Mergers of Federally-Insured Credit Unions; Voluntary Termination or Conversion of Insured Status, 3279-3296 [05-1165]

Agencies

• National Credit Union Administration

[Federal Register Volume 70, Number 14 (Monday, January 24, 2005)]
[Rules and Regulations]
[Pages 3279-3296]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-1165]



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Federal Register / Vol. 70, No. 14 / Monday, January 24, 2005 / Rules 
and Regulations

[[Page 3279]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708b


Mergers of Federally-Insured Credit Unions; Voluntary Termination 
or Conversion of Insured Status

AGENCY: National Credit Union Administration (NCUA).

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The National Credit Union Administration (NCUA) is issuing 
final revisions to its rule on credit union mergers, federal share 
insurance terminations, and conversions from federal share insurance to 
nonfederal insurance. The final rule establishes disclosure 
requirements to ensure that members have the opportunity to be fully 
and properly informed before they vote on whether to convert from 
federal insurance to nonfederal insurance. The rule 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 nonfederal insurance. The rule also requires 
merging credit unions to analyze the premerger requirements imposed on 
credit unions by the Hart-Scott-Rodino Act and provides other 
miscellaneous updates to the existing rule governing credit union 
mergers, terminations, and conversions of share insurance.

DATES: This rule is effective February 23, 2005.

FOR FURTHER INFORMATION CONTACT: Paul Peterson, Staff Attorney, 
Division of Operations, Office of General Counsel, at the above address 
or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION: 

A. Background

    The Federal Credit Union Act (Act) authorizes the NCUA Board to 
prescribe rules regarding mergers of federally-insured credit unions 
and changes in insured status and requires written approval of the 
Board before one or more federally-insured credit unions merge or 
before a federally-insured credit union terminates federal insurance or 
converts to nonfederal insurance. 12 U.S.C. 1752(7), 1766(a), 1785(b), 
1785(c), and 1789(a). Part 708b of NCUA's rules addresses the merger of 
federally-insured credit unions and the voluntary termination or 
conversion of federally-insured status. 12 CFR part 708b.
    The Board has a policy of continually reviewing NCUA regulations to 
``update, clarify and simplify existing regulations and eliminate 
redundant and unnecessary provisions.'' NCUA Interpretive Ruling and 
Policy Statement (IRPS) 87-2, Developing and Reviewing Government 
Regulations. As a result of the NCUA's 2003 review, the Board 
determined that part 708b should be updated and modernized. In July 
2004, the Board published its proposed amendments for a 60-day public 
comment. 69 FR 45279 (July 29, 2004).
    NCUA received 88 comment letters on the proposed rule. The comments 
came from a variety of sources, including state supervisory authorities 
(SSAs), credit unions (federal and state chartered; federally and 
privately insured), credit union trade organizations, credit union 
consultants, a law firm, a private share insurer, and members of 
Congress. Almost all the commenters commented on the share insurance 
conversion portion of the proposal. A few of the commenters also 
commented on the merger portion of the proposal.
    The majority of the commenters objected to various portions of the 
proposed share insurance conversion rule. About ninety percent of the 
credit unions submitting comments objected to various portions of it. 
Most of the commenting credit union leagues and trade organizations 
also object to the rule, while two support it. Six members of Congress 
wrote in general objection to the rule, while two wrote in general 
support of the rule. Three SSAs wrote in general objection to the rule, 
while one wrote in support. A private share insurer, American Mutual 
Share Insurance Corporation (ASI), objects to the rule.

B. General Comments About the Proposed Rulemaking

    Several commenters supported the proposed amendments to the share 
insurance conversion part of the rule, particularly the changes in 
disclosures and increased NCUA oversight of share insurance 
communications. These commenters generally thought the proposal would 
result in credit union members receiving more accurate information when 
voting on conversions.
    Many commenters complained about the proposed rulemaking as it 
relates to share insurance conversion. Some of the general themes of 
the commenters who object to the rule are that: NCUA does not have the 
legal authority to approve or disapprove conversions to private 
insurance; NCUA is in a conflict of interest situation and is 
improperly regulating the private share insurer; NCUA is undermining 
the dual chartering system because it is regulating in an area that is 
the province of state regulators; NCUA is confusing its role as insurer 
and regulator and this rulemaking is proof that the functions should be 
separated; and NCUA has not provided sufficient information about 
problems with the current conversion process. These commenters believe 
no rulemaking is necessary.
    The NCUA Board disagrees with many of these comments about the 
proposed share insurance conversion rulemaking. First, the Act charges 
the NCUA Board with approving or disapproving conversions of federally-
insured credit unions to ``noninsured credit unions,'' and the Act 
defines a noninsured credit union as any credit union that does not 
have federal insurance, to include uninsured and privately insured 
credit unions. 12 U.S.C. 1752(7), 1785(b)(1)(D). Second, this proposed 
regulation does not regulate private insurance or private insurers. The 
Act charges NCUA with ensuring that the needs of credit union members 
are met during share insurance conversions and terminations. 12 U.S.C. 
1785(c). This rulemaking is about ensuring that members have accurate 
information. Third, the rule acknowledges the participation of the SSAs 
in the conversion process. Since federal law assigns an approval 
function

[[Page 3280]]

to NCUA, however, the regulation of conversions is not the sole 
province of state regulators. Accordingly, the proposed rulemaking does 
not undermine the dual chartering system. Fourth, federal law places 
both safety and soundness and consumer protection responsibilities on 
NCUA. The Board believes these responsibilities are not in conflict and 
this rulemaking does not evidence a need to separate NCUA's ``insurer'' 
and ``regulator'' functions.
    The Board appreciates the requests of some commenters for more 
information about the need for this rulemaking, particularly the need 
for increased disclosures and oversight of communications to members 
during the share insurance conversion process. Additional information 
on that aspect appears in Section C of the Supplementary Information. 
Some commenters had concerns with particular provisions in the proposed 
rule and the final rule contains several changes in response to these 
comments. Comments on particular provisions and the associated changes 
are discussed in Sections D and E of the Supplementary Information.

C. The Need for This Rulemaking

    Many commenters said they did not understand why NCUA was proposing 
to change the disclosures to members of credit unions converting to 
private insurance and to expand the scope of communications subject to 
NCUA review. As the Board indicated in the Supplementary Information to 
the proposed rule:
    The Board is concerned about communications that credit unions may 
make that are intended to influence the member vote. While a credit 
union seeking to convert or terminate may make its case for conversion 
or termination to its members, it may not do so by misleading, 
inaccurate, or deceptive representations. For example, the Board 
believes that any discussion of NCUA insurance, or any comparison of 
nonfederal insurance to NCUA insurance, is inaccurate and deceptive if 
it fails to mention the most important aspect of NCUA insurance: by 
law, it is backed by the full faith and credit of the United States 
government. Competitive Equality Banking Act of 1987, Pub. L. No. 100-
86, Section 901, 101 Stat. 657 (1987); Massachusetts Credit Union Share 
Insurance Corporation v. National Credit Union Administration, 693 
F.Supp. 1225, 1230-31 (D.C.D.C. 1988) (``The Court concludes that it 
was the clear and unambiguous intention of the Congress to guarantee 
the resources of * * * depository institutions with the full faith and 
credit of the United States.''). The Board is also concerned about 
representations that state or imply that it is difficult or impossible 
to structure accounts at a federally-insured institution to obtain more 
than $100,000 of share insurance coverage as these representations are 
also inaccurate and deceptive.

69 FR 45279, 45280-81 (July 29, 2004). The Board's concerns about 
inaccurate and misleading share insurance communications are not 
hypothetical but based on actual communications made by credit unions. 
Some examples follow.
    Example 1: Misleading comparison about the relative financial 
safety of private insurance and NCUSIF insurance.
    In comparing the safety of private insurance to the NCUA Share 
Insurance Fund (NCUSIF), a credit union stated in a 2004 communication 
to members:
    Financial safety of a share insurance program is measured in terms 
of equity available to pay a claim. ASI's equity is the strongest of 
all national insurers. For example, the Federal Deposit Insurance 
Corporation (FDIC) touts having $1.30 for each $1.00 it insures. The 
National Credit Union Share Insurance Fund has $1.27 as of year end 
2001. ASI's stands at $1.33 * * * the highest of all.
    This statement inaccurately indicates the equity ratio of the 
insurance funds is the main determinant of the relative safety and 
strength of the private and federal funds. While fund equity is 
important to a private insurer, which may have no real alternative 
source of funding to pay claims, the comparison to the NCUSIF fails to 
take into consideration factors such as the relative size of the funds, 
the relative risk diversification, available lines of credit, and, most 
importantly, the fact that the NCUSIF is backed by the full faith and 
credit of the United States government. To avoid misleading credit 
union members, any comparison of the safety, strength, or relative 
claims paying ability of the NCUA and a private fund must state that 
accounts insured by NCUA are guaranteed by the United States government 
and accounts insured by the private fund are not guaranteed by the 
federal government or by any state or local government. This fact was 
not mentioned anywhere in the credit union's communication promoting 
conversion. NCUA's view is that comment about the relative strength of 
private insurance funds with the NCUSIF is per se misleading if it 
fails to mention that the NCUSIF is backed by the full faith and credit 
of the United States Government.
    Example 2: Misleading statement that a credit union's assets are 
safer with private insurance.
    A credit union made the following statement to its members in a 
2004 newsletter article explaining why its members were better off with 
private insurance than NCUSIF insurance:
    If the worst happened, [name of credit union]'s assets are safer 
with ASI deposit insurance. In the unlikely event that several credit 
unions failed at once, [the credit union] could potentially face 
greater financial risk with federally backed deposit insurance than 
with ASI private deposit insurance. With federal insurance, all of [the 
credit union]'s reserves (currently $58 million) could be used to bail 
out other credit unions. With ASI private deposit insurance, only 3% of 
[the credit union]'s total assets (currently $19.96 million) could be 
used.

(Emphasis in original). This statement is inaccurate and misleading for 
the following reasons.
    First, the credit union's statement that ``[w]ith ASI private 
deposit insurance, only 3% of [name of credit union]'s total assets 
(currently $19.96 million) could be used'' is wrong. In reality, the 
credit union's potential liability is unlimited. ASI's Standard Primary 
Share Insurance Contract (SPSIC) says that ASI requires an insured 
credit union to make capital contributions sufficient to maintain the 
normal operating level of its Guarantee Fund. The SPSIC also says that 
insured credit unions do not have to make contributions or assessments 
that exceed 3% of their total assets ``unless otherwise ordered by the 
Superintendent of the Division of Financial Institutions in the 
Insurer's state of domicile.'' Further, ASI is domiciled in Ohio and 
Ohio law states that whenever the Ohio SSA or superintendent of 
insurance considers it necessary for the maintenance of ASI's normal 
operating level--a minimum of one percent--the superintendent ``shall 
order'' ASI to levy and collect additions to the capital contributions. 
Ohio Rev. Code Ann. Sec. Sec.  1761.10(A)(1), Sec.  1761.10(B)(1) 
(2004). So, contrary to the statement in the credit union's newsletter, 
if ASI suffered significant financial losses, there is no 3% limit on 
the credit union's assets subject to additional levies.
    The history of depository institutions that lack federal insurance 
provides another reason why a credit union's assets are not safer with 
private share insurance. In the event of numerous failures of privately 
insured credit unions, the depositors at other privately insured 
institutions, even healthy ones,

[[Page 3281]]

may lose confidence in their institutions as they hear and read about 
the failures. This loss of confidence increases the withdrawal rate at 
all privately-insured institutions, regardless of financial health. The 
run on these institutions may cause a liquidity crisis and forces them 
to sell assets. Illiquid assets then must be sold, often at less than 
fair market value, causing significant losses to these institutions and 
perhaps even insolvency. By comparison, the threat of heavy withdrawals 
is not significant for an NCUSIF-insured institution, because the 
backing of the full faith and credit of the United States maintains the 
confidence of the depositors in the safety of their funds and limits 
the potential for disastrous runs.
    This potential for a run on privately-insured institutions is not 
just theoretical. In 1985, and again in 1991, private deposit and share 
insurers in Ohio, Maryland, and Rhode Island collapsed. One Ohio 
Congressman said the following about the 1985 collapse:
    The experience in Ohio and Maryland demonstrated that once an 
institution suffers heavy losses a chain reaction can begin in which 
doubt among consumers about the ability of the [private] insurance fund 
to cover the losses can quickly erode the public's confidence in the 
safety of their money at other similarly insured institutions and soon 
a panic begins * * *. If all the depository institutions in Ohio and 
Maryland had been federally insured, the outcome would have been 
different and consumers would not have gone through the trauma of 
thinking they were wiped out * * *.

131 Cong. Rec. E3979 (daily ed. Sept. 11, 1985) (Statement of Rep. 
Oakar). Also, a report on the Rhode Island collapse stated that:
    Public confidence is one of the most important assets of a deposit 
insurer. When the situation at Heritage [a depository institution in 
financial trouble that was insured by the Rhode Island Share and 
Deposit Indemnity Corporation (RISDIC), a private share insurer] came 
to light, the public undoubtedly became more skeptical of RISDIC and 
its constituent members. Withdrawals from some of the larger 
institutions further weakened their reserves. Recognizing the potential 
effects of a RISDIC collapse, state officials encouraged RISDIC 
institutions to apply for federal insurance in order to protect their 
depositors.
    Vartan Gregorian, Carved in Sand, A Report on the Collapse of the 
Rhode Island Share and Deposit Indemnity Corporation (Brown University, 
1991), p. 105.
    Example 3: Misleading statement about maximizing federal share 
insurance coverage.
    In comparing the amount of coverage available from NCUA and ASI, a 
credit union made the following statement in a 2004 communication to 
its members:
    As an ASI-insured member, coverage on your deposit accounts would 
increase from $100,000 per member, as currently insured by the National 
Credit Union Share Insurance Fund (NCUSIF), to $250,000 per account 
under ASI. Instead of members struggling to structure their savings 
with us to maximize their deposit insurance coverage, as under Federal 
insurance, members will be able to have multiple deposit relationships 
with [name of credit union], knowing that each account is separately 
insured up to $250,000!
    Credit union members do not have to struggle to structure their 
savings to achieve more than $100,000 of share insurance coverage at a 
federally-insured credit union. Many account forms can be created 
easily to increase insurance coverage, including payable-on-death 
accounts, joint accounts, and IRA accounts.
    Example 4: Statements Made By the Private Insurer.
    Credit unions work closely with ASI, the lone provider of private, 
primary share insurance in the United States, when converting insurance 
and ASI mistakenly questions the federal guarantee that backs the 
NCUSIF. ASI's comment letter to NCUA in this rulemaking states:
    ASI objects to the requirement that the Notice state: `THIS FEDERAL 
INSURANCE IS BACKED BY THE FULL FAITH AND CREDIT OF THE UNITED STATES 
GOVERNMENT.' There is no statutory guarantee for the Fund * * *. The 
only reference to extending the 'full faith and credit' to credit union 
share insurance is set forth in the 100th Congress' 'findings,' which 
are not law or in any way binding beyond the 100th Congress.
    The Competitive Equality Banking Act of 1987 (CEBA), referred to in 
ASI's mention of the 100th Congress above, states that it ``is the 
sense of Congress that it should reaffirm that deposits up to the 
statutorily prescribed amount in federally insured depository 
institutions are backed by the full faith and credit of the United 
States.'' Pub. L. No. 100-86 (1987), Sec.  901. As stated previously, 
and contrary to ASI's assertion in its comment letter, a federal court 
found that this statement is binding. Massachusetts Share Insurance 
Corporation v. National Credit Union Administration, 693 F.Supp. 1225, 
1231 (D.C.D.C. 1988) (``The Court concludes that it was the clear and 
unambiguous intention of the Congress to guarantee the resources of 
federal depository institutions with the full faith and credit of the 
United States.'').
    As indicated by Congress' use of the word ``reaffirmation'' in the 
CEBA, NCUA's insurance program had the backing of the full faith and 
credit of the United States government even before that 1987 law. The 
U.S. Department of Justice (DOJ) has stated that ``a guaranty by a 
Government agency contracted pursuant to a congressional grant of 
authority for constitutional purposes is an obligation fully binding on 
the United States despite the absence of statutory language expressly 
pledging its `faith' or `credit' to the redemption of the guaranty and 
despite the possibility that a future appropriation might be necessary 
to carry out such redemption.'' Debt Obligations of the National Credit 
Union Administration, 6 Op. Off. Legal Counsel 262, 264 (1982). The 
chief legal officer of the Legislative Branch has similarly stated that 
the ``[s]tatutory language expressly pledging the credit of the United 
States is not required to create obligations of the United States * * 
*. Rather, when Congress authorizes a federal agency or officer to 
incur obligations, those obligations are supported by the full faith 
and credit of the United States, unless the authorizing statute 
specifically provides otherwise.'' Comptroller General of the United 
States, B-277814 (October 20, 1997). NCUA is a federal agency; it has a 
statutory obligation to pay share insurance claims; and, as a matter of 
law, NCUA's share insurance obligation is backed by the full faith and 
credit of the United States government.
    After reviewing both the communications made by converting credit 
unions and the views stated by the private insurer about federal 
insurance, the Board believes it has ample reason to engage in this 
rulemaking to inform both credit unions and their members.
    Sections D and E below discuss the specific amendments proposed by 
the Board, the comments received on those amendments, and the treatment 
of those proposed amendments in the final rule.

D. Proposed Amendments--Mergers

1. Amendment Related to the Hart-Scott-Rodino Act

    The Hart-Scott-Rodino Act (HSR Act), 15 U.S.C. 18a, requires that 
parties to certain mergers or acquisitions, including credit unions, 
notify the Federal Trade Commission (FTC) before

[[Page 3282]]

consummating the merger or acquisition. Only mergers involving 
relatively large credit unions require HSR filings because merging 
entities below a certain asset size are exempt. Generally, credit 
unions need not file if (1) the merging credit union has less than $50 
million in assets or (2) the merging credit union has from $50 million 
up to $200 million in assets and the continuing credit union is below a 
certain asset size established by the FTC. The amendment requires a 
merging credit union that has more than $50 million in assets as 
reported on its last call report to inform NCUA in its merger proposal 
if the credit union plans to make an HSR filing and, if not, why not.
    One commenter supported the amendment, stating it would provide 
merging credit unions with an additional safeguard to ensure they 
comply with HSR. One commenter thought demonstration of HSR compliance 
was an unnecessary burden. This commenter stated that Congress is 
considering eliminating this requirement and, if it does, the agency 
would then have to eliminate the regulation. Another commenter 
questioned the practical application of the HSR filing requirements to 
credit union mergers or acquisitions since such mergers lack 
``significant anticompetitive effect on the marketplace.''
    The final rule retains the requirement that merging credit unions 
with $50 million or more in assets inform NCUA of whether or not they 
plan to make an HSR filing. Merging credit unions must comply with the 
HSR Act, and unless and until the law changes, NCUA wants to make sure 
credit unions are aware of and comply with their HSR responsibilities.

2. Amendment Requiring Notice to Members of Potential Loss of Insurance 
in a Merger

    The Board proposed an amendment to require notice to members 
regarding the potential reduction of account insurance coverage 
resulting from the merger of two federally-insured credit unions. Two 
credit unions that are proposing to merge may have overlapping fields 
of membership, and there may be individuals who belong to both credit 
unions. If these individuals have the same types of accounts at both 
credit unions in an aggregate amount exceeding $100,000, they run the 
risk of losing some insurance coverage on their accounts as a result of 
the merger. To ensure these members are aware of the possible loss of 
coverage, the amendment requires the continuing credit union either: 
(1) Notify all members of the continuing credit union of the potential 
loss of insurance coverage from overlapping fields of membership; (2) 
notify all individuals who are members of both credit unions of the 
potential loss of insurance coverage; or (3) determine which members of 
both credit unions may actually have uninsured funds six months after 
the merger and notify those members of the potential loss of insurance 
coverage.
    One commenter supported the proposed notification requirements 
because of the possible loss of share insurance due to merger and the 
flexibility given to credit unions in the various ways they could carry 
out the notification. Another commenter opposed the proposed rule, 
stating that the notice could have the unintended consequence of 
creating anxiety and uncertainty with regard to the condition of the 
credit unions involved and the perception that members' deposits are 
unsafe.
    The final rule retains this provision as proposed. The Board 
believes merging credit unions can craft the notice to the members in a 
way that mitigates any possible anxiety or uncertainty about the health 
of the merging credit unions.

3. Amendment Requiring Merging Credit Unions to Analyze Net Worth 
Before and After Merger

    The amendment requires merging credit unions to analyze the net 
worth of the two credit unions before merger, as calculated under 
generally accepted accounting principles (GAAP), and compare those 
figures with the estimated net worth of the continuing credit union 
after merger. The one commenter who addressed this proposal supports it 
because the board of directors and management of the two credit unions 
must consider this information before recommending a merger. The final 
rule retains this provision as proposed.

E. Proposed Amendments--Credit Union Share Insurance Conversions and 
Terminations

1. Amendment Requiring Modified and Additional Share Insurance 
Disclosures

    Section 151 of the Federal Deposit Corporation Improvement Act of 
1991 (FDICIA) added Section 43 to the Federal Deposit Insurance Act 
(FDIA). Pub. L. 102-242 (1991), Section 151(a); Pub. L. No. 102-550 
(1992), Section 1603(b)(2); and 12 U.S.C. 1831t(b). Section 43 of the 
FDIA requires, among other things, that depository institutions, 
including credit unions, that do not have federal account insurance 
make conspicuous disclosure of that fact and its potential 
ramifications to their current and potential account holders in various 
media. For example, nonfederally-insured institutions must make 
conspicuous disclosures that ``the institution is not federally-
insured, and that if the institution fails, the Federal Government does 
not guarantee that depositors will get back their money.'' 12 U.S.C. 
1831t(b)(1).
    In a recent report, the U.S. General Accounting Office (GAO) found 
that ``many privately insured credit unions have not always complied 
with the disclosure requirements in Section 43 that are designed to 
notify consumers that the deposits in these institutions are not 
federally-insured.'' ``Federal Deposit Insurance Act: FTC Best Among 
Candidates to Enforce Consumer Protection Provisions'', GAO-03-0971, p. 
20 (August, 2003). As the title of the report suggests, GAO concluded 
that FTC is the most appropriate federal agency to enforce the 
provisions of Section 43 with respect to nonfederally-insured credit 
unions. NCUA has a responsibility, however, to ensure that members of a 
federally-insured credit union are fully informed in connection with a 
vote to terminate federal insurance or convert from federal to 
nonfederal insurance and believes it is important that management 
understands its disclosure requirements post-conversion. See 12 U.S.C. 
1785(c)(5). The proposed amendments provided for revising the 
requirements in connection with the membership vote of credit unions 
seeking to terminate or convert from federal insurance, requiring the 
credit unions to acknowledge Section 43 and certify they will comply 
with its requirements following termination or conversion.
    Federally-insured credit unions intending to terminate federal 
insurance or convert to nonfederal insurance must first obtain approval 
from their members, and part 708b currently requires credit unions to 
use certain language to disclose to members, as part of the 
notification of member vote, the effects of insurance termination or 
conversion. The current disclosure language required by part 708b is 
similar to that required by Section 43 following the loss of federal 
insurance. The proposal provided for modifying the part 708b 
disclosures to make them more consistent with the Section 43 
disclosures and updating the form notices, ballots, and certifications 
in subpart C of part 708b.
    The current rule does not contain any disclosure requirements for

[[Page 3283]]

communications other than the disclosures contained in the form notice 
and ballot. The proposed rule provided for including the following 
disclosure language in a conspicuous fashion in all share insurance 
communications: ``IF YOU ARE A MEMBER OF THIS CREDIT UNION, YOUR 
ACCOUNTS ARE CURRENTLY INSURED BY THE NATIONAL CREDIT UNION 
ADMINISTRATION, A FEDERAL AGENCY. THIS INSURANCE IS BACKED BY THE FULL 
FAITH AND CREDIT OF THE UNITED STATES GOVERNMENT. IF THE CREDIT UNION 
(CONVERTS TO PRIVATE INSURANCE) (TERMINATES ITS FEDERAL INSURANCE), AND 
THE CREDIT UNION FAILS, THE FEDERAL GOVERNMENT DOES NOT GUARANTEE THAT 
YOU WILL GET YOUR MONEY BACK.''
    This proposed disclosure language tracks the disclosures required 
of nonfederally-insured credit unions by Section 43(b) of the FDIA 
after conversion. 12 U.S.C. 1831t(b). The proposal required this 
language be included in all share insurance communications whether or 
not the communication requires prior NCUA approval and whether or not 
the credit union has made a formal decision to seek conversion or 
termination. The proposed rule also tracked Section 43(b) by requiring 
that the disclosure language be conspicuous. To ensure that the 
disclosure catches the attention of the member, the proposal required 
the disclosure be on the first page of the communication where 
conversion is discussed, in capital letters, bolded, offset from the 
other text by use of a border, and at least one font size larger than 
any other text (exclusive of headings) used in the communication.
    The final rule adopts the amendments as proposed, with some 
modifications in response to public comments received. A summary of the 
public comments and the Board's response follows.
    Many credit unions submitted a virtually identical comment about 
the proposed disclosures. These commenters believe that, when Congress 
enacted FDICIA in 1991, ``it concluded'' that the disclosures only 
apply to privately insured credit unions. These commenters also contend 
Congress selected the FTC to regulate and enforce such consumer 
disclosures, not the NCUA, and believe that the proposed rule is 
``contrary to the instructions'' of Congress.
    The Board agrees that it is the FTC that has responsibility for 
enforcement of FDICIA and that FDICIA's provisions only apply to credit 
unions after they convert to private insurance. As NCUA is charged with 
the approval of conversions, its focus is on what occurs before the FTC 
assumes responsibility for enforcement of FDICIA. The NCUA Board 
believes it makes eminent sense for members to receive the same 
disclosures about the nature of private insurance before conversion, 
when considering whether to vote for or against conversion, that they 
will be entitled to receive afterward. Further, the Board believes 
credit unions may not be aware of their FDICIA responsibilities if they 
choose to convert given the fact that, as noted in the previously 
mentioned GAO report, many privately insured credit unions are not 
complying with FDICIA. The costs and effects of FDICIA compliance are 
also factors credit unions should consider in making the conversion 
decision. Accordingly, the final rule requires a converting credit 
union to inform NCUA that ``it is aware of the requirements of 12 
U.S.C. 1831t(b)'' in lieu of the proposal that would have required the 
credit union to inform NCUA that ``it will fully comply with the 
requirements of 12 U.S.C. 1831t(b).''
    Several commenters support the proposed amendments to the 
disclosure provisions. One of these commenters states it will help 
credit union members make well-informed decisions when voting on 
insurance conversion and termination issues. This commenter asks that 
NCUA also consider requiring converting credit unions to notify their 
members of a vote on share insurance conversion or termination a 
minimum number of times and that the notice be sent by at least two 
different means: for example, via a statement stuffer and a direct 
letter, along with some other general notification efforts, such as a 
newspaper article or a posting on the credit union's website. According 
to the commenter, this would help ensure that credit unions make a good 
faith effort to encourage members to vote on insurance issues and would 
help avoid the situation in which a handful of members decide for all. 
Another commenter that supports the proposed disclosures said NCUA 
should also require disclosure of certain information about the 
prospective private insurer, such as the shares insured and the amount 
of resources available to indemnify those shares. This commenter felt 
this information and an evaluation of the prospective insurer by an 
independent analyst could be useful for credit union members to make an 
informed decision.
    Additional notification requirements are beyond the scope of the 
proposed rule, and the Board does not see a need at this time for 
additional notification requirements. The Act requires that at least 
20% of the members vote, which mitigates the possibility that a handful 
of members will make the decision. While the Board believes a 
converting credit union should undertake to provide its members as much 
relevant and accurate information about the private insurer as 
possible, it believes the amount of information provided is a decision 
best left to credit union management. The Board is only requiring that 
the information provided to members beyond the required disclosures not 
be inaccurate or misleading.
    A few commenters believe the capitalization of ``DO NOT approve'' 
on the proposed member ballot indicates an NCUA bias towards 
disapproval. This was not the Board's intent and the final rule removes 
the capitalization.
    One commenter believes the proposed rule's requirement that the 
disclosure, when posted on the web, must be visible without scrolling 
is impossible to meet, given that a credit union does not have control 
over a viewer's monitor size or other computer access device, including 
hand-held devices. The Board appreciates this concern. The language of 
the final rule has been modified to require converting credit unions to 
make reasonable efforts to make the disclosure visible without 
scrolling. If most of the disclosure is visible on a standard-size 
computer screen without scrolling the Board will consider the placement 
of the disclosure as reasonable.
    A few commenters believe that the current disclosures are already 
excessive because members are ``bombarded'' with this information 
before, during, and after conversion. The Board disagrees. The Board 
believes that, currently, in many conversions the first communications 
members receive about conversion do not contain the important 
information in the proposed disclosures, that the members do not focus 
on the fine print in the notice and ballot when they receive those 
documents, and that many members are not made aware of this information 
until after the vote and the conversion are complete.
    ASI commented that the FDICIA-like disclosure ``in the context of a 
conversion vote would give the false impression that privately insured 
credit unions are more likely to fail than federally-insured credit 
unions.'' The Board does not agree that the FDICIA-like language gives 
this impression. Credit unions can fail, regardless of whether they are 
privately or federally-insured. What the FDICIA language states is 
that, if a privately insured

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credit union fails, the federal government does not guarantee that the 
member will get his or her money back.
    One commenter described the proposed disclosures as ``draconian,'' 
and said that ``[I]f we were to truly disclose, then we would have to 
add that the reserves of the entire credit union industry would have to 
be depleted before the Federal Government would step in to make a 
depositor whole up to the limits of the insurance coverage.'' The Board 
disagrees. There is nothing in federal law that would require NCUA to 
deplete the reserves of the entire credit union industry. In the 
unlikely case of catastrophic losses to the NCUSIF, the Board would go 
to Congress for it to fulfill its full faith and credit pledge before 
depleting the reserves of healthy credit unions. This is exactly what 
the Federal Savings and Loan Insurance Corporation did during the 
savings and loan crisis.
    Many credit unions submitted a virtually identical comment on the 
proposal to amend the current language in the form notice and ballot to 
state that ``[t]he basic federal coverage is up to $100,000, but 
accounts may be structured in different ways, such as joint accounts, 
payable-on-death accounts, or IRA accounts, to achieve federal coverage 
of much more than $100,000.'' These commenters believe the proposed 
notice and ballot unfairly incorporates language about achieving 
greater federal insurance coverage but prohibits a credit union from 
giving its members any positive information about private share 
insurance or the private share insurer. According to these commenters, 
this will leave the members grossly uninformed. The Board disagrees 
with this comment. Nowhere in the proposed rule does it prohibit any 
communication that is not deceptive or misleading. Subject to this 
standard, a converting credit union is free to provide its members any 
information that it wants about the private insurer, the insurance 
coverage, and the reasons for conversion. There is even a place in the 
form notice for a credit union to do this.
    One commenter was concerned that, while the proposed form notice 
gives the credit union board an opportunity to provide its reasons for 
the proposed conversion, there is no place on the ballot to state those 
reasons. The Board notes that usually the notice accompanies the 
ballot, so there is no reason to have the reasons for the proposed 
conversion stated on the ballot. If the converting credit union wishes 
to amend the ballot, it can seek approval of the regional director to 
include that language.
    One commenter objects to the requirement that the notice list the 
costs of conducting the vote and associated attorney and consulting 
fees. This commenter states most of these costs occur before the vote, 
and cannot be avoided by voting against the conversion. Also, this 
commenter believes that much of the cost would be associated with 
complying with NCUA's rules and it would be unfair to associate this 
cost with private insurance. NCUA believes that members have a right to 
know about the costs associated with a conversion, whether they are 
incurred before, during, or after the vote. If the credit union wants 
to point out in an accurate manner that certain costs were incurred to 
comply with NCUA's conversion rules, it may do so.

2. Amendment Requiring NCUA To Review and Approve Certain Share 
Insurance Communications

    The currently existing part 708b, that is, as it exists before this 
final rule takes effect, requires credit unions to use specific 
language in the notice to members of the pending change in insurance 
status and associated ballot. 12 CFR part 708b, subpart C. It also 
requires the approval of the regional director for any modifications to 
this language and any additional communications concerning insurance 
coverage included with the notice or ballot. 12 CFR 708b.303. The 
regional director may not withhold approval unless ``it is determined 
that the credit union, by inclusion or omission of information, would 
materially mislead or misinform its membership.'' Id. The proposed rule 
would have retained the prior approval requirement and the standard of 
review, but expanded the types of communications subject to prior 
approval to include all share insurance communications made during the 
voting period. The purpose of the expanded approval requirement was to 
ensure that members are accurately informed about the ramifications of 
the loss of federal insurance coverage and to avoid the types of 
inaccurate and misleading communications discussed in Section C of this 
Supplementary Information.
    The Board also proposed to amend the current rule to clarify the 
concept of ``notice.'' Part 708b currently provides that, when the 
board of directors of a federally-insured credit union adopts a 
resolution proposing to convert from federal to nonfederal insurance, 
including an insurance conversion associated with a merger or 
conversion of charter, it must provide its members with written notice 
of the proposal to convert insurance and of the date set for the 
membership vote. To ensure that members are adequately informed about 
the nature of the insurance conversion, the proposal, like the current 
rule, prescribed specific forms for this notice. The proposed rule made 
clear that the first written communication following the resolution to 
convert, made by or on behalf of the credit union and informing the 
members that the credit union will seek conversion of insurance, is, in 
fact, the notice of the proposal to convert and must be in the 
prescribed form unless the regional director approves a different form.
    The Board also proposed to add a cross-reference to Sec.  740.2 of 
NCUA's advertising regulation, which prohibits the making of false or 
deceptive representations. 12 CFR 740.2. This cross-reference does not 
create any new requirement, but, rather, reminds credit unions of an 
important preexisting obligation.
    Several commenters support the proposed prior approval 
requirements. One of these commenters, an SSA, believes the proposed 
rule is necessary to ensure that adequate disclosure is provided to 
members before a conversion vote. This commenter believes it is not 
clear that members are made fully aware of how such a vote may impact 
their shares. This SSA believes the proposed rule will provide for more 
standardization in disclosures and is necessary to ensure that adequate 
disclosure is provided to members before a conversion vote. Another 
commenter stated the proposed rule will help prevent deception of 
members and other evasive or misleading practices.
    Many credit unions submitted a virtually identical comment on the 
preapproval requirements. These commenters complained that NCUA was 
prohibiting converting credit unions from providing their members with 
any information regarding share insurance before, during, or after the 
voting period, unless the communications have been pre-approved by 
NCUA. These commenters feel members will not fully understand the 
private share insurance option that they are being asked to vote on.
    Several commenters are also concerned about how the preapproval 
process would work. Some of these commenters state there should be a 
procedure for resolving disputes between the credit union and NCUA over 
proposed communications. Some of these commenters also stated there 
should be parameters as to how long the NCUA may take in the review 
process. A few commenters thought there should be an appeal process, 
and one of these commenters stated the state regulators

[[Page 3285]]

should have a role in the appeal process.
    A law firm commenter states that both the current and the proposed 
share insurance conversion rules requiring prior approval of certain 
communications and mandating disclosures are violations of the right to 
free speech under the First Amendment to the U.S. Constitution.
    A few commenters state that the proposed definition of a share 
insurance communication is overbroad. For example, two commenters 
contend that the prior approval requirement in the proposed rule would 
apply to internal communications at a credit union. One of these 
questioned if ``a credit union would violate the rules if it even 
distributed a private insurer's brochure to two board members for a 
consideration of placing the topic on the board's agenda.'' Another 
commenter supported NCUA's formal approval of changes to the notice and 
ballot, but thought that the proposed requirement to approve other 
share insurance communications would require NCUA approval of 
individual letters sent in response to member inquiries if any two or 
more of the letters had substantially the same information.
    One commenter complained that requirement that the notice to 
members of the pending conversion and member vote be mailed to the 
members not less than seven days, nor more than 30 days, before the 
vote, is too restrictive. This commenter believes the time period 
should be extended from a minimum of 7 days to a maximum of 120 days to 
allow sufficient time to obtain the necessary twenty percent quorum.
    One commenter believes NCUA should not preapprove communications, 
but ``if a communication is later deemed incorrect in its facts, then 
the NCUA can take the appropriate action.''
    The Board disagrees that the proposed prior approval requirement is 
a violation of the First Amendment of the U.S. Constitution. Share 
insurance communications are commercial speech. While the U.S. Supreme 
Court has recognized that some commercial speech may be protected under 
the First Amendment, it generally permits interference with commercial 
speech when the government's motive is to prevent false or misleading 
speech. See Central Hudson Gas & Electric Corp. v. Public Service 
Commission of New York, 447 U.S. 557, 566 (1980) (``At the outset, we 
must determine whether the expression is protected by the First 
Amendment. For commercial speech to come within that provision, it at 
least must concern lawful activity and not be misleading.''). Here, 
NCUA is specifically targeting inaccurate and misleading commercial 
speech.
    Nevertheless, after careful consideration of the comments, the 
Board has decided to modify the preapproval requirement as stated in 
the proposed rule to a contemporary notice requirement, as suggested by 
the last commenter above. The final rule, as adopted, allows converting 
credit unions to make share insurance communications without receiving 
any prior approval. The converting credit unions need only provide NCUA 
a copy of the share insurance communication at or before the time it is 
made. The definition of share insurance communication specifically 
excludes the forms in subpart C and the final rule retains the 
requirement in the prior rule and as proposed that any modifications to 
the forms requires the approval of the regional director.
    The Board is making this change for several reasons. First, the 
Board is sympathetic to the burden a preapproval requirement puts on a 
converting credit union, particularly those credit unions whose share 
insurance communications are straightforward. As noted in the comments 
above, the preapproval requirement injects uncertainty into the 
sequence and timing of the conversion. Also, if the credit union must 
make an unanticipated communication on short notice, a preapproval 
requirement could be particularly burdensome. Second, the Board hopes 
that the modified and additional disclosures will adequately inform 
credit union members about important aspects of the conversion and any 
additional communications about share insurance will not contain 
misleading information. For example, as one commenter pointed out, a 
converting credit union may send out short messages that merely exhort 
their members to vote on the share insurance proposal. The Board also 
realizes that some communications about why a credit union is 
converting may be expressions of opinion that do not contain anything 
false or misleading.
    Accordingly, the Board is replacing the preapproval requirement 
with a simple notice requirement. A converting credit union must 
provide NCUA a copy of any share insurance communication the credit 
union will make during the voting period. The regional director must 
receive the copy at or before the time the credit union makes it 
available to members. The converting credit union must also inform the 
regional director when the communication is to be made, to which 
members it will be directed, and how it will be disseminated.
    Although the final rule does not require prior NCUA approval for 
share insurance communications, the final rule clarifies that, if a 
converting credit union makes a materially misleading communication to 
its members, the regional director may take appropriate action, 
including disapproval of the conversion. Of course, the NCUA is willing 
to work with any credit union to achieve language that is not 
misleading. A converting credit union may, at its option, provide an 
advance copy of any proposed share insurance communication to the 
regional director for review and comment.
    In response to comments about the definition of share insurance 
communications being overbroad, the Board did not intend for the 
definition to include internal credit union communications, and the 
definition of ``share insurance communication'' in the final rule is 
modified to exclude such communications. Also, if a credit union 
anticipates it will receive multiple member inquiries with the same or 
similar question about insurance conversion and anticipates a similar 
response to all inquiries, it should provide NCUA contemporaneous 
notice of its response.
    In response to the commenter who requests more than thirty days to 
conduct the vote following the credit union's resolution to convert, 
the Board notes that this maximum time period is statutory and cannot 
be changed by regulation. 12 U.S.C. 1786(d)(2). The credit union may, 
before it resolves to convert, inform its members about the possibility 
of a resolution to convert and the attendant vote. Any such 
communication must contain the appropriate disclosures and not 
otherwise mislead the members.

3. Amendments Relating to the Timing and Sequence of the Conversion 
Approval Process

    Currently, part 708b requires that NCUA must approve a merger 
before the members vote. By contrast, for insurance conversions, part 
708b provides two options as to when a credit union must give notice: 
``Notice to the Board may be given when membership approval is 
solicited, or after membership approval is obtained.'' Compare 12 CFR 
708b.106(a)(1) (mergers) with Sec.  708b.203(c) (conversions). These 
different provisions may create confusion in mergers that also involve 
insurance conversions. NCUA proposed to eliminate this confusion by 
changing the notice requirement for insurance conversions to require a 
converting credit union to notify NCUA and

[[Page 3286]]

request approval of the conversion before the credit union solicits a 
member vote.
    Many credit unions submitted a virtually identical comment on this 
proposal. These commenters believe that this change to the proposed 
regulation would require a converting credit union to gain NCUA's 
approval twice: once before the member vote, and then again after the 
member vote. These commenters believe this unfairly takes the decision 
out of the hands of the members and places it with NCUA.
    One commenter supports the proposed rule and believes that, by 
adjusting the share insurance notification requirement to match the 
notification requirement in mergers, it will help achieve NCUA's goal 
of helping to eliminate the confusion present in current part 708b.
    The final rule adopts the proposed amendment with one minor change. 
The Board is adding a sentence at the end of Sec.  708b.203(c) to 
clarify that, while a credit union must give NCUA notice of its intent 
before the member vote is solicited, NCUA will only approve or 
disapprove the proposed conversion once. The Board will generally make 
its decision after the credit union has certified the member vote to 
the NCUA as specified in Sec.  708b.203(g).

4. Amendment Allowing Members to Redeem Term Share Accounts Without 
Penalty

    The proposed rule required, as part of the conversion process, that 
a credit union inform its members in the form notice of member vote 
that, if the conversion is approved, it will permit members to close 
share certificate and other term accounts without penalty if done 
before the effective date of conversion. The proposal was based on the 
Board's belief that, as a matter of contract law and fundamental 
fairness, members who entered into term accounts that were federally 
insured should be given the opportunity to withdraw their funds without 
penalty if the accounts lose their federal insurance.
    A few commenters support the proposed amendment. One of these 
commenters states that, if a credit union changes its own terms and 
conditions, members who relied upon the original terms and conditions 
should be allowed a way out of their contract.
    Many credit unions submitted a virtually identical comment in 
opposition to the proposed amendment. These commenters believe allowing 
for early withdrawals without penalty is unsafe, unreasonable and 
unnecessary, and could create a fear in the membership that results in 
a run on a federally-insured credit union. These commenters also 
believe this amendment is an effort to sway the vote away from private 
insurance.
    The Board does not believe the amendment will create a run on any 
institution or is otherwise unsafe and unsound. The Board notes many of 
the commenters who opposed portions of the proposed rule were credit 
unions that have already converted to private share insurance. Some of 
these commenters discussed the effect on their membership of the 
conversion. All of these commenters claimed that the number of members 
who complained or left the credit union because of the conversion was 
insignificant.
    Further, the Board does not intend the right of penalty-free early 
withdrawal to be used to sway members to vote against the conversion. 
The proposed rule would have required converting credit unions to 
provide members information about penalty-free withdrawals twice: once 
in the notice of proposal to convert that precedes the member vote and 
again, stated conspicuously, in the notice to members that the 
conversion has been approved. This final rule allows converting credit 
unions to delete this information from the form notice of proposal to 
convert (Sec. Sec.  708b.301(b), 708b.302(b), and 708b.303(b)). If the 
conversion is approved, however, the credit union must still inform its 
members in a conspicuous fashion about the right to penalty-free 
withdrawals as provided in Sec.  708b.204(c)(2). With this change in 
the final rule--from two required notices of the right to early 
withdrawal to only one required notice--the Board wants to ensure that 
members read the important information in the one required notice and 
have time to act on it. Accordingly, the final rule makes three 
modifications to the Sec.  708b.204(c)(2) notice: First, to define 
conspicuous in this context to mean bolded and no smaller than any 
other font size used elsewhere in the notice; second, to require that 
the statement appear on the first page of the notice; and, third, to 
provide that the credit union must deliver the notice at least 30 days 
before the effective date of the conversion.
    One commenter stated the proposed requirement to allow early 
withdrawals on term accounts without penalty is an unconstitutional 
interference with contracts in violation of the U.S. Constitution (Art. 
I, Section 9) and the Constitution of the State of Illinois (Art. I. 
Section 6). The Board disagrees. There is no legal impediment to the 
proposed amendment. Federal share insurance is an implied or express 
condition of any term share account contract opened at a federally-
insured credit union. 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.
    One commenter who opposed the requirement stated that ``if the 
member is that concerned about the safety and soundness of his shares, 
he will most likely be willing to suffer the penalty to retrieve 
them.'' The Board disagrees. Some members, particularly elderly 
members, may have their life savings at the credit union and may be the 
least able to afford the payment of a penalty.
    One commenter asked about members who have deposit balances in 
excess of NCUA share insurance and if the credit union would only have 
to waive the penalty associated with the federally-insured portion of 
the funds. The Board agrees that only the federally-insured portion of 
the accounts should be subject to withdrawal without penalty and has 
modified the language of the final rule to reflect this.
    One commenter stated, ``Giving carte blanche to the members to 
withdraw the funds from certificates or any term accounts at any time 
after the conversion in effect makes all the accounts demand accounts 
for their remaining term. At a minimum this should occur within a 
preset time period, for instance 90 days after the conversion.'' This 
commenter misread the proposed rule. The Board has modified the 
language of the final rule slightly to state more clearly that penalty 
free withdrawals are only available between the time the conversion is 
approved and the time that it takes effect. The Board has also added a 
phrase to clarify that members must request any withdrawals during this 
time frame.
    One SSA suggested that NCUA and the credit union should be able to 
continue to provide federal insurance for those members concerned about 
their term accounts. The Board believes there are both legal and policy 
impediments to a partial insurance arrangement and declines to adopt 
it.

5. Amendment Requiring Converting Credit Unions To Provide Proof of 
Eligibility for Nonfederal Insurance

    Not all states permit nonfederal primary share insurance. The 
proposed rule would require, as part of the request for NCUA approval 
of conversion to nonfederal insurance, that the converting credit union 
provide proof that the nonfederal insurer is

[[Page 3287]]

authorized to issue share insurance in the state where the credit union 
is located and that the insurer will insure the credit union. Several 
commenters questioned the need for this requirement. The Board believes 
proof of these facts avoids the possibility of a credit union seeking 
to convert to private insurance for which it is not eligible. 
Accordingly, the final rule includes the proposed amendment.

6. Amendment Requiring a Secret Member Vote Conducted by an Independent 
Entity

    To ensure the integrity of the vote, the proposed rule required the 
vote be conducted by secret ballot and be administered by an 
independent entity. The proposed rule defined ``independent entity'' as 
a company with experience in conducting corporate elections.
    A few commenters support the use of an ``independent entity'' and a 
secret ballot for votes on insurance issues to ensure the integrity of 
the vote. One of these commenters supports the proposal to ensure 
issues of impropriety are not levied against the credit union's 
management or its board at a later date with respect to the vote.
    Many credit unions submitted a virtually identical comment in 
opposition to the proposed amendment. These commenters believe there is 
no reason to conduct conversion votes any differently from credit union 
election votes where the credit union's supervisory committee or 
independent certified public accountant assumes the responsibility for 
the accuracy and reporting of the vote. These commenters state the new 
requirement will increase the cost of the conversion vote and implies 
mistrust of a board of directors to conduct an accurate and honest 
vote. These commenters note that NCUA seldom audits conversion votes 
and has never challenged a conversion vote.
    Several commenters also stated the requirement is onerous, 
particularly for small credit unions. One commenter wrote that it is 
highly unlikely that the independent entity conducting the vote will 
attest to the accuracy of the credit union's count of the total number 
of members.
    The final rule retains the secret ballot and independent teller 
requirements. These requirements will help ensure the integrity and 
accuracy of the conversion vote. The Board does not believe these 
requirements are onerous and notes that the private insurer assists 
converting credit unions, including small credit unions, during the 
conversion process. Also, if the credit union is maintaining up-to-date 
records of its membership, the Board believes both the credit union and 
the independent entity should be able to certify the number of members 
at the credit union. If there is some question about the exact number, 
but the range of possible error is not material to the outcome of the 
vote, the credit union and independent entity may footnote the 
certification and attach a detailed explanation.
    One commenter stated that the 20% quorum requirement is overly 
burdensome, and another commenter incorrectly stated that the 
requirement was NCUA-imposed. The Act, not NCUA, imposes the 20% quorum 
requirement. 12 U.S.C. 1786(d)(2). One commenter complained that the 
requirement that the notice to members of the pending conversion and 
member vote be mailed to the members not less than seven days, nor more 
than 30 days, before the vote, was too restrictive. This requirement is 
also imposed by the Act. Id.

7. Miscellaneous Amendments

    The proposed rule would also have clarified that the terms 
``insurance'' and ``insured'' as used in part 708b refer to primary 
share or deposit insurance, not to excess insurance. The proposed rule 
would also have made other minor changes to modernize the language of 
the rule. There were no comments received specifically on these 
amendments, and the final rule adopts them as proposed.

F. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a proposed rule may have on 
a substantial number of small credit unions (those under ten million 
dollars in assets). Each year, there are about 300 mergers that involve 
federally-insured credit unions, and about 250 of these mergers involve 
small credit unions. In almost all cases, however, the small credit 
union merges into a much larger continuing credit union. The larger 
credit union is available to assist the small credit union with each 
step in the merger process, keeping the economic impact on the small 
credit union to a minimum. In addition, there are only one or two small 
credit unions a year on average that undertake an insurance conversion, 
and the private insurer assists these converting credit unions with the 
conversion process. Accordingly, the Board certifies that this final 
rule will not have a significant economic impact on a substantial 
number of small credit unions, and, therefore, a regulatory flexibility 
analysis is not required.

Paperwork Reduction Act

    Section 708b contains information collection requirements. As 
required by the Paperwork Reduction Act of 1995, 44 U.S.C. 3507(d), 
NCUA submitted a copy of this proposed rule as part of an information 
collection package to the Office of Management and Budget (OMB) for its 
review and approval for revision of Collection of Information, Mergers 
of Federally Insured Credit Unions, Control Number 3133-0024. OMB 
approved the Collection of Information on October 7, 2004.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In