NCUA Board Acts on Conversions Regulation, and Approves Proposed Rule Regarding Non-Interest Bearing Accounts

Dec. 22, 2010 — In its last meeting of the year, the National Credit Union Administration (NCUA) Board addressed a large agenda covering federal credit union fiduciary duties, conversions and several other topics.

Final Rule: Parts 701, 708a, 708b
The NCUA Board approved a final rule to: (1) create new §701.4 to address fiduciary duties of FCU directors; (2) create new subpart C of Part 708a to address credit union to bank mergers; and (3) revise existing rules on charter and insurance conversions in Parts 708a and 708b.

State-chartered credit unions follow state law regarding fiduciary duty; however FCU directors will now follow this NCUA standard, which includes an education requirement for understanding of basic finance and accounting practices.

The new subpart C of 708a establishes procedural and substantive requirements for converting a credit union to a bank through a merger. The new subpart requires Regional Director approval of the conversion plan, and in the case of a state-chartered credit union, the state regulator would also need to approve the plan.

These new requirements would apply to all FICU direct mergers as well as transactions where the FICU first converts to a mutual savings bank (MSB) and then merges with another bank without operating as a stand-alone MSB.

NASCUS will prepare a summary of this final rule and upload it to the Regulatory Resources page when available. This final rule will be effective 30 days after publication in the Federal Register.

Proposed Rule: Part 745
This proposed rule was prompted by a section of the Dodd-Frank Act, signed in law July 2010. The Dodd-Frank Act included a provision that fully insures non-interest bearing accounts until December 31, 2012. While the provisions are self-implementing, this proposed rule clarifies that for a credit union, a non interest-bearing transaction account is a "non dividend-bearing" account and that coverage is separate from, and in addition to, other coverage provided for in NCUA's insurance rules. Disclosure and notice requirements are also included. The proposed rule was approved with a 60 day comment period following publication in the Federal Register.

Proposed Rule: Part 740
This NCUA Board-approved proposed rule revises the NCUA official advertising rule requiring the official NCUA advertising statement appear in all radio and television advertisements, annual reports, and statements of condition required to be published by law. The verbal statement can be as brief as "Federally insured by NCUA." It also defines the term "advertisement" and clarifies size requirements for the official advertising statement in print materials. The proposed rule has a 60-day comment period after publication in the Federal Register.

Actions Impacting Federal Credit Unions Only
The NCUA Board issued proposed qualification criteria that would enable FCUs to add the option of using sample data from loan files or a member survey to meet low-income designation requirements. Further, a final rule was approved amending the definition of "low-income members" in §701.34 to clarify that, when comparing credit union data on member income with Census Bureau data to determine if a credit union qualifies as low-income, the comparison must be between like data categories.

Other Actions
The NCUA Board also acted to add the NCUA's chief economist to the NCUA's Investment Committee and made a change to the calculation the Central Liquidity Facility uses to reimburse the NCUA Operating Fund for certain indirect expenses.

The NCUA Board will meet next in January.