ALEXANDRIA, Va.-Among the three final rules unanimously approved at the February NCUA Board meeting was one regarding disclosures to credit union members in a conversion to a thrift charter, a hot topic of late. The amendments made last Thursday would require additional disclosures to members of credit unions attempting the leap to a mutual thrift charter, including letting the members know whether the institution plans to convert to a stock-held bank in the future and the benefits to the institution's officials and members. Specifically, the credit union must provide any economic benefit a director or senior management official could reap from a conversion. The credit union must also inform its members about how the conversion will affect their voting rights and how any subsequent conversion to a stock-held institution may affect their ownership interests. "NCUA believes this amendment enhances a member's ability to make informed decisions about the conversion without increasing the regulatory burden for converting credit unions and helps converting credit unions to more fully understand what NCUA expects to be included in the notice to members," the board action memorandum read. Not so, according to American Bankers Association Senior Economist Keith Leggett. "The rule should be based upon positive statements and not based on `this is what could happen,'" he argued. Leggett added that this could open the institution up to litigation down the road if it says it plans to convert to stock held and does not or if it discloses it does not plan to convert to stock form, then needs capital and does. He also said that the way the rule is structured, it will prejudice the vote by "impugning" the character of the board members. But NCUA Chairman Dennis Dollar said in his remarks during the meeting, particularly in this post-Enron era, "Members voting for step one need to know the possibility of step two." CUNA Associate General Counsel Mary Dunn said that this is just another example of the banks simply trying to skew NCUA's regulation. She emphasized that the rule only covers what the board plans to do at the time it is considering the conversion so its decisions in the future are not impacted. "It's interesting that Keith Leggett is worried about a credit union getting litigated against," she quipped, noting the many lawsuits banks and the ABA have brought against NCUA, credit unions, and their trade associations. CUNA's comment letter supported the proposal, which was very similar to the final rule, Dunn said. "Our board is looking at the issue again ourselves," she said. NAFCU General Counsel Bill Donovan said the association's comment letter basically favored the rule, and most of the recommendations in it were included in the final rule. For example, NAFCU Director of Regulatory Affairs Gwen Baker said the proposal stated that the conversion could lessen a member's voting rights, but that was modified to "changes" a member's voting rights, because in certain instances they could be enhanced, like if the mutual converts back to a credit union. NCUA Vice Chair JoAnn Johnson said during her comments that she has requested that NCUA look into further altering the agency's rules on mutual conversions by looking into independent balloting and confidential voting rights. She noted that NCUA learned a lot about the whole process from its latest experience with the denial of Columbia Credit Union's conversion. NCUA Staff Attorney Frank Kressman, who traveled out to Washington at the time, agreed. In response to a line of questioning from NCUA Board Member Debbie Matz, he recommended that members should be notified of the early stock purchases and bonuses that are permitted to the institution's officials prior to the initial public offering. He said that dissident board members' concerns should be disclosed to the membership as well as additional financial data. The NCUA Board also considered a community charter application that stirred up some controversy. Tennessee Valley Federal Credit Union was approved by a vote of 2-1 to serve a 13 county community with 10 counties in Tennessee and three in Georgia. While the credit union plans to double its marketing by 2006 and 26% of the total requested population was underserved, Matz voted against the charter approval. She said she felt the regional planning council that the credit union heavily relied on to demonstrate community is not a good gauge to determine community. The board also approved a final rule permitting credit unions to enter into surety and guaranty agreements in certain scenarios. It also will allow federal insured state-chartered credit unions to apply for a waiver from the maximum borrowing limitation of 50%. NCUA could not apply this portion of the rule to federal credit unions because the cap is statutorily mandated. The final rule is identical to the proposal. Finally, NCUA passed an interim final rule providing credit unions parity with a new Federal Deposit Insurance Corporation rule regarding living trusts. A living trust is a type of revocable trust that typically permits separate share insurance for the account holder and any beneficiaries. However, if the living trust includes a defeating contingency-such as it cannot be inherited until the beneficiary obtains a college degree-the coverage for each beneficiary does not apply. Under the interim final rule, effective April 1 as is FDIC's rule, coverage would expand to the beneficiary if the accountholder died and the credit union failed before the beneficiary graduated college; it would be as if the defeating contingency did not exist. -

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