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ALEXANDRIA, Va.-NCUA’s April board meeting featured final modifications to the Federal Credit Union Bylaws and overdraft protection disclosures last week, as well as a presentation of the quarterly insurance fund report. The Federal Credit Union Bylaws were updated to use plain English for easier understanding, the format was modified to include subheadings to more quickly locate pertinent sections, and provide credit unions greater flexibility. According to NCUA’s Board Action Memorandum, the final version “allows maximum flexibility.while preserving the rights of credit union members to be informed about and participated in the governance of their credit unions.” For example, the bylaws institute a requirement for credit unions to establish a policy regarding board member education in light of the post-Sarbanes-Oxley era, but do not prescribe any particular training, as the appropriateness will vary by credit union. The new bylaws also provide check boxes and areas for boards to fill in the blanks, such as the time of annual meetings, in an effort to better inform the membership. Some commenters suggested that credit unions are not statutorily required to seek NCUA’s approval before adopting bylaw changes. However, NCUA Associate General Counsel Sheila Albin explained that it has been the agency’s interpretation of the rules for the last 70 years that Congress intended uniformity among federal credit unions and cited case law to back up that interpretation. “This is something that actually enhances the federal charter,” she said. Despite some commenters suggesting that a bylaw be included making future credit union conversions to noncredit union charters more difficult, the agency felt this was not within the scope of its initial request for comments. However, Albin stated, “If you want to present a proposed amendment along these lines we will certainly entertain it.” She also explained that NCUA’s rules have to be in line with the Federal Credit Union Act. Also relating to credit union conversions, in recognition of the effort and costs put into special meetings, the new bylaws increase the number of member signatures required to hold a special meeting from 500 to 750. NCUA also approved a final rule, in line with the Federal Reserve Board, on overdraft disclosures in advertising. While no substantive changes were made from the interim final rule, the compliance date was moved up from July 1, 2006, as stated in the interim final rule, to Oct. 1. The agency said from talking to the trades and vendors most credit unions should not need more than a day to make the software updates but smaller credit unions using less modern software could require a few days to come into compliance. Essentially, the “heavy lifting” for compliance will be borne by the vendors, NCUA Staff Attorney Tonya Green explained. The rule requires credit unions offering overdraft protection or courtesy pay services to disclose fees associated with the service on periodic statements, when an account is opened and in advertisements that promote the service. Credit unions that promote overdraft payments on an ad hoc basis would also have to disclose the total fees imposed for that statement period and calendar year-to-date. There are no new requirements for credit unions that do not provide overdraft protection. Both items passed unanimously. The NCUA Board also received the quarterly insurance fund report from Chief Financial Officer Dennis Winans, which disclosed that the NCUSIF’s equity ratio should be up around 1.29% by year-end. The agency typically provides a dividend when the ratio reaches over 1.30%, as permitted by statute and regulation. The NCUSIF’s net income of $149 million is projected to double last year’s $74.3 million, Winans said, mainly due to increasing short-term interest rates. Though the bulk of the fund’s investments are less than 90 days out, they will begin to level out as interest rates improve. The number of problem credit unions, those with CAMEL 4/5 ratings, was down slightly in the first quarter from 280 at year-end to 269. A total of 48 credit unions left this designation: 29 rehabilitated themselves to CAMEL 3 while the others were merged or liquidated. However, another 37 dropped down to the status of “problem credit unions.” The total insured shares in these credit unions shrank from 1.12% at year-end to 1.03% at the end of the first quarter, mainly because two of the rehabilitated credit unions accounted for $500 million in aggregate assets. -

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