ASI accuses NCUA of overstepping bounds with final private insurance disclosure regulation; agency tells a different story. DUBLIN, Ohio-Though modifications made to NCUA's final rule on disclosures in conversions to private insurance were helpful, some other legal concerns remain, American Share Insurance President and CEO Dennis Adams stated. "There were many favorable changes in the final regulation. I was happy to see that," he admitted. NCUA made some "progressive changes, he continued, "but I don't think all the legal issues have been addressed." Adams pointed out that ASI's comment letter highlighted a number of issues that were not addressed in the amendments made from the proposal to the final regulation. "The final regulation leaves some questions that are more open to interpretation than one would expect in a regulation," he said. For example, Adams noted that language such as `misleading' or `deceptive' wording in disclosures during the conversion process could be very subjective and provides a good deal of latitude to the regional directors. He argued that some sort of standard should be established, possibly through a legal opinion letter or some other administrative manner. The most important thing is that credit unions know what they need to do to get it right and not waste time over an `i' that missed getting dotted, Adams said. According to NCUA Director of External Affairs and Special Assistant to the Chairman Nicholas Owens, the final rule already "provides a sufficient standard: the regional director may disapprove the conversion if he or she determines that "by inclusion or omission of information in a share insurance communication [the credit union] materially mislead or misinformed its membership." This same standard has been in the rule for the past 15 years." Owens noted that credit unions that are concerned how the standard could be applied can first review the language of their disclosure with NCUA, as noted in the preamble to the regulation. ASI's comment letter from last September complained that the proposal interfered with state law by requiring votes be conducted by secret ballot through a third party. "The state-chartered credit unions are incorporated under state law. Each state has its own corporate laws for voting procedures by members. Whether or not voting must be by a "secret ballot" or managed by an "independent entity" are matters of state law and/or bylaws adopted pursuant to state corporate law," the letter read. The final rule maintained these provisions. Owens contested the characterization that the agency has overstepped its authority. The Federal Credit Union Act states, among other things, that when NCUA considers approving a credit union's conversion to private insurance, it must consider the needs of the institution's members, he argued. "The voting provisions we put in the final rule, including disclosures and voting procedures, are there to satisfy the needs of the members for accurate information and a fair voting process. These provisions do not `overstep state law,'" Owens stated. ASI also commented that permitting withdrawals on term accounts without penalty violates state contract law, which controls the contractual terms of certificates of deposit and other term accounts. In the final regulation, NCUA limited the amount permitted to be withdrawn without penalty to the maximum federally insured amount of $100,000. The consumer also has rights in these accounts, Owens said. "Federal share insurance is an implied or express condition of any term share account contract opened at a federally-insured credit union," he explained. "NCUA regulations, for example, require that the official NCUA sign be displayed at any location where the credit union receives shares. The sign clearly indicates to a would-be share purchaser that he or she will be receiving federal insurance on the account. If the credit union changes the terms of the contract by switching insurance, the least it can do is to let the member out without a penalty." The comment letter also generally stated that ASI was unaware of any enforcement actions taken for problems in a credit union's conversion to private insurance or any complaints from credit union members that they were unaware that ASI insurance was not backed by any federal or state government. No demonstrated need exists for the new regulation. On the contrary, Owens said, NCUA receives complaints via e-mail and telephone. The agency included examples of "misleading communications" that have been sent out to thousands of members of converting credit unions. "[T]he vast majority of those members probably did not even realize they were receiving misleading information and so did not even think about complaining," he pointed out. "Through this rulemaking we are trying to protect members from this misleading information-including some information that continues to propagate [including] that NCUA does not have the full faith and credit of the US government behind its insurance." Adams said ASI is still evaluating and analyzing the regulation internally, with its attorneys, and with its board. ASI is also interviewing a variety of credit unions on issues such as whether they could afford to convert in light of the new reg, whether it is overly onerous, and if they would be motivated enough to work through the new provisions. The company is also mocking up forms for the amended process. Adams said he is unsure how ASI's concerns might be addressed and whether the new regulation would impact business at ASI, credit unions' only private primary deposit insurance provider. He commended the agency for working "very diligently" and noted that it tackled nearly all of the core issues raised in comment letters. Adams also noted the professional conduct of staff and NCUA Chairman JoAnn Johnson's willingness to listen to ASI's concerns. -

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