Conversion of Insured Credit Unions to Mutual Savings Banks, 77150-77172 [E6-21661]

Agencies

• National Credit Union Administration

[Federal Register Volume 71, Number 246 (Friday, December 22, 2006)]
[Rules and Regulations]
[Pages 77150-77172]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-21661]



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Part III





National Credit Union Administration





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12 CFR Part 708a



Conversion of Insured Credit Unions to Mutual Savings Banks; Final Rule

Federal Register / Vol. 71, No. 246 / Friday, December 22, 2006 / 
Rules and Regulations

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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 708a

RIN 3133-AD16


Conversion of Insured Credit Unions to Mutual Savings Banks

AGENCY: National Credit Union Administration.

ACTION: Final rule.

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SUMMARY: The National Credit Union Administration (NCUA) is issuing 
final revisions to its rules regarding the conversion of insured credit 
unions to mutual savings banks or mutual savings associations. The 
final rule improves the information available to members and the board 
of directors as they consider a possible conversion. The final rule 
includes revised disclosures, revised voting procedures, procedures to 
facilitate communications among members, and procedures for members to 
provide their comments to directors before the credit union board votes 
on a conversion plan.

DATES: This rule is effective January 22, 2007.

FOR FURTHER INFORMATION CONTACT: Moisette Green and Paul Peterson, 
Staff Attorneys, Division of Operations, Office of General Counsel, at 
the National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428 or telephone: (703) 518-6540.

SUPPLEMENTARY INFORMATION:

A. Background

    Under the Federal Credit Union Act (FCUA), a federally insured 
credit union (credit union) may convert to a mutual savings bank or 
savings association in mutual form (collectively referred to as MSBs). 
12 U.S.C. 1785(b)(2). NCUA has regulations on the conversion process. 
12 CFR part 708a. In June 2006, the NCUA Board published proposed 
amendments to part 708a in the Federal Register for a 60-day public 
comment period. 71 FR 36946 (June 28, 2006).
    As stated in the preamble to the proposal, the conversion from a 
credit union charter to a bank charter is a fundamental shift. The 
decision to convert belongs to the members. To make this decision, 
members must be fully informed as to the reasons for the conversion and 
have time to consider the advantages and disadvantages of conversion. 
They should also have an opportunity to communicate their views to the 
credit union's directors and to communicate with other members about 
the proposed conversion. NCUA believes the current conversion process 
can be improved in these areas.
    Briefly summarized, the proposal:
     Required a converting credit union to give advance notice 
to members that the board intends to vote on a conversion proposal and 
established procedures for members to share their views with directors 
before they adopt the proposal.
     Clarified that credit union directors may vote in favor of 
a conversion proposal only if they have determined the conversion is in 
the best interests of the members and required the board of directors 
to submit a certification to NCUA of its support for the conversion 
proposal and plan.
     Simplified the boxed disclosures that a credit union must 
provide to its members.
     Changed the current requirement for delivery of the boxed 
disclosures (i.e., with all written communications to members) to 
require that the disclosures need only be delivered with the 90-, 60- 
and 30-day member notices.
     Provided for the form of the member ballot and that the 
ballot must be sent only with the 30-day notice.
     Required the board of directors to set a voting record 
date not less than one hundred twenty days before the board notifies 
the members it is considering adopting a conversion proposal.
     Required that, after the board has approved an MSB 
conversion proposal and upon the request of a member, a credit union 
must disseminate information from that requestor to other members at 
the requestor's expense.
     Stated that members of federal credit unions (FCUs) may 
request and be granted access to the books and records of a converting 
credit union under the same terms and conditions that a state-chartered 
for-profit corporation in the state in which the FCU is located must 
grant access to its shareholders.
     Required the Regional Director to make a determination to 
approve or disapprove the methods and procedures for the membership 
vote within thirty calendar days of the receipt of the certification of 
the member vote and permitted a credit union dissatisfied with the 
determination to appeal to the NCUA Board.
     Required a credit union to complete a conversion within 
one year of NCUA's approval of the methods and procedures of the vote.
     Modified the voting guidelines to include information on 
the use of voting incentives such as raffles.
    NCUA received 52 comment letters on the proposal from a variety of 
sources, including credit unions, credit union trade associations, bank 
trade associations, and individuals and entities associated with the 
conversion process. The final rule retains most of the proposed rule as 
described above but does include some changes in response to comments. 
For purposes of this preamble, the comments are divided into three 
categories: general comments on NCUA's rulemaking authority, comments 
addressed to particular sections of the rule, and other comments. The 
preamble addresses each of these categories in turn.

B. Legal Authority for the Rulemaking

    The FCUA grants the NCUA Board broad, general rulemaking authority 
over federal and federally-insured state-chartered credit unions:
    Powers of the Board and Administration personnel.--(a) The Board 
may prescribe rules and regulations for the administration of [the 
FCUA] (including, but not by way of limitation, the merger, 
consolidation, and dissolution of corporations organized under this 
chapter) * * *.
    12 U.S.C. 1766(a). The FCUA contains numerous provisions governing 
credit union activities, including reorganizations and charter 
conversions. See, e.g., 12 U.S.C. 1771 and 1785. Section 1785, in 
particular, addresses the conversion of credit unions to MSBs, 
including specific voting and notice requirements and limitations on 
benefits for directors and management. Section 1785 also charges NCUA 
with oversight of the membership vote:

    Oversight of member vote. The member vote concerning charter 
conversion under this paragraph shall be administered by the 
Administration, and shall be verified by the Federal or State 
regulatory agency that would have jurisdiction over the institution 
after the conversion. If either the Administration or that 
regulatory agency disapproves of the methods by which the member 
vote was taken or procedures applicable to the member vote, the 
member vote shall be taken again, as directed by the Administration 
or the agency.

12 U.S.C. 1785(b)(2)(G)(ii). The FCUA also gives the NCUA Board 
specific rulemaking authority over credit union conversions to MSBs as 
follows:

    (G) Consistent rules. (i) In general. Not later than 6 months 
after the date of enactment of the Credit Union Membership Access 
Act the Administration shall promulgate final rules applicable to 
charter conversions described in this paragraph that are consistent 
with rules promulgated by other financial regulators, including the 
Office of Thrift Supervision and the Office of the Comptroller of 
the Currency. The rules required by this clause shall provide that 
charter conversion by an insured credit

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union shall be subject to regulation that is no more or less 
restrictive than that applicable to charter conversions by other 
financial institutions.

    12 U.S.C. 1785(b)(2)(G)(ii). The key rulemaking provisions, added 
by the Credit Union Membership Access Act (CUMAA) in 1998, are twofold. 
First, NCUA's rules must be ``consistent with rules promulgated by 
other financial regulators, including the Office of Thrift Supervision 
and the Office of the Comptroller of the Currency;'' and, second, 
NCUA's rules must be ``no more or less restrictive than [those rules] 
applicable to charter conversions by other financial institutions.'' 
Id.
    In the preamble to the proposed rule, the NCUA Board addressed 
NCUA's statutory rulemaking authority. 71 FR 36946, 36947-49 (June 28, 
2006). The Board noted that, due to differences in the structure of 
different financial institutions and differences in the statutes that 
enable charter conversions, it would not be possible for NCUA to adopt 
conversion rules that were identical to those of all other financial 
regulators and, therefore, that Congress could not have intended such a 
result. After analyzing the FCUA enabling legislation at some length, 
the Board reached several conclusions about its statutory authority. 
The first conclusion, interpreting the FCUA's requirement that NCUA's 
rules be ``consistent with rules promulgated by other financial 
regulators'' was:

    NCUA's rules applicable to conversion from credit unions to MSBs 
should be compatible with the rules, if any, that govern conversions 
to new banking entities. In other words, a credit union that wishes 
to convert to a federally-chartered MSB (``FMSB'') should not 
encounter insurmountable contradictions between NCUA's rules 
governing conversions to FMSBs and the existing Office of Thrift 
Supervision (``OTS'') and Federal Deposit Insurance Corporation 
(``FDIC'') rules governing the same * * *. Likewise, if a credit 
union wishes to convert to a state-chartered MSB, NCUA's rules 
should be compatible with the state regulator's rules, if any, 
governing the same conversion.

    Id. at 36948. The Board next turned to the FCUA's ``no more or less 
restrictive'' requirement and, after demonstrating that this ``no more 
or less restrictive'' phrase could not mean ``identical,'' analyzed the 
phrase in terms of its constituent pieces, that is, the meanings of 
``no * * * less restrictive'' and ``no * * * more restrictive.'' The 
Board concluded that ``no * * * less restrictive than [those] 
applicable to charter conversions by other financial institutions'' 
meant:

    [T]hat when NCUA is aware of a particular federal or state law 
that confines the choices or action of a converting institution, 
NCUA should consider if that restriction makes sense for a 
converting credit union in light of the underlying principles that 
inform NCUA's and other regulator's rulemakings * * *.

    Id. at 36948. The Board then concluded the requirement that NCUA's 
rules be ``no more * * * restrictive than [those] applicable to charter 
conversions by other financial institutions'' meant that:

    [NCUA's] rule, taken in its entirety, should not confine a 
converting credit union's actions or choices more significantly than 
the rules of other financial regulators, taken in their entirety, 
confine the actions or choices of the converting institutions they 
regulate.

    Id. at 36949.
    As discussed above, the FCUA language ``no * * * less restrictive 
than the rules governing charter conversions by other financial 
institutions'' instructs NCUA to consider particular, procedural 
elements in other conversion rules and determine if those provisions 
make sense for a converting credit union in light of the underlying 
principles that inform NCUA's and other regulator's rulemakings. NCUA 
has discretion to adopt particular procedural provisions used by other 
regulators, or not adopt them, or establish new procedural provisions 
depending on whether those provisions make sense for credit unions and 
their members. The particular regulatory provisions considered by NCUA 
for this rulemaking, and their utility, are discussed in the preamble 
to the proposed rule. 71 FR 36946, 36949-60 (June 28, 2006).
    The FCUA limits NCUA's discretion to adopt particular regulatory 
provisions through its requirement that NCUA's rule also be ``no * * * 
more restrictive than the rules governing charter conversions by other 
financial institutions,'' meaning that NCUA's rule should not, when 
taken in its entirety, constrain a converting credit union's action or 
choice more significantly than the rules of other financial regulators 
taken in their entirety. Accordingly, NCUA compared its final rule to 
the charter conversion rules of other regulators, including, in 
particular, to the following conversion rules of the OCC and the OTS:
     OCC rules governing the conversion of state banks to 
national banks.
     OTS rules governing the conversion of state mutual savings 
banks to federal mutual savings banks; and
     OTS rules governing the conversion of mutual savings banks 
to stock banks, including state to federal charter conversions.
    NCUA believes these particular rules are appropriate for comparison 
to NCUA's rule because they have procedural protections that ensure 
informed decision making and that protect the interests of the relevant 
stakeholders.\1\ These rules place various requirements on a converting 
financial institution, including:
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    \1\ The relevant decision makers do vary among these conversion 
situations. In NCUA's rulemaking, directors and stakeholders (i.e., 
the members) make substantive decisions about the conversion, and 
NCUA, the regulator, administers the member vote and approves the 
methods and procedures of the vote. The conversion of state MSBs to 
federal MSBs and the associated OTS rule involve the directors and 
the regulator as the substantive decision makers. For the conversion 
of a state bank to a national bank and the conversion of mutual 
savings banks to stock banks and the associated OCC and OTS rules, 
the decision makers are the directors, stakeholders, and regulators. 
Despite the variance in the decision makers among these NCUA, OTS, 
and OCC conversion situations, in all cases the applicable rules and 
the requirements placed on the converting institution by the rules 
ensure the decision makers make an informed decision. Accordingly, 
these OTS and OCC rules are appropriate precedent for NCUA's rule.
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     Director voting;
     Director certifications;
     Stakeholder voting and procedures;
     Disclosures;
     Public notice, comment, and meetings;
     Obtaining legal opinions;
     Procedures for communication among stakeholders using the 
resources of the converting institution, including proxy solicitations 
and other communication measures; and
     Regulatory compliance provisions, such as applications for 
insurance coverage, Community Reinvestment Act (CRA) compliance, and 
Qualified Thrift Lender Test (QTL) compliance.
    The following chart summarizes those elements of each rule, 
including NCUA's final rule, that confine the converting institution's 
actions or choice:

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                                                                          OTS (state/federal
Regulatory conversion provisions   NCUA (CU to MSB)   OCC (state bank to    MSB to  federal    OTS (state MSB to
               \2\                                       national bank)       stock bank)        federal MSB)
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Requires director approval of     Yes...............  Yes...............  Yes. Two-thirds     Yes.
 conversion plan.                                                          vote.
Requires director certifications  Yes...............  Yes...............  Yes...............  Yes.
Requires legal or other third     No................  Yes...............  Yes...............  Yes.
 party opinions.
Requires regulator approval.....  Methods and         Yes...............  Yes...............  Yes.
                                   procedures only.
May require a regulator           No................  Yes...............  No................  No.
 examination.
May require a regulator meeting.  No................  Yes...............  Yes...............  Yes.
Publication of notice of intent   Yes...............  Yes...............  Yes...............  Yes.
 to convert.
Solicitation of comments........  Yes, member-to-     Yes, public.......  Yes, public.......  Yes, public.
                                   director.
May require a public meeting or   No................  Yes...............  Yes...............  Yes.
 hearing.
Requires stakeholder approval...  Yes...............  Yes...............  Yes...............  Yes.
Sets a minimum level of           No. Simple          Yes. At least 51%   Yes. Majority of    No.
 stakeholder participation.        majority of those   of all voting       total outstanding
                                   who actually vote.  stock must          votes must
                                                       approve.            approve.
Requires general disclosures to   Yes...............  Yes...............  Yes...............  No.
 stakeholders or public.
Requires specific disclosures to  Yes...............  No................  Not currently, but  No.
 stakeholders.                                                             may require (see,
                                                                           for example, OTS
                                                                           TB 58).
Provides a process for            Yes...............  Yes...............  Yes (two different  Yes.
 communication among                                                       methods).
 stakeholders.
Restricts date of record for      Yes...............  No................  Yes...............  N/A.
 stakeholder voting purposes.
Provides deadline for completing  Yes. 18 months....  Yes. Six months...  Yes. 24 months....  Yes. 24 months.
 conversion.
Can add additional requirements   No................  Yes...............  Yes...............  Yes.
 on converting institution
 through policies incorporated
 into regulation.
Other significant requirements..  No................  Yes, e.g.,          Yes, e.g.,          Yes, e.g.,
                                                       business plan,      detailed            business plan,
                                                       subsidiaries, non-  conversion plan,    CRA.
                                                       conforming          business plan.
                                                       assets, insider
                                                       compensation.
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    After comparing NCUA's final rule to these OCC and OTS rules, the 
Board believes NCUA's final rule, taken in its entirety, does not 
confine a converting credit union's actions or choice more than these 
OCC and OTS rules taken in their entirety. Accordingly, NCUA's final 
rule is ``no more or less restrictive than the rules governing charter 
conversions by other financial institutions.'' 12 U.S.C. 
1785(b)(2)(G)(i).
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    \2\ OCC regulations applicable to the OCC conversions include 12 
CFR part 5, Sec.  5.24(d) and the incorporated Comptroller's 
Licensing Manual. OTS regulations generally applicable to mutual-to-
stock conversions include 12 CFR part 516, Sec. Sec.  543.1, 543.8 
through 543.14, 544.1 through 544.5, and the incorporated OTS Form 
AC. OTS regulations generally applicable to the conversion of a 
state MSB to a federal MSB include 12 CFR parts 516 and 563b and the 
incorporated Sec. Sec.  420 and 430 of the OTS Applications 
Handbook.
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    Several commenters suggested NCUA lacked legal authority for its 
proposed revisions to part 708a. Some of these commenters focused on 
the NCUA's reliance on particular provisions in the regulations of 
other regulators, including state regulations. These commenters made 
the following arguments:
     The FCUA requires NCUA to look only to the rules of other 
federal regulators, not state regulators, for precedent;
     The FCUA does not permit NCUA to consider the rules of 
non-bank financial regulators (e.g., the Securities and Exchange 
Commission or the Farm Credit Administration) as precedent;
     The FCUA requires NCUA to look only to the conversion 
regulations governing the loss of a converting institution, not the 
gain of a converting institution; and
     The FCUA prohibits NCUA from referring to the rules 
surrounding mutual-to-stock conversions as precedent because stock 
conversions are amendments to an existing charter, not charter 
conversions.
    The Board does not find any support for these limitations in the 
text of the FCUA. The phrase ``including the Office of Thrift 
Supervision and the Office of the Comptroller of the Currency (OCC)'' 
modifies the phrase ``other financial regulators'' and is not a 
limitation. The word ``including'' references the OTS and the OCC by 
way of example and does not limit NCUA to considering only the rules of 
the OTS or OCC, or only the rules of federal regulators or banking 
regulators, or only the rules applicable to the loss, but not the gain, 
of a converting institution. Likewise, the plain language of the 
phrases ``other financial institutions'' or ``other financial 
regulators'' does not limit NCUA as suggested by these commenters. 
Further, the plain language of the statute does not direct NCUA to 
consider only the conversion regulations governing the loss of a 
converting institution. As discussed in the preamble of the proposed 
rule, there is no legislative history for these FCUA provisions, and so 
there is nothing in the legislative history that would support such 
narrow interpretations. See 71 FR 36946, 36947 fn.3 (June 28, 2006).
    Despite the absence of anything in the FCUA or legislative history 
that suggests NCUA should restrict its search for precedent as 
described above, some commenters argue that, because NCUA is regulating 
the conversion of an institution that is leaving NCUA's jurisdiction, 
it should look only to OTS and OCC rules that govern conversions

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where the OTS or OCC is also losing a regulated institution. The Board 
carefully considered this argument and concluded that reliance on these 
types of OTS and OCC rules as precedent would be inappropriate.
    The Board first considered the conversion of a federal MSB to a 
state MSB. The OTS has rules applicable to this process, and the OTS 
would, in most of these cases, be losing regulatory authority over the 
converted institution to a state regulator. The OTS does not impose any 
significant procedural requirements on these conversions, which is 
understandable because there is no shift in ownership interests or 
rights when one MSB converts into another MSB. The NCUA Board believes, 
however, that the conversion from a credit union to an MSB is different 
because it involves a diminution of ownership rights. Some key 
differences between credit union and MSB membership are:
     FCU members exert control over the affairs of the 
institution through their voting power, not delegable by proxy. 12 
U.S.C. 1760. MSB members not only can delegate their votes by proxy, 
but they can give them up forever in the form of running proxies. OTS 
staff has stated that ``[t]he use of these proxies, coupled with the 
management's control over meetings of a mutual savings institution, 
attenuates the influence that depositors may have.'' \3\
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    \3\ D. Smith and J. Underwood, Memorandum: Mutual Savings 
Associations and Conversion to Stock Form, p. 17 (Office of Thrift 
Supervision, Business Transactions Division, May 1997)(OTS 
Conversion Memorandum).
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     FCU members have the right to one-member, one-vote. MSBs, 
for the most part, give greater voting power to depositors with larger 
deposits.\4\
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    \4\ Some credit unions converting to MSBs have announced that 
they intend to maintain the one-member, one-vote method of voting. 
Even so, NCUA believes that, with the use of running proxies, the 
directors of an MSB could easily change the MSB's charter to 
establish account balance voting.
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     The net worth of a credit union belongs to its members, 
and they may recognize it in a variety of ways, including lower loan 
rates and higher savings rates than banks (See 71 FR 36946, 36953 (June 
28, 2006)) and the special dividends paid by many credit unions. See, 
e.g. Loan Growth, Excess Capital Play Huge Role in Dividend Payouts, 
Credit Union Times, January 4, 2006, at p. 1.
     Ownership is measured not only in terms of possible 
rewards, but also in terms of the assumption of risk--and credit unions 
and MSBs are different in this regard as well. Dividends on FCU shares 
are not a contractual right, as is interest on a bank certificate of 
deposit, but may only be paid if the FCU has sufficient retained 
earnings. 12 U.S.C. 1763; NCUA OGC Legal Opinion 96-0917 (January 22, 
1997), located at https://www.ncua.gov. In the event of a credit union 
liquidation, unsecured creditors have priority over members to the 
extent of the members' uninsured shares,12 CFR 709.5(b)(5) and (6), 
unlike bank depositors who take equally with unsecured creditors to the 
extent of uninsured deposits. See, e.g., 12 CFR 360.3(a)(6).
     As discussed below, credit union directors have a 
fiduciary duty to act in the best interests of credit union members. 
While MSB directors have a fiduciary duty to act in the best interests 
of the institution, there is no apparent duty to act in the best 
interests of the MSB members, at least for federal MSBs.\5\ The shift 
in fiduciary duty when a credit union converts to an MSB, and the 
associated loss of focus on the members, diminishes the member's 
ownership rights.
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    \5\ The Home Owners' Loan Act does not describe any duty to act 
in the best interests of a federal MSB's member-depositors. 12 
U.S.C. Sec. Sec.  1461 et seq. OTS regulations refer only to the 
director's duty to act in the best interests of the institution. See 
12 CFR 563.200 (Conflicts of Interest) and 563.201 (Corporate 
Opportunities). The OTS Thrift Activities Handbook makes numerous 
references to the fiduciary duties of MSB directors, but none of 
these state a duty is owed to the members. One state case refers to 
a director's fiduciary duty to the members of a state-chartered MSB. 
Appeal of Concerned Corporators of the Portsmouth Savings Bank, 525 
A.2d 671 (N.H. 1987). OTS staff, in reviewing the Portsmouth case, 
stated ``the court's decision was based primarily upon the fact that 
the depositors'' rights in this transaction were specifically 
provided for in the savings bank's charter, a special charter 
granted by the state legislature in 1823. Since charters of most 
savings institutions, including those of federal mutual 
institutions, do not have the unique provisions of the New Hampshire 
savings bank's charter, the Portsmouth decision is of limited 
precedential value.'' OTS Conversion Memorandum, supra note 3, at 
23.
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    The diminution in ownership interests when a credit union converts 
to an MSB make this conversion fundamentally different than an MSB to 
MSB conversion. Credit union members need the procedural protections 
afforded by NCUA's rule, while MSB members need little or no protection 
when converting from one form of MSB to another. Accordingly, the NCUA 
does not believe the particular OTS rules associated with conversions 
from a federal MSB to a state MSB are appropriate precedent for NCUA's 
rule.
    The Board also considered the OCC process for converting a national 
bank to a state bank, where the OCC loses jurisdiction over the 
converted bank. Two provisions in OCC regulations and federal law work 
in tandem to provide significant protection to the ownership interests 
of the converting bank's stockholders. First, the conversion requires 
the approval of two-thirds of all the outstanding stock. 12 CFR 
5.24(e); 12 U.S.C. 214a. Second, those stockholders who dissent to the 
conversion have the right to an appraisal and a cash payment in 
exchange for their ownership interests. 12 CFR 5.24(e); 12 U.S.C. 214c. 
Together, these two provisions ensure that no conversion takes place 
unless a significant majority of the ownership interests support 
conversion and also that minority ownership interests are protected 
through the right to cash out their ownership interests. NCUA, however, 
cannot adopt a similar approach to protect the ownership interests of 
credit union members. The FCUA establishes the voting threshold for MSB 
conversions as ``the affirmative vote of the majority of the members of 
the insured credit union who vote on the proposal.'' 12 U.S.C. 
1785(b)(2)(B). This FCUA provision not only does not protect the 
members in the manner a supermajority would, it hypothetically would 
allow the directors of a credit union to convert it to an MSB even if 
only a handful of members approve. Accordingly, NCUA does not believe 
the OCC process for converting national banks to state banks is 
appropriate precedent for NCUA's rulemaking. The better approach is to 
ensure that, through the various notice, disclosure, and communication 
channels in this final rule, the directors and members will make a 
careful and informed conversion decision. The approach in this final 
rule is similar to the approach taken by the OTS and OCC in other 
charter conversions, such as the OTS mutual-to-stock charter conversion 
rules, the OTS state MSB to federal MSB conversion rules, and the OCC 
state bank to national bank conversion rules discussed above.
    The Board disagrees with commenters who state OTS rules governing 
mutual-to-stock conversions are not relevant to NCUA's rulemaking 
because these are not ``charter'' conversions. These commenters state 
that, because the OTS may technically amend the existing charter when a 
federal mutual bank converts to a federal stock bank, and not issue a 
new charter, it is not a charter conversion. First, NCUA notes that the 
FCUA does not define the term charter conversion, and that NCUA has 
significant discretion to define and interpret the FCUA, both in 
general and in terms of its specific authority to administer the 
conversion vote as discussed above. In the Board's view, a mutual-to-
stock conversion is a de facto

[[Page 77154]]

charter conversion because the mutual-to-stock conversion results in a 
fundamental restructuring of ownership interests and, usually, a 
wholesale change in owners. The Board also notes that OTS rules on 
mutual-to-stock conversions cover not only federal-to-federal stock 
conversions, but also state-to-federal stock conversions. 12 CFR 
563b.430. In a state-to-federal stock conversion, OTS will not amend 
the state charter, but will issue a new federal charter. In both form 
and substance, this is a charter conversion.
    Accordingly, NCUA is satisfied that the proposed rule, and this 
final rule as adopted, are well within the rulemaking authority 
provided by Congress to NCUA.

C. Section by Section Analysis

708a.1 Definitions

    The current Sec.  708a.1 contains definitions for the terms credit 
union, mutual savings bank, savings association, federal banking 
agencies, and senior management official. The proposal added a 
definition for ``clear and conspicuous,'' meaning ``text that is in 
bold type in a font at least as large as that used for headings, but in 
no event smaller than 12 point.'' The proposal also added a definition 
for ``regional director'' to clarify that, for natural person credit 
unions, it means the NCUA director for the region where the credit 
union's main office is located and, for corporate credit unions, it 
means the Director, NCUA Office of Corporate Credit Unions.
    One commenter thought the use of bold text at least as large as 
that used for headings but in any event no smaller than 12 point would 
not necessarily be clear and conspicuous. This commenter recommended a 
definition of ``clear and conspicuous'' like NCUA uses for its privacy 
rules at 12 CFR 716(3)(b). Another commenter stated that NCUA should 
define what it means by headings.
    Upon consideration of these comments, the Board has modified the 
definition of clear and conspicuous to mean ``text in bold type in a 
font size at least one size larger than any other text used in the 
document (exclusive of headings), but in no event smaller than 12 
point.'' The Board believes that this definition will be easier for 
converting credit unions to apply, particularly if there are multiple 
headings with different font sizes, while ensuring members notice the 
information. The Board notes that if the document contains multiple 
passages that must be clear and conspicuous all these passages would be 
the same font size.

708a.2 Authority to Convert

    The current Sec.  708a.2 recites the authority of a federally 
insured credit union to convert to a mutual savings bank or savings 
association as provided in the FCUA. The proposed Sec.  708a.2 
maintained this same recitation. NCUA received no public comments on 
this section, and the section is adopted as proposed.

708a.3 Board of Directors' Approval and Members' Opportunity to Comment

    The current Sec.  708a.3 provides the board of directors must 
approve a conversion proposal by a majority vote and set a date for a 
member vote. Members must approve the proposal by the affirmative vote 
of those members who vote on the proposal.
    The proposed rule retained the same requirement for a board vote on 
the conversion proposal but clarified that directors may vote in favor 
of a conversion proposal only if they have determined that the 
conversion is in the best interests of the members. The proposal also 
contained a new requirement for advance notice to members of the 
board's intent to consider a conversion proposal. The board must 
publish a notice in a local area newspaper and on the credit union's 
Web site, as well as post a notice in the credit union's offices, no 
later than 30 days before the directors meeting. Directors must 
consider the comments before voting on the conversion proposal. The 
proposal also required that, if the credit union maintains a Web site, 
the credit union must post any comments received on its Web site.
The Fiduciary Duty of the Board of Directors (Public Comments)
    Proposed Sec.  708a.3(c) required the directors adopting a 
conversion proposal to determine that the conversion is in the best 
interests of the members. A related provision in proposed Sec.  708a.5 
required directors to certify to NCUA that the conversion is in the 
best interests of the members. NCUA received many comments on this 
issue of the fiduciary duty of the board of directors to its members.
    One commenter felt the fiduciary duty of the board of directors to 
act in the best interests of members was self-evident and needed no 
reference in the rule.
    One commenter asked NCUA to clarify that its interpretation of 
fiduciary duty, that the officers and management must act in the best 
interests of the members, is not a departure from traditional 
interpretations of fiduciary duty. This commenter believes the 
directors' deciding to act in the best interests of members is part of 
deciding whether the conversion is in the best interests of the 
institution.
    One commenter noted the concept of fiduciary duty is discussed only 
in the preamble to the proposed rule, and the rule itself should state 
the credit union officials have fiduciary duties and should define 
fiduciary duty as ``[a] legal obligation directors and senior 
management have in their capacity as officials of the credit union to 
place the interests of the credit union's membership ahead of their own 
personal financial interests.'' This commenter felt the proposed voting 
guidelines should be further expanded to include a discussion of the 
obligations of credit union officials to act with due care and 
prudence, with loyalty to the membership, and in good faith.
    Another commenter suggested NCUA include guidance to directors on 
how this determination is to be made. This commenter gave an example: 
If a credit union is seeking to convert in order to increase its member 
business lending activity, how has the board assessed whether members 
are interested in obtaining more loans of this nature?
    One commenter suggested the rule require a board to obtain an 
opinion from an unbiased third party to validate the directors' 
determination that a conversion was in the members' best interests. 
Another suggested the board should obtain an opinion from counsel that 
discusses the board's compliance with applicable legal requirements. 
This commenter thought the opinion should be made available to members 
upon request.
    One commenter expressed concern that, in some states, the officials 
of a state-chartered credit union may not have a fiduciary duty that 
runs to the members of the credit union, citing Save Columbia CU 
Committee v. Columbia Community Credit Union, 139 P.3d 386 (2006).
The Fiduciary Duty of the Board of Directors (Discussion)
    The FCUA has numerous references to the duty to act in the best 
interests of the credit union's members, including:
     The NCUA Board may act to remove or prohibit any 
institution-affiliated party at a federally-insured credit union if 
that action meets certain requirements, including that the ``interests 
of the insured credit union's members have been or could be 
prejudiced.'' 12 U.S.C. 1787(g)(1)(B).

[[Page 77155]]

     Credit unions applying for federal account insurance must 
agree to maintain such special reserves as the NCUA Board may require 
``for protecting the interests of the members.'' 12 U.S.C. 1781(b)(6).
     The NCUA Board must review the application of any 
individual to become a director or senior manager at a newly chartered 
or troubled federally-insured credit union, and disapprove that 
application, if acceptance of the applicant would not be in the best 
interests of the depositors (members). 12 U.S.C. 1790a.
     When acting as the conservator or liquidating agent of a 
federally-insured credit union, the NCUA Board may take any action it 
determines is in the best interests of the credit union's account 
holders (members). 12 U.S.C. 1787(b)(2)(J)(2).
     A voluntary liquidation of an FCU must be in the best 
interests of the members. 12 U.S.C. 1766(b)(2).
    Most of these FCUA provisions on the duty to act in the best 
interests of the members refer specifically to the NCUA Board. A closer 
look at how the cited provisions function, however, connects them to 
the directors. Specifically, the best interests of the members will 
dictate the Board's actions when removing or prohibiting a director, 
approving the appointment of a director, operating a conserved credit 
union in the role of the board of directors, and reviewing the 
propriety of a board of directors' decision to pursue a voluntary 
liquidation. If the best interests of the members standard guides the 
conduct of the Board, it must also guide the conduct of directors.
    NCUA believes it is important for the directors of every credit 
union to understand the duty to act in the best interests of the 
members. It is particularly important, however, that the directors 
recognize this duty and act upon it when considering a proposal to 
convert a credit union to a bank.
    First, there is a financial incentive, as discussed in the preamble 
of the proposed rule, for the directors of a converting institution to 
put their own personal financial interests ahead of the interests of 
their members. 71 FR 369546, 36953-56 (June 28, 2006).
    Second, there may be a tendency by directors of a converting credit 
union to focus solely on the projected growth of the converting 
institution and acquiring new customers and not to focus, as the best 
interests of the members standard suggests, on the financial services 
existing members want and how the conversion will affect the quality, 
rates, and fees associated with these services. NCUA's boxed disclosure 
on the relative rates at banks and credit unions is relevant to this 
issue, and converting credit unions should be able to explain how and 
why their institution will be different than the average bank in this 
regard.
    Third, as discussed previously, a conversion to an MSB dilutes the 
ownership interests of the members. Further, if the MSB subsequently 
converts to a stock bank, as about ninety percent of converting credit 
unions ultimately do, the vast majority of the former credit union 
members will likely not subscribe to the stock offering.\6\ This, in 
turn, either deprives former credit union owners of any ownership 
interest, or, in the case of a mutual holding company structure, 
creates a competing minority stock ownership class that can, and does, 
result in benefit to the minority stockholders at the members' 
expense.\7\
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    \6\ There is significant anecdotal information supporting the 
conclusion that member participation in IPOs is extremely low. 
``Long-time members of IGA FCU were mostly left out of the money 
when IGA became the first credit union convert to sell stock * * * 
[F]ewer than 5% of the 22,200 members of the credit union shared in 
the profits from the sale of the institution.'' Credit Union 
Journal, November 13, 2000, p. 1. ``All who had their subscriptions 
filled were depositors-but only 5% of all depositors subscribed.'' 
FDIC Review, Mutual-to-Stock Conversions of State Nonmember Savings 
Banks, 59 FR 30357, 30359 (June 13, 1994). And, in just the past few 
months, ``about 3,500 depositors at ViewPoint Bank, the former 
Community Credit Union, subscribed to [the IPO] * * * The 3,500 
members represent 1.56% of the [CU's] 223,000 members * * *.'' 
Credit Union Times, October 4, 2006, at www.cutimes.com.
    \7\ FDIC Review of Mutual-to-Stock Conversions of State 
Nonmember Savings Banks, 59 FR 30357, 30363 (June 13, 1994).
---------------------------------------------------------------------------

    Some converting credit unions, and law firms that advise them, have 
written NCUA suggesting that, because credit union members cannot force 
a distribution of credit union assets, or transfer or pledge their 
interest in the credit union for value, the members have little or no 
real ownership interest in the credit union. This view ignores the 
fiduciary duty that credit union directors owe to their members. The 
duty owed by credit union directors is analogous to the duty owed by a 
trustee to the beneficiaries of a trust. In a typical family trust, the 
trustees have discretion in the management and distribution of the 
trust assets. Many family trusts also have provisions forbidding the 
beneficiaries from pledging, selling, or otherwise alienating their 
interests in the trust. The inclusion of these provisions in the trust 
agreement, however, does not result in any loss or diminution of the 
beneficiaries' ownership interest in the trust. On the contrary, any 
trustee who might manage trust assets other than in the interest of the 
beneficiaries, including using the trust assets for his or her own 
personal gain or attempting to take personal ownership of trust assets, 
would be guilty of a gross breach of fiduciary duty.
    All these factors make it imperative that the board of directors of 
a converting credit union understand they must act in the best 
interests of their members. A conversion from a credit union to a bank 
should only take place after the board has completed its due diligence, 
including consideration of the above factors, and an informed 
membership has approved the conversion. Directors should question the 
assertion of any consultant that minimizes the ownership rights of 
members or their fiduciary duty to members.
    NCUA believes this delineation of a board's fiduciary 
responsibility to members restates existing law without change or 
modification. In the normal course of business when a board acts in the 
bests interests of the credit union it is also furthering the interests 
of the members. But the duty to act in the best interests of members is 
primary, and, if there is any divergence or conflict between the 
interests of the institution and the interests of members, the latter 
takes precedence.\8\
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    \8\ One situation in which the best interests of the institution 
and the members may diverge is the possible voluntary liquidation of 
a healthy credit union. The FCUA provides that the decision to 
undertake a voluntary liquidation is determined by the best 
interests of the members and not the best interests of the 
institution. 12 U.S.C. 1766(b)(2).
---------------------------------------------------------------------------

    The Board has considered the views of commenters who believe the 
rule should provide additional information on the fiduciary duty 
standard and how compliance with that standard is measured in the 
conversion context. The Board offers the following additional guidance.
    The Board believes that members want their depository institution 
to provide the types of financial services that they need. They want 
those services to be convenient and of high quality. And they want 
those services to be provided at a good price, meaning good rates and 
low fees. Accordingly, when directors consider a conversion to the bank 
they should, as part of their due diligence and in consonance with the 
duty to act in the best interests of the members, answer the following 
questions: What financial services do the majority of my members want? 
How do I know this? Can the institution best provide these services to 
its members as a credit union or a bank? If the credit union converts 
to a bank, how will that affect the rates and fees that the

[[Page 77156]]

institution charges the members for these services? And if the credit 
union converts to a bank, will it be able to offer members (now 
customers) something in the way of services or value that existing 
banks in the area are not offering?
    Mere assertions that a charter change is needed to facilitate 
growth are not, by themselves, sufficient to establish that the change 
is in the best interests of the members.\9\ While post-conversion 
growth may possibly result in profits and dividends payable to the 
bank's future stockholders, it does not necessarily follow that the 
credit union's members also benefit.\10\ Accordingly, if the directors 
rely on growth as a reason for conversion, they should establish 
specifically how accelerated growth will benefit the members in terms 
of providing services the members want, higher quality services, and 
better pricing on those services.
---------------------------------------------------------------------------

    \9\ The only time that growth, by itself, would be sufficient to 
justify a charter change would be in the highly unusual case where 
the credit union cannot survive as a credit union and so the 
continued existence of the institution requires a charter change.
    \10\ As discussed above, supra note 7 and associated discussion, 
historic data suggests only a tiny fraction of the credit union's 
members will become future stockholders.
---------------------------------------------------------------------------

    This guidance is provided by way of example and is not intended to 
be all inclusive of a director's due diligence. The nature of the due 
diligence required may vary somewhat from credit union to credit union 
depending on each credit union's particular circumstances.
    NCUA has also carefully considered the decision of the Washington 
state appellate court in Save Columbia CU Committee v. Columbia 
Community Credit Union, 139 P.3d 386 (Wash. Ct. App. 2006) (Save 
Columbia) and how it affects the proposed certification requirement. 
One of the issues considered by the court in Save Columbia was if 
members of the Columbia Community Credit Union, a state-chartered 
credit union, had standing to bring a breach of fiduciary duty claim 
against the directors. In reversing the trial court, the appellate 
court ruled that the Committee (i.e., the members) had no private 
action to sue for a breach of fiduciary duty and that such duty must be 
enforced by the state regulator. While NCUA does not necessarily agree 
with the holding or reasoning of the state court, any inference that 
the directors owed no duty to the members of the credit union was dicta 
and not necessary to the holding. NCUA also believes it unlikely that 
under Washington state law, or the laws of any other state, the 
directors of a state-chartered credit union owe no fiduciary duty to 
their members.
    The Save Columbia court did not consider how the FCUA might apply 
to the facts in that case. When a state-chartered credit union applies 
for, and receives, federal account insurance, it is bound by those 
portions of the FCUA applicable to federally-insured credit unions. 12 
U.S.C. 1781 et seq. (Title II). Four of the five FCUA citations to the 
duty to act in the best interests of members are found in Title II of 
the FCUA and so are applicable to all federally-insured credit unions, 
including state charters. Accordingly, the FCUA imposes a duty to act 
in the best interests of the members on the directors of all federally-
insured state-chartered credit unions regardless of whether state law 
also imposes such a duty.
Advance Notice (Comments)
    Most commenters supported the advance notice requirement, and some 
commenters suggested additional ways a credit union should provide the 
advance notice, including the use of statement stuffers, newsletters, 
and e-mails or a notice on the quarterly periodic statement preceding 
the meeting. Many commenters felt a credit union should be required to 
send an advance notice directly to members, either by mail or e-mail. 
One commenter believed that, in addition to the advance notice, the 
portion of the directors' meeting on the conversion proposal should be 
open to the membership or, alternatively, the directors should be 
required to hold a town hall style meeting immediately after they 
adopted the conversion plan. Another commenter made a similar 
suggestion but suggested the meeting be a special meeting of the 
members.
    One commenter suggested the rule require 60 days notice instead of 
30 days; another suggested 120 days. These commenters believe the 
additional time would allow for better communications between members 
and directors without adversely affecting the conversion process.
    Several commenters objected to the advance notice requirement. Some 
did not think NCUA had the authority to require advance notice, stating 
variously that the FCUA limited the notices to members to three and 
that a fourth notice violated this limitation or that the advance 
notice was contrary to the FCUA provision that a proposal to convert 
``shall first be approved * * * by a majority of the directors.'' Other 
objections to the advance notice included statements that it would:
     Not provide meaningful information to credit union members 
or a credit union's board of directors;
     Fuel the spread of misinformation;
     Generate submissions only from dissenters and those would 
lack value because they would be based on incomplete information about 
the proposal;
     Interject member participation at a very early stage in a 
manner unlike most other corporate governance situations;
     Constitute a member vote before the board vote;
     Lead to an ill-informed director vote based on limited 
input;
     Undermine the authority of the board of directors because 
the members elect their board of directors to study and make all types 
of business decisions on behalf of the members;
     Be costly and burdensome for the credit union;
     Impair the ability of a board to act quickly and 
decisively on a conversion proposal; and
     Discourage candid and informed discussion among the 
directors.
    Some commenters stated the credit union should not have to post 
views of nonmembers on its Web site. One commenter suggested NCUA 
should provide additional guidance on posting of member comments, 
including whether the comments must be put in a particular order; how 
long the comments must remain on the Web site; whether a credit union 
has the right to respond to comments and in what manner it may respond; 
whether the credit union is responsible for any misinformation in the 
postings; and whether there are any privacy concerns that must be 
addressed when posting member comments.
Advance Notice (Discussion)
    NCUA does not believe the language of the FCUA prohibits an advance 
notice requirement. The 90-, 60-, and 30-day notice requirements 
enumerated in the FCUA are not exclusive, and, in any event, relate 
only to the notice of the member vote and so are different than the 
proposed advance notice of a directors meeting to adopt a conversion 
proposal. The advance notice is also not an approval requirement, so 
that the notice requirement does not contravene the FCUA provision that 
the conversion proposal must first be approved by the board of 
directors.
    As stated in the preamble to the proposed rule, NCUA intends the 
advance notice requirement to facilitate the flow of information 
between members and directors. NCUA does not believe information 
provided by a member to directors undermines the

[[Page 77157]]

directors' authority, discourages candid discussion among the 
directors, or otherwise impedes their ability to make an appropriate 
and timely decision. Directors should welcome member input and are free 
to consider any particular member's point of view and reject it. 
Directors are also free to obtain additional information from their 
members, beyond the input received as a result of the advance notice, 
by using member surveys, questionnaires, or other collection 
techniques.
    NCUA has, however, reconsidered the proposal to require posting of 
the member's comments on the credit union's Web site. The intent of the 
advance notice is to inform members that a credit union is considering 
a conversion and to facilitate member-director contact, not member-
member contact, in the period of time preceding the directors' decision 
on the conversion proposal. As noted by some commenters, posting member 
comments does not directly further the stated purposes of the advance 
notice, and the posting does impose some burden on the converting 
credit union in determining the propriety of particular postings. 
Accordingly, the final rule does not require the converting credit 
union to publicize comments received before the adoption of a 
conversion proposal. As discussed below, this final rule does include 
other procedures to facilitate member-to-member contact in the period 
of time following the directors' adoption of a conversion proposal.
    NCUA also considered alternatives suggested by commenters for 
communicating the advance notice to the members. NCUA believes its 
proposal for publication and posting in the credit union's branch 
offices and on its Web site minimizes the burden on the credit union 
while ensuring that members have a reasonable chance to learn of the 
proposal and provide input to directors. One commenter suggested that 
the rule be clarified to require the advance notice be posted in the 
lobby of a converting credit union. NCUA agrees with this clarification 
and has made the suggested change to the final rule. Converting credit 
unions are, of course, free to use additional methods of communicating, 
including mailings, statement stuffers, newsletters, and e-mails.
    Accordingly, and except as described above, NCUA adopts Sec.  
708a.3 as proposed.

708a.4 Disclosures and Communications to Members

    Section 708a.4 of the current rule, entitled Voting procedures, 
provides for a member vote on the conversion at a special meeting or by 
mail and describes the notices that must be provided to members 90, 60, 
and 30 days before the vote. It prescribes certain information and 
disclosures that must be in the notices. It also requires the vote must 
be by secret ballot and conducted by an independent entity.
    The proposal contained several changes to Sec.  708a.4. It modified 
the mandatory boxed disclosures the board of directors must give to 
members once the board has approved a proposal to convert to read:

------------------------------------------------------------------------
 
-------------------------------------------------------------------------
             IMPORTANT REGULATORY DISCLOSURE ABOUT YOUR VOTE
 
The National Credit Union Administration, the federal government agency
 that supervises credit unions, requires [insert name of credit union]
 to provide the following disclosures:
1. LOSS OF CREDIT UNION MEMBERSHIP. A vote ``FOR'' the proposed
 conversion means your credit union will become a mutual savings bank. A
 vote ``AGAINST'' the proposed conversion means your credit union will
 remain a credit union.
2. RATES ON LOANS AND SAVINGS. If your credit union converts to a bank,
 you may experience changes in your loan and savings rates. Available
 historic data indicates that, for most loan products, credit unions on
 average charge lower rates than banks. For most savings products,
 credit unions on average pay higher rates than banks.
3. POTENTIAL PROFITS BY OFFICERS AND DIRECTORS. Conversion to a mutual
 savings bank is often the first step in a two-step process to convert
 to a stock-issuing bank or holding company structure. In such a
 scenario, the officers and directors of the institution often profit by
 obtaining stock in excess of that available to other members.
------------------------------------------------------------------------

    The proposal required that these boxed disclosures be sent only 
with the three written notices and not with all written communications 
as under the current rule. The proposal also established procedures for 
members to share their views with other members during the 90-day 
notice period preceding the membership vote. The proposal further 
stated that the ballot must be sent only with the 30-day notice and may 
not contain any information other than a statement of the proposition 
being voted on, a short statement of the board's recommendation, and 
voting instructions.
Proposed Boxed Disclosure 1 (Loss of Credit Union Membership)
    Most commenters supported the disclosure as written. These 
commenters thought members need to know precisely what a FOR vote and 
an AGAINST vote mean.
    Some commenters thought the title line, ``LOSS OF CREDIT UNION 
MEMBERSHIP,'' was unnecessarily negative and should be changed or 
eliminated. The Board disagrees that there is anything negative about 
the title. In every conversion, the converting credit union will 
emphasize why it wants to convert including what it perceives are the 
positive aspects of the conversion. Nothing in NCUA's rule prohibits 
such statements, as long as they are accurate and not deceptive. 12 CFR 
740.2.
    A few commenters also suggested that this proposed box disclosure 
on the effect of a ``FOR'' vote might be misinterpreted by a member as 
indicating that the member's vote, by itself, would determine the 
outcome of the vote. To clarify this, the final rule amends this 
disclosure to read:

    1. LOSS OF CREDIT UNION MEMBERSHIP. A vote ``FOR'' the proposed 
conversion means you want your credit union to become a mutual savings 
bank. A vote ``AGAINST'' the proposed conversion means you want your 
credit union to remain a credit union.
Proposed Boxed Disclosure 2 (Rates on Loans and Savings)
    Most commenters strongly supported this disclosure. These 
commenters thought this disclosure highlighted a fundamental difference 
between banks and credit unions. Some of these commenters stated credit 
unions generally charge fewer and smaller fees than banks and 
recommended the disclosure should also address differences in fees. One 
such commenter suggested that, if NCUA did not have data on the fees 
banks and credit unions charge, it should commission a study. One 
commenter suggested that, in addition to the discussion of historic 
averages, the boxed disclosure should include actual examples of 
specific rate disparities. One commenter noted that, in addition to the 
data and studies cited by NCUA in the preamble to the proposed rule, a 
study by University of North Carolina Economist William

[[Page 77158]]

Jackson, entitled The Benefits of Credit Unions to North Carolina 
Consumers of Financial Services, also supports this disclosure.
    Several commenters thought the proposed boxed disclosure was 
misleading. One thought it implies rates on existing loans and deposits 
established by contract could be changed post-conversion. Another 
commenter thought the proposed language was not representative of the 
actual transaction being voted on: ``the conversion to a mutual savings 
bank.''
    A few commenters objected to the disclosure because credit unions 
do not always have more favorable rates than banks. One commenter 
objected to the disclosure because it implies a credit union's current 
pricing is more attractive than the competition and its future pricing 
will be less attractive than the competition. This commenter also 
stated that, in a free market economy, the marketplace determines 
pricing, and that requiring this disclosure suggests otherwise.
    One commenter dismissed the method by which NCUA uses the economic 
data, stating that it focused on one particular year (2002-2003) and 
particular data points rather than a more extensive and complete 
analysis including regional and market differences, market trends, and 
a full spectrum of products and services.
    None of the commenters disputed the accuracy of the data supporting 
the disclosure. Contrary to the comments above, the data did not focus 
on one particular year or point in time, but covered three separate 
years of rates for thousands of banks and credit unions. The data were 
clear that for most loan and savings products credit union rates are, 
on average, significantly better than banks. While this is not true of 
all products surveyed, what is true is that for no particular product 
was the average bank rate significantly better than the credit union 
rate. The boxed disclosure makes no statement about particular credit 
union rates, only average rates. Also, in this disclosure the generic 
word ``bank'' is more appropriate than the phrase ``mutual savings 
bank.'' The disclosure is true of all banks, including both mutual and 
stock banks--and most converting credit unions convert to mutual banks 
and then to stock banks. Accordingly, the Board has determined the 
disclosure is not misleading.
    NCUA requested data from DATATRAC on credit unions that had 
previously converted to banks, but DATATRAC had only incomplete data on 
them. NCUA also asked, in the preamble to the proposed rule, for 
comments on the rates at converted credit unions. NCUA received no 
comments responsive to this request. This lack of data on converted 
credit unions, however, is not critical. Looking at just the