ALEXANDRIA, Va. -- Credit union and charter choice advocates alike for the most part urged NCUA to forget about its proposed regulation on member inspection of credit union books, records, and minutes.
As NCUA has worked in recent years to provide regulatory flexibility for the credit unions it regulates, CUNA and NAFCU have generally supported agency proposals; the same has held true for other attempts to create transparency in the credit union to mutual savings bank conversion process. However, this particular rule change has caused the two national trade associations to withhold their support and even encourage the proposal's withdrawal.
CUNA noted that its board earlier this month adopted a new policy on member access to books, records, and minutes, which states:
-Credit union members are entitled to reasonable access to non-confidential information regarding their credit union, as long as the stated purpose for requesting the information is related to the business of the credit union and the request is specific and limited in scope.
-The credit union should be able to decide whether it provides the actual account records, minutes or provides a summary or an extract that is limited to information which responds to the specific request.
-However, access to credit union information should be provided through an orderly process that minimizes the credit union's costs and burdens of providing the information and that limits disruptions to the credit union's business.
-Elements of an orderly process would include a requirement that members pay for the reasonable costs of providing the information; that minutes, books and records would be available only through a petition process appropriate for the credit union based on the number of members and other factors; and that nonpublic personal information about credit union members or employees, or information that is prohibited by law from disclosure should not be subject to review.
"These principles are best implemented through internal credit union procedures, rather than through a new set of overreaching regulatory requirements," CUNA Deputy General Counsel and Senior Vice President of Regulatory Advocacy Mary Dunn wrote in the group's comment letter.
NAFCU Senior Vice President of Government Affairs Dan Berger agreed that "transparency is intrinsic to the cooperative and democratic principles", but added, "NAFCU firmly believes in the fundamental member rights that are inherent to cooperative ownership and generally supports the member access rights that currently exist under state corporate law. We are not convinced, however, that these rights should be federally regulated at this time."
On the other hand, the Pennsylvania Credit Union Association strongly backed the standardization of member access rules. "PCUA submits that credit unions, regardless of whether they are state or federally-chartered, should all share in the standardization of these rules and, therefore, requests NCUA to: 1) pre-empt state corporation law to the extent it conflicts with federal privacy laws and regulations that apply to all insured credit unions; and 2) work with their state agency counterparts to standardize the rules that govern members' right to inspect the books and records of the credit unions." PCUA did ask that the rule be clarified to prevent "general fishing expeditions," to maintain "trade secrets," and that NCUA consider revising its minimum petition signature threshold upward.
Also, members of Save Columbia Credit Union, the organization that worked to block the 2003 proposed conversion of Columbia Credit Union, backed the proposed regulation and recounted its experience in detail. "Credit unions assert that transparency and member participation in credit union affairs are not only a value, but stand as a fundamental difference between credit unions and all other financial institutions," the Save CCU Board wrote. "What we painfully discovered in practice, however, is that the fundamental values of transparency, member participation and member-owner rights can become mere public-relations tools that are easily manipulated and blocked by credit union boards when member-owners actually take these rights seriously and attempt to exercise them." SaveCCU took the credit union to court and lost at the trial and appellate levels because, essentially, the court equated credit union members to bank depositors. NCUA also cites this instance in its proposal.
However, Umholtz Strategic Planning & Consulting Services President/CEO Marvin Umholtz--an odd bedfellow for the national credit union trades--used this same case to make the argument against the rule. He said that credit union members are more like customers than shareholders in a for-profit entity. "When credit union members are allowed to cash out their share of the credit union's equity and take it with them to deposit in another financial institutions down the street, then members will truly resemble stockholders," he wrote. "Until that becomes a reality a credit union member is merely a customer with a few voting privileges. NCUA's assumption as illustrated in this proposed rule that a credit union member has the same rights as a stockholder in a for-profit company is erroneous, bad public policy, and sure to be litigated and overturned in court."
The Wisconsin Bankers Association went on to write "that the proposal is simply another masked attempt by NCUA to limit the ability of credit unions to choose the charter of their choice by once again throwing up obstacles that make the process of a FCU's conversion to a mutual savings bank more onerous and potentially less desirable."
Higher Minimum Needed
Most commenters did ask NCUA to up the minimum petition threshold. Truliant Federal Credit Union President/CEO Marc Schaefer pointed out that the maximum 250 signatures would only account for about 0.15% of his credit union's membership. Additionally, under the proposal individuals would only have to belong to the credit union for six months before gaining this right to the records, which he opposed given that many credit unions can be joined for a $5 deposit.
Many also expressed concerns about the lack of dispute resolution protections between a credit union and the member. Under the proposal, either party could submit a dispute to an NCUA regional director for a decision with no appeal. "We are concerned that a NCUA regional director does not have the independence necessary to resolve such disputes if the proposed rule is adopted," America's Community Bankers wrote. "Given NCUA's staunch opposition to credit union conversion to mutual savings banks, we are very concerned that a NCUA regional director would not be an unbiased decision maker in the event that a credit union and a group of members disagree about whether the members should have access to credit union records that may involve candid board discussions about charter options for the credit union going forward."
CUNA and NAFCU also said that the scope of what information should be made available to the members should be curbed. NAFCU said the definition of board 'minutes' "is overly broad and could have a chilling effect on board and committee deliberations" while CUNA said the board should be able to redact or refuse confidential information.
Both groups and others advocated that executive compensation should not be considered under this member access to information proposal and, instead, NCUA should wait for the recommendations of its Outreach Task Force, which is studying that issue more broadly.
CUNA and NAFCU also found the 14-day timeframe for a credit union to respond to a member's request to be insufficient.
The New York State Credit Union League said that much of NCUA's proposal is duplicative of how member access to information is currently being handled in New York and other states. The group's letter read, "The regulations would replace judges with more than 100 years of case law in this area with NCUA administers who will effectively become arbitrators in these fact sensitive disputes. This is not a role that the agency should desire for itself; it is not a role that the agency is particularly equipped to play."
Instead of this proposal--which he called a "terrible idea to accomplish concepts which we endorse strongly"--Orange County Teachers Federal Credit Union President/CEO Rudy Hanley said the agency would do better to move forward with incorporating its bylaws into regulation. "[T]he bylaw provision should contain only the standard-for-access that Member access to records would be available upon a demonstration of a proper purpose and reasonable assurance of the credit union's recover of costs of production and compliance with a document request."