 10 years.

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