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ALEXANDRIA, Va.-After a fairly substantial cooling off period since NAFCU raised its objections to private insurance, the controversy is alive and kicking again. Comments were due Sept. 27 on NCUA’s proposed regulation on disclosures and voting rights in private insurance conversions. Comments sent in to NCUA ranged from a one-pager from two Rhode Island senators in favor of the proposal to a 28-page letter in complete opposition from American Share Insurance. ASI questioned the necessity for such a regulation. President and CEO Dennis Adams explained that the insurer had successfully helped 31 credit unions over the last 10 years to convert to private share insurance. “All of these conversions were successfully completed under existing regulations,” he wrote. “None resulted in enforcement action by the Board. Nor are we aware of any comment or complaint by any member that they were unaware that ASI insurance was not backed by the Federal or state government.” Adams said he was compelled to write because “the Proposed Rule goes so far beyond the NCUA’s authority and would employ `scare tactics’ and unnecessary restraints on state-charted credit unions.” He pointed out that ASI is NCUA’s only insurance competitor. Adams also complained about the lopsidedness of NCUA’s proposal. “The Proposed Rule evinces the Board’s apparent belief that no informed member would ever choose private over federal insurance if they understood the ramifications of foregoing federal insurance. In essence, there should be no privately-insured credit unions,” he argued. Finally, Adams stated that NCUA had no authority to promulgate such rules. “The concerns that the Board seeks to address are properly within the jurisdiction of the states to enact further regulations if they deem appropriate,” he concluded. “The credit union system in our country began with state chartering of credit unions. When Congress enacted the Federal Credit Union Act in 1934, Congress did not seek to displace the states’ rights to control state-chartered credit unions. Rather, Congress created a dual charting system where state and federal credit unions could operate side by side. This dual chartering system has worked well for seventy years. Congress had taken no action to disrupt this system or to deny the states the right to control state-chartered credit unions. “The Board can not do what Congress has not done and what Congress has not authorized it to do. States’ rights are a fundamental part of our legislative system. The dual chartering system for credit unions must not be displaced by enactment of the Proposed Rule.” On the flip side of the coin, Rhode Island Senators Jack Reed (D) and Lincoln Chafee (R) wrote that they never want to see what happened to the Rhode Island Share and Deposit Indemnity Corporation in 1991 happen again. The state closed down all institutions insured by RISDIC until they obtained other insurance. Many large institutions were unable to do so and the state ended up bailing them out. “Rhode Islanders continue to recognize the perils of not having federal deposit insurance today, and we want to make sure that others around the country do not have to go through what Rhode Island had to in the early 1990′s,” Reed and Chafee wrote. Their letter also pointed to the Government Accountability Office study that found a large percentage of privately insured credit unions had not been complying with the disclosure requirements under section 43 of the Federal Deposit Insurance Act. These requirements include signage and monthly statements marked with a disclosure that the institution is not insured by any federal or state government. “We support efforts that will help ensure that credit unions are fully aware of the requirements placed on them under Section 43, as well as guarantee that credit union members receive adequate communications about the ramifications and impact of terminating federal insurance,” the senators’ letter concluded. NASCUS clearly came down on the side of states’ rights. “NCUA’s proposed Part 708b would practically, if not explicitly, prohibit by regulation that which Congress and 23 state legislatures have allowed for by law,” NASCUS President and CEO Mary Martha Fortney wrote. She explained further to Credit Union Times, “The proposed change is so onerous and slated as to make a choice meaningless.” This is clearly an overextension of NCUA’s authority, she added. Fortney stressed that when Congress updated the Federal Credit Union Act in 1974, it intended to abbreviate the insurance conversion process. “Given the intent to streamline and simplify the process where the institution would obtain non-federal share insurance, it seems inherently inconsistent to read into the statute NCUA’s authority to prescribe and dictate additional terms and conditions for the membership vote,” she wrote. In fact, the Federal Trade Commission has authority over privately insured, state-chartered credit unions regarding their insurance disclosure, NASCUS points out. “We don’t support one insurer over another. We support the right of states,” Fortney said. CUNA and NAFCU too are supporting opposite sides of the issue. CUNA positioned itself squarely against the proposed amendments. “Under the proposal, credit unions seeking to convert to private insurance would be required to undertake extraordinary, costly measures regarding the members’ vote on private insurance,” CUNA Chairman Juri Valdov wrote. “Such measures include retaining an independent, third party to administer the member vote, leaving unclear the role of the credit union’s board, supervisory committee or other internal credit union body, which would otherwise have overseen the vote. The supplementary information does not cite any abuses in the voting process to justify these requirements. While the use of the secret ballot may be beneficial to members, in the absence of such voting-process abuses CUNA does not support the changes to remove the election process from the oversight of the credit union’s board and management. Because the need for the changes has not been documented and the requirements would be burdensome, we believe the adoption of such requirements is inconsistent with the agency’s general approach to regulation and should not be pursued,” stated Valdov. CUNA also expressed “concern that the language of the proposal would give NCUA considerable latitude to preclude information about private insurance.” Expressing the polar opposite opinion, NAFCU supported every single amendment and requested another. NAFCU President and CEO Fred Becker asked that NCUA set a minimum number of times members of a credit union considering a conversion must be notified prior to the conversion and by at least two different means. Regarding insurance coverage after a merger, NCUA has proposed the continuing credit union notify members of possible insurance coverage loss; notify those members with accounts at both credit unions that would lose some insurance coverage; or determine which members would have uninsured funds within six months of the merger and inform them of the issue. NAFCU proposed a fourth option, allowing the credit union to publish a general statement within six months of the merger notifying them of the potential problem. -

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