NCUA News Release

NCUA Board Issues Final Rule on Conversion Disclosure Rules for Insurance and Credit Union Conversions to Mutual Savings Banks

Alexandria, VA, January 13, 2005 – The National Credit Union Administration Board issued final rules amending the disclosure requirements to credit union members of an institution’s intention to convert to private deposit insurance or to a mutual savings bank.

The NCUA issued a final change to its Part 708b rule on credit union mergers, federal share insurance terminations and conversions from federal share insurance to nonfederal (private) insurance.

“This rule is good for members, and because it is good for members, it is good for their credit unions,” said Chairman JoAnn Johnson in a statement regarding the insurance conversion rule. “Members should have access to this information prior to voting on a conversion, not just after the fact. Furthermore, we want any additional information the credit union provides its members, beyond our required disclosures, to be factually correct and not misleading in any way.”

The final Part 708b rule requires credit unions converting from federal to private share insurance make certain disclosures to their members to ensure they are properly informed before they vote on whether to convert. The rule also provides protections to members who may lose federal insurance because they have large insured accounts at two federally-insured credit unions that are merging or they have term accounts at a federally-insured credit union that is converting to private insurance. In addition, the rule requires merging credit unions to analyze the premerger requirements imposed by the Hart-Scott-Rodino Act and provides for other updates to the existing rule.

Also, the NCUA Board adopted a rule change to Part 708a amending the requirements for converting from an insured credit union to a mutual savings bank to ensure members are provided full disclosure about conversion before the conversion vote. The amendments require voting by secret ballot is conducted by an independent entity. These amendments are effective immediately upon publication in the Federal Register.

“Since the enactment of the Credit Union Membership Access Act, NCUA has continued to be concerned that many credit union members do not fully understand the effect a conversion may have on their ownership interests in the credit union and voting power in the mutual savings bank,” said Chairman Johnson. “A charter conversion is a complex and sophisticated transaction with long-term consequences that may not always be readily apparent. NCUA believes it is of paramount importance for credit union members to be fully informed about this conversion so they may cast educated and meaningful votes. NCUA recognizes a credit union’s right to convert its charter, so long as the members who vote on that decision have access to sufficient information to make an informed choice.”

“These actions are among the most important consumer protection regulations ever promulgated by this agency,” stated Board Member Debbie Matz. “In strengthening NCUA’s rules governing conversions to private insurance and mutual savings banks, we are guaranteeing that members will receive accurate and complete information upon which to base their own votes.”

However, Matz emphasized, “These rules are not intended to prevent conversions to private insurance or mutual savings banks; nor are they intended to infringe on the authority of other regulators. Most important, these rules are not intended to restrict members’ right to vote. Members have every right to vote to convert their credit unions to private insurance or mutual savings banks, when their votes are based on information that is accurate and complete.”

For additional information regarding the final rules visit: www.ncua.gov.

The National Credit Union Administration, governed by a three-member board appointed by the President and confirmed by the Senate, is the independent federal agency that regulates, charters and supervises federal credit unions. NCUA, with the backing of the full faith and credit of the U.S. government, also operates and manages the National Credit Union Share Insurance Fund (NCUSIF), insuring the deposits of over 83 million account holders in all federal credit unions and the overwhelming majority of state-chartered credit unions.