Member Inspection of Credit Union Books, Records, and Minutes, 56247-56253 [E7-19557]

Agencies

• National Credit Union Administration

[Federal Register Volume 72, Number 191 (Wednesday, October 3, 2007)]
[Rules and Regulations]
[Pages 56247-56253]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-19557]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 701

RIN 3133-AD33


Member Inspection of Credit Union Books, Records, and Minutes

AGENCY: National Credit Union Administration.

ACTION: Final rule.

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SUMMARY: The National Credit Union Administration (NCUA) is issuing a 
final rule on member inspection of federal credit union (FCU) books, 
records, and minutes. The rule provides that a group of members 
representing approximately one percent of the membership, with a proper 
purpose and upon petition, may inspect and copy nonconfidential 
portions of the credit union's books, records, and minutes. This rule 
standardizes and clarifies existing member inspection rights.

DATES: This rule is effective November 2, 2007.

FOR FURTHER INFORMATION CONTACT: Paul Peterson, Staff Attorney, 
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

    In April 2007, the NCUA Board published a proposed rule on member 
inspection of FCU books, records, and minutes. 72 FR 20061 (April 23, 
2007). The proposal provided that a group of members representing 
approximately one percent of an FCU's membership, upon petition and 
with a proper purpose, may obtain access to the nonconfidential 
portions of the FCU's books, records, and minutes. As stated in the 
preamble to the proposal, the NCUA Board intended it to replace 
existing NCUA legal opinions stating FCU members may inspect an FCU's 
books and records under the same terms and conditions that state 
corporation law where the FCU is located permits shareholder inspection 
of corporate records. The NCUA Board believes regulating member 
inspection of FCU records is preferable to reliance on state 
corporation law because corporation law on shareholder inspection 
varies from state to state and all FCUs should have the same standard 
regardless of an FCU's location. In addition, some courts may refuse to 
apply their state corporation law to inspection requests by FCU members 
or may incorrectly analogize the financial interests of credit union 
members to those of depositors in a mutual savings bank and deny 
members inspection on those grounds. In fashioning the proposed rule, 
the Board identified an existing Office of Thrift Supervision (OTS) 
rule governing the right of shareholders to inspect the books, records, 
and minutes of federal stock savings associations. 12 CFR 552.11 (OTS 
Rule). The proposal tracked the OTS Rule in large part.
    The public comment period closed on June 22, 2007. NCUA received 37 
comments on the proposal. After consideration of the comments, NCUA has 
prepared this final rule on member inspection of FCU books, records, 
and minutes.

B. Public Comments

    Several commenters believed the rule and its petition process were 
unnecessary. Some of these commenters suggested that member access to 
FCU information should be limited to information the FCU, in its 
discretion, determined to release to its members. Other commenters 
stated the existing member access process, that is, reliance on state 
corporation law to determine member rights, was adequate.
    The NCUA Board disagrees with these commenters. Permitting members 
access to FCU information at the discretion of the FCU would limit FCU 
transparency and treat FCU members as something less than the true 
owners of the FCU. Also, as discussed in the preamble to the proposed 
rule, reliance on State law and State courts to apply State law to FCUs 
has not worked well in the context of member access to FCU records. 72 
FR 20061, 20062 (April 23, 2007). Accordingly, this final rule retains 
the proposed process for members to obtain access to FCU records by 
petition.
    Many commenters stated that, if the NCUA retained the proposed 
petition process, it should provide additional protection for credit 
unions and credit union records. Some of these commenters argued the 
proposed rule would make it too easy for competitor credit unions and 
banks to acquire sensitive financial information. Some of these 
commenters also felt special interests could use the petition process 
in a repetitive fashion to paralyze a credit union. Many commenters 
also believed that the proposal went too far in making the information 
related to the compensation, benefits, and qualifications of senior 
management available to members.
    Upon consideration of the public comments the NCUA Board has made 
several changes in the member petition

[[Page 56248]]

process. The various specific comments and NCUA's responses are 
discussed in the following section-by-section analysis.

Section 701.3(a) Member Inspection Rights

    This proposed paragraph established the right of a group of 
members, upon submission of a proper petition, to inspect and copy 
nonconfidential portions of books and records of account and minutes of 
the proceedings of the credit union's members, board of directors, and 
committees of directors.
    A few commenters stated that, if the phrase ``books and records of 
account'' meant ``accounting records,'' the rule should say so more 
specifically. The Board concurs with these commenters and has changed 
the rule to more clearly reflect this. One commenter asked if ``books 
and records of account'' included only ``high-level'' records, such as 
consolidated financial statements or income statements, or also 
included records with more detail, such as general ledger postings. The 
scope of books and records covered by the rule includes all financial 
documents, including those with detailed information, subject to the 
confidentiality provisions in Sec.  701.3(d) as discussed below.
    A few commenters stated that, if the credit union's minutes are 
available to others, the credit union would likely be more circumspect 
in the details in its minutes causing off the record decision-making 
and making NCUA examination and review more difficult. Another 
commenter, however, felt that the rule would encourage FCUs to be 
overly detailed in their minutes to avoid the prospect of litigation. 
Several commenters also felt members should only have access to written 
minutes, and not other recordings or documents, reports, studies, or 
visual aids considered by the meeting participants.
    The NCUA Board believes that directors have an obligation to make 
informed decisions and to record the basis for those decisions. 
Further, members have a right to information that will help them 
understand how directors made their decisions. NCUA and its examiners 
may also need to know how directors and members reached particular 
decisions and so expect that the records created by the FCU will be 
complete in this regard. Accordingly, for purposes of this rule 
``minutes of the proceedings at all meetings of its members, board of 
directors, and committees of directors'' includes not only the 
information contained in the formal summary of the proceedings, but 
also any recordings, documents, reports, studies, visual aids, or other 
information considered by the meeting participants.
    A few commenters suggested that access to older records should be 
limited because of the difficulty in locating older documents. The 
Board notes that, if an FCU maintains older records, it must make them 
available for inspection and copying upon receipt of a proper petition. 
Although a credit union may find it more difficult to locate older 
records, the costs of search and duplication are born by the 
petitioners as provided for in Sec.  701.3(e) of the rule, discussed 
below.
    A few commenters wondered if the proposed rule created new records 
retention requirements or otherwise affected a credit union's ability 
to ``purge'' records. One of these commenters asked if the rule 
required a credit union, for example, to retain indefinitely the 
documents considered by a credit union's board. This same commenter 
asked if the retention requirement extended to information related to 
documents associated with courses of action the credit union board 
rejected, in addition to those the credit union decided to pursue.
    An FCU must have records retention policies that are reasonable and 
that meet its operational requirements and the requirements of the law. 
This final rule on member inspection of FCU records, however, is not a 
records retention rule and imposes no retention requirements on FCUs. 
Accordingly, an FCU that receives an inspection petition need not 
reconstitute responsive records it may have had at one point but 
destroyed before the date it received the petition. Also, an FCU need 
not create new records to respond to a member request.
    Accordingly, and except as discussed above, the Board adopts Sec.  
701.3(a) as proposed.

 Section 701.3(b) Petition for Inspection

    This proposed paragraph set forth the petition requirements. The 
proposal stated that at least one percent of the credit union's 
members, with a minimum of 20 members and a maximum of 250 members, 
must sign the petition. The petition must describe the particular 
records to be inspected and state a purpose for the inspection related 
to the business of the credit union. The petition must state that the 
petitioners as a whole, or certain named petitioners, agree to pay the 
direct and reasonable costs associated with search and duplication of 
requested material. The petition must also state that the inspection is 
not desired for any purpose in the interest of a business or object 
other than the business of the credit union and that the petitioners 
have not in the past, and do not intend now, to sell or offer for sale 
any information obtained from the credit union. The petition must name 
one or more members who will represent the petitioners on issues such 
as inspection procedures, costs, and potential disputes.
    Several commenters thought the required petition language that the 
information requested ``is not desired for any purpose in the interest 
of a business or object other than the business of the credit union'' 
should be clarified. Other commenters thought the rule should include a 
more specific reference to a proper purpose. One commenter suggested a 
proper purpose be defined as a purpose related to the ``proper 
management and administration of the credit union.''
    As noted in the preamble to the proposed rule, a proper purpose for 
an inspection petition is a purpose that relates to the protection of 
the members' financial interests in the credit union. 72 FR 20061, 
20062 (April 23, 2007). The Board has amended the final rule text to 
include this definition. Member financial interests in the credit union 
include the types of financial products offered by a credit union, the 
fees and rates charged by the credit union for those services, and how 
those services are delivered to the members. The members also have a 
financial interest in how the FCU builds and manages the net worth of 
the FCU.
    There were many comments about the minimum number of required 
petition signatures.
    Several commenters thought the proposal's base requirement of one 
percent of the members was too restrictive. A few of these commenters 
stated any one member who wanted to see nonconfidential books or 
records should be allowed to do so without a petition. One commenter 
stated that, if the rule did not grant inspection rights to any one 
member, NCUA should adopt a petition standard of half of one percent of 
the members, or the lesser of one percent or ten members.
    The majority of the commenters, however, thought the proposal made 
it too easy for members to obtain records. Some of these commenters 
felt there should be no upper limit on the number of necessary 
signatures. Several of these commenters suggested the upper limit 
should be 500, not 250, signatures. One commenter suggested a ``sliding 
scale flat cap'' based on the size of the credit union. One commenter 
suggested a minimum of 250 members for smaller credit unions and no 
upper limit for

[[Page 56249]]

larger credit unions. A few commenters expressed concern that a group 
of 250 or fewer members could make multiple and repetitive inspection 
requests and keep the credit union from focusing on providing services 
to its members. A few commenters thought only members who have been 
members for awhile, such as at least six months, should be permitted to 
sign the petition.
    The requirement that a minimum number of members sign an inspection 
petition ensures that member ownership rights are protected while also 
protecting the FCU from improper access requests. The petition 
requirement strikes a balance between the members' right to know and 
understand how the directors are executing their responsibilities on 
behalf of the members and an FCU's right to be free from requests with 
illegitimate aims, such as harassment or the desire by the FCU's 
competitors to obtain information from the FCU. In attempting to strike 
this balance, NCUA looked to the OTS rule on access by shareholders at 
stock savings associations, which generally requires inspection upon 
the request of shareholders owning one percent of the outstanding 
stock. The NCUA also looked to member signature requirements in other 
FCU petition contexts.
    After considering the public comments, the Board has made some 
changes to the petition signature requirement in the final rule.
    The Board recognized the concern that, for very large FCUs, the 250 
signature cap was only a fraction of a percent of their membership and, 
perhaps, would make it too easy for the petition process to be used in 
a manner not reflective of the desires of the majority of the 
membership. The Board determined, however, that removing the cap on the 
maximum number of signatures entirely would, in cases involving very 
large FCUs, make it almost impossible for members to obtain timely 
inspection of records. Accordingly, the Board has determined to raise 
the maximum number of required signatures from 250 to 500. For very 
large credit unions, a cap of 500 signatures is a closer approximation 
to one percent of the membership. Also, this particular range, one 
percent of the members with no fewer than 20 and no greater than 500, 
is consistent with other uses of the petition process, such as a 
petition seeking nomination for an FCU's board of directors. See 
Standard FCU Bylaws, Art. V (April 2006).
    In addition, the Board has determined to require that members who 
sign the petition must have been members for at least 180 days at the 
time the petition is submitted to the FCU. This lessens the likelihood 
that individuals might join solely to sign a petition for some pending 
and improper purpose. The 180-day membership requirement is also 
consistent with the requirement in the OTS Rule that inspecting 
shareholders have owned their stock for at least six months.
    A few commenters were unsure what the phrase ``[a]t least one 
percent of the credit union's members, with a minimum of 20 members and 
a maximum of 250 members'' meant. These commenters asked for 
clarification or examples. As discussed above, the final rule changes 
the maximum number of signatures from 250 to 500. Here are some 
examples illustrating this petition requirement, using FCUs of 
different sizes:

    Example One: Assume Main Street FCU has 800 members. One percent 
of 800 members is eight members. Since eight is less than the 
minimum of 20 signatures required by this final rule, any petition 
by Main Street FCU's members for inspection of its records must be 
signed by at least 20 of its members.
    Example Two: Assume Widget Company FCU has 5,000 members. One 
percent of 5,000 members is 50 members. Since 50 is between the 
minimum of 20 signatures required by the rule and the maximum of 
500, any inspection petition by Widget Company FCU's members must be 
signed by at least 50 of its members.
    Example Three: Assume Arlandia Community FCU has 75,000 members. 
One percent of 75,000 members is 750 members. Since 750 is greater 
than the maximum of 500 signatures required by the rule, any 
inspection petition by Arlandia Community FCU's members must be 
signed by at least 500 of its members.

    The proposed rule required the petition state the petitioners ``do 
not intend now, to sell or offer for sale any information obtained from 
the credit union.'' A few commenters thought this should be changed to 
emphasize that petitioners affirmatively agree not to sell the 
information or use it other than for the business of the credit union. 
The Board agrees with the suggested change and has modified the final 
rule accordingly.
    One commenter suggested the member representatives named on the 
petition should be limited in number so an FCU would know more 
precisely with whom to deal on petition issues. The Board agrees and 
has amended the final rule to require the petitioners name one 
representative and one alternate.
    Many commenters stated a petition should not be used for certain 
purposes, such as questioning a director's qualifications or why a 
credit union raised a fee, made an unpopular rate change, closed a 
branch, or stopped offering a certain product. These commenters 
generally thought a proper purpose should be limited to a significant, 
pending corporate event, such as a conversion, merger, change in 
account insurance, or voluntary termination, and some thought member 
inspection rights should be limited only to charter conversion issues. 
A few of these commenters thought the decisions of a board of directors 
could be too easily scrutinized and challenged publicly, and this would 
hamper board operations and might make it difficult to find volunteers.
    The Board has considered these comments carefully. As the owners of 
the credit union, members have the right to vote in connection with 
significant corporate events and the right to inspect records in 
connection with those events. But members also have the right to elect 
and remove directors. Dissatisfaction with directors could stem from 
actions taken by directors affecting the members' financial interests 
in the FCU, including the various actions commenters mentioned, 
although falling short of being significant, pending corporate events. 
Accordingly, the Board declines to limit the inspection rights of 
members to significant, pending corporate events.
    NCUA received a few other comments on this proposed paragraph. One 
commenter suggested members who have caused the credit union a loss or 
employees who have been terminated should not be permitted to sign the 
petition. The Board disagrees. All members are owners and so have the 
right, if they can find enough other members willing to sign a 
petition, to inspect records. Another commenter stated the petition 
should indicate with whom or what the petitioners plan to share the 
information. The Board disagrees. If an FCU has concerns about how its 
member-owners might use that information it can discuss this issue with 
the petitioners and, if necessary, raise the issue to the regional 
directors as described in the dispute resolution process.
    Accordingly, and except as discussed above, the Board adopts Sec.  
701.3(b) as proposed.

 Section 701.3(c) Inspection Procedures

    The proposed paragraph stated that, within 14 days of receipt of a 
petition, the FCU must either allow inspection and copying of all 
requested material or inform the petitioning members in writing why it 
is not able to do so. Inspection may be made in person or by agent or 
attorney and at any reasonable

[[Page 56250]]

time or times. Member inspection rights under this paragraph are in 
addition to any other member inspection rights afforded by law, 
regulation, or the credit union's bylaws.
    Several commenters asked for clarification of the statement that 
``Member inspection rights under this paragraph are in addition to any 
other member inspection rights afforded by law, regulation, or the 
credit union's bylaws.'' One of these commenters interprets the quoted 
language as meaning, for example, that if the Model Business 
Corporation Act (MBCA) or the Model Nonprofit Corporation Act (MNCA), 
as adopted in a particular state, provide greater access rights than 
Sec.  701.3, then the FCU must follow the MBCA or MNCA instead of the 
petition requirements in Sec.  701.3. Most of these commenters suggest 
the rule should preempt state law such as the MBCA or MNCA for FCU 
member inspection rights.
    The Board has amended the final rule to clarify that the rule's 
inspection rights are in addition to any other member inspection rights 
afforded by the credit union's charter or bylaws or other Federal law 
or Federal regulation. When this rule becomes effective, State law will 
no longer apply to member inspection of FCU records.
    A few commenters suggested members only be allowed to inspect 
records and take notes and not be allowed to copy records. One 
commenter stated that, instead of making the information available for 
inspection at a branch location convenient to petitioners as indicated 
in the proposed preamble, a credit union should be allowed to determine 
where documents should be made available.
    The Board disagrees with these comments. Note taking may not be 
sufficient for the member to communicate the gist of documents to other 
members. Also, it should not be too difficult for an FCU to transfer 
documents, or copies of documents, between branches so as to 
accommodate petitioners.
    One commenter stated that, in lieu of physical inspection followed 
by copying, a credit union should have the option of copying and 
delivering documents without a physical inspection. The Board agrees 
and has amended the final rule accordingly.
    A few commenters stated FCUs might have difficulty locating 
requested records and making them available to the petitioners within 
14 days. These commenters believe a credit union should have more than 
the proposed 14 days to respond to a petition request. Some of these 
commenters suggested 30 days, while one commenter suggested 60 days.
    These commenters misinterpret the requirements of the proposed 
rule. The proposal does not require an FCU allow inspection and copying 
of requested material within 14 days of receipt of a petition. The 
proposal stated only that the FCU must either allow inspection and 
copying of all requested material within 14 days or, in the 
alternative, inform the petitioning members in writing why the FCU is 
not able to do so.
    The purpose of this 14-day response requirement is to ensure that 
petitioning members can obtain timely inspection of relevant records. 
The Board intends that an FCU attempt to orchestrate inspection and 
copying with 14 days but recognizes this may not be possible because, 
for example, some requested records may be confidential, voluminous, or 
difficult to find. If an FCU cannot complete inspection within 14 days, 
it must act within 14 days to inform the petitioners about the status 
of the FCU's response. To clarify the Board's intent, the Board has 
reworded this part of Sec.  701.3(c) to read as follows:

    A federal credit union must respond to petitioners within 14 
days of receiving a petition. In its response, a credit union must 
inform petitioners either that it will provide inspection of the 
requested material and, if so, when, or, if a credit union is going 
to withhold all or part of the requested material, it must inform 
petitioners what part of the requested material it intends to 
withhold and the reasons for withholding the requested material. As 
soon as possible after receiving a petition, a credit union must 
schedule inspection and copying of nonconfidential requested 
material it determines petitioners may inspect and copy.

    If the petitioners do not get some response from the FCU in 14 days 
that is satisfactory to them, they have the option of pursuing their 
dispute resolution rights in Sec.  701.3(f).
    In addition to the modification of rule text discussed above, the 
Board has reorganized Sec.  701.3(c) into subparagraphs to make it 
easier to read.
    Accordingly, and except as discussed above, the Board adopts Sec.  
701.3(c) as proposed.

 Section 701.3(d) Confidential Books, Records, and Minutes

    The proposed paragraph stated that members do not have the right to 
inspect any portion of an FCU's books, records, or minutes if Federal 
law or regulation prohibits disclosure of that portion, the portion 
contains nonpublic personal information as defined in Sec.  716.3 
(dealing with member privacy); or the portion contains information 
about credit union employees or officials the disclosure of which would 
constitute a clearly unwarranted invasion of personal privacy. The 
proposal did permit members, however, to inspect materials describing 
the compensation and benefits provided by the credit union to its 
senior executive officers, and the qualifications of the senior 
executive officers.
    Several commenters objected to the proposed requirement that an FCU 
permit member inspection of compensation and benefits of senior 
executive officers, contending variously that:
     Absent compelling justification, individual rights to 
financial privacy and privacy concerns should prevail;
     Publicizing compensation of senior management out of 
context could be used to facilitate involuntary mergers and to portray 
the credit union industry in a negative way;
     Disclosures would ``enrage'' members;
     Disclosures would be detrimental to employee relations; 
and
     Disclosures would clash with confidentiality provisions in 
employee contracts.
    Some commenters suggest disclosure of senior executive compensation 
be phased-in or existing records excluded through a grandfather 
provision. One commenter suggested that disclosure should be limited to 
a statement of the compensation level as a percentage of CU peer 
averages. A few commenters stated that this disclosure issue should not 
be addressed as part of a general member inspection rule but as a 
separate rulemaking with further study by NCUA. One commenter suggested 
that the disclosure of ``qualifications'' be limited to a resume or 
similar summary and not include performance evaluations or personnel 
files.
    At this time, the Board has decided to continue to study the issue 
of member and public access to information about senior executive 
compensation and benefits. Accordingly, the final rule does not include 
any member inspection rights specific to this information and 
information about senior FCU executives will be subject to the employee 
confidentiality rule: members may, if they have a proper petition, 
inspect employee information except for information the disclosure of 
which would constitute a clearly unwarranted invasion of personal 
privacy. Credit unions, in consultation with affected employees, have 
reasonable discretion in determining which employee information should 
be kept confidential under this standard.

[[Page 56251]]

    Some commenters also expressed concern that the rule does not 
adequately protect the confidentiality of various other credit union 
records. The records mentioned included: Personnel records; mid- and 
low-level staff salaries and bonuses; board discussions of personnel 
matters, relations with partners and public officials, and comments on 
member behavior and financial information; trade secrets; business, 
marketing, strategic, and disaster recovery plans; product pricing 
information and analysis; management and board succession plans; vendor 
contracts; member surveys and demographic studies; member and business 
correspondence; physical security plans and building schematics; risk 
assessments; and attorney-client privileged documents. Several 
commenters suggested that confidential records should include any 
proprietary records or information the premature release of which could 
cause the credit union financial harm. Other commenters suggested that 
board minutes taken in ``confidential'' or or ``executive'' session 
should be protected from member inspection.
    While the proposed rule was intended to provide an FCU's member-
owners with meaningful access to the books, records, and minutes of the 
credit union, the proposal did contain both procedural and substantive 
protections for records the release of which could harm the credit 
union or its members or employees. As noted in the preamble to the 
proposal, those protections included a minimum number of required 
petition signatures; limitations on the scope of the term ``books and 
records of account''; the requirement that the petitioners state a 
proper purpose; specific confidentiality provisions for information 
related to members and FCU employees; and the authority of the regional 
director to impose restrictions on the inspection and copying of 
records.
    These protections remain in the final rule. In response to those 
commenters who thought that the rule should provide more specific 
protection for FCU records not related to members or employees, the 
Board has determined to add another explicit category of confidential 
information not subject to inspection or copying, that is, books, 
records, and minutes ``the publication [of which] could cause the 
credit union predictable and substantial financial harm.'' This 
category will protect physical security plans, computer security plans, 
building schematics, risk assessments, and other, similar information 
where public release, or release to the FCU's competitors, could lead 
to predictable and substantial financial harm to the FCU.
    The Board cannot consider every possible kind of FCU record and 
generalize as to whether, in every case, those records would be subject 
to member inspection. The Board does note that internal FCU 
correspondence and vendor contracts not considered by an FCU's board 
will likely not be within the definition of ``books and records of 
account'' as that term is used in Sec.  701.3(a) and so will be outside 
the scope of documents subject to member inspection unless considered 
at meeting of the FCU's board of directors. Most employee-related 
information, including personnel records, staff salaries and bonuses, 
and board discussion of personnel matters, will include information 
about individual credit union employees or officials. The disclosure of 
such information would constitute an unwarranted invasion of personal 
privacy and so would be confidential under Sec.  701.3(d)(4) and not 
subject to inspection. Credit union records about particular members or 
that mention members by-name, including discussion of member behavior 
or account activity and portions of member surveys, would generally be 
confidential under Sec.  701.3(d)(3).
    The Board declines to distinguish between minutes of regular 
meetings of the board of directors and other types of meetings, such as 
so-called ``confidential'' or ``executive'' meetings. Members have the 
right to inspect nonconfidential portions of the minutes of proceedings 
of the credit union's board of directors and committees of directors 
regardless of how the directors characterize their meetings.
    One commenter suggested the rule define confidential records by 
reference to the various exemptions available to the federal government 
under the Freedom of Information Act (FOIA), including the deliberative 
process exemption. The Board declines to analogize the access of 
individuals to government information under the FOIA to FCU member 
inspection rights. Any person, including foreign persons, may submit 
FOIA requests to U.S. government agencies, but the members of an FCU 
are its owners with direct financial interests in the FCU and 
inspection rights reflecting those interests. Another commenter 
suggested the rule determine the confidentiality of records by 
reference to the ``common law.'' Since the common law varies from 
state-to-state, the Board believes regulating member inspection rights 
through a general reference to common law would fail to address some of 
the concerns that the rule, as drafted, alleviates.
    Accordingly, and except as discussed above, the Board adopts Sec.  
701.3(d) as proposed.

 Section 701.3(e) Costs

    The proposed paragraph provided that an FCU may charge petitioners 
the direct and reasonable costs associated with search and duplication 
but not other costs, including indirect costs or attorney's fees. As 
stated in the preamble to the proposed rule, the typical direct costs 
of search and duplication would include the number of hours a clerk 
might take to locate and duplicate the requested documents multiplied 
by the clerk's hourly compensation rate, plus the per page costs of 
duplication. 72 FR 20061, 20065 (April 23, 2007). Requesters need not, 
however, reimburse the credit union for indirect costs, including costs 
associated with the management or supervision of the person(s) 
conducting the search, costs to review documents, costs associated with 
in-person inspection of records, overhead costs, or the costs of any 
legal services. Id.
    One commenter stated petitioners should be responsible for both 
indirect and direct costs. The Board disagrees. To require members to 
reimburse the credit union for indirect costs would put too much of a 
burden on the member-owner, in part because the credit union has 
significant discretion as to how much it will incur in the way of 
indirect costs (e.g., the costs of review).
    One commenter noted the proposed rule permitted petitioners to put 
a limit on how much they were willing to pay and asked how an FCU 
should respond if the petitioner's limit was less than the FCU's 
estimate of the direct and reasonable costs associated with search and 
duplication. If an FCU believes the petitioners' estimate is too low, 
it should inform the petitioners what its estimated cost is and ask the 
petitioners if they want to raise the dollar amount they are willing to 
pay or, in the alternative, if they want the FCU to continue with its 
search and reproduction with the understanding that the petitioners 
might not receive everything sought from the FCU.
    One commenter asked how an FCU could collect its costs from the 
petitioners if they refused to pay. The petition is a form of 
unilateral contract offer from the named petitioners that the FCU 
accepts by performance, that is, the production of the requested

[[Page 56252]]

documents.\1\ If the named petitioners refuse to reimburse the FCU for 
the direct and reasonable costs of search and duplication actually 
incurred, the FCU may proceed against the named petitioners for breach 
of contract.
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    \1\ ``A contract is also said to be `unilateral' when there is a 
promise on one side only, the consideration on the other side being 
executed.'' Black's Law Dictionary 294 (5th ed. 1979).
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    Accordingly, the Board adopts Sec.  701.3(e) as proposed.

Section 701.3(f) Dispute Resolution

    The proposed paragraph provided that, in the event of a dispute 
between an FCU and its members concerning a petition for inspection or 
the associated costs, either party may submit the dispute to the 
regional director. The regional director, after obtaining the views of 
both parties, will direct the credit union either to withhold the 
disputed materials or to make them available for member inspection and 
copying. The regional director may place conditions upon release, if 
appropriate. The regional director's decision is a final agency 
decision and is not appealable to the Board.
    Several commenters stated NCUA should not be involved in dispute 
resolution because NCUA would be biased or unqualified to resolve 
disputes. One commenter stated that NCUA would not be independent if 
the records request was related to a matter requiring NCUA's approval 
such as a merger or similar corporate action.
    NCUA disagrees with those commenters who suggest the regional 
director is an inappropriate adjudicator of inspection-related 
disputes. In handling a dispute, the regional director is bound to 
follow the law with full consideration for the safe and sound operation 
of the FCU and the protection of members' legal rights. The regional 
director's knowledge of FCU organization and operations makes him or 
her ideally qualified to determine, for example, which FCU records need 
protection from competitors or from potential release to the public. 
The regional director offers timely resolution of inspection disputes, 
particularly where the inspection request relates to pending member 
vote subject to a statutory or regulatory timeline.
    A few commenters thought an FCU's supervisory committee should have 
a role in resolution of disputes related to member petitions for 
inspection of records because the supervisory committee, among other 
responsibilities, addresses member complaints. The preamble to the 
proposed rule specifically noted that petitioners have the option to 
submit a dispute to their supervisory committee rather than the 
regional director. 72 FR 20061, 20066 (April 23, 2007). The Board 
reiterates here that petitioners have the option of submitting a 
dispute to their supervisory committee rather than the regional 
director. If petitioners are dissatisfied with the response of their 
supervisory committee, they will still be able to submit the dispute to 
the regional director. Additionally, the Board believes there may be 
circumstances where a regional director believes a supervisory 
committee can or should be able to resolve a dispute over member access 
to records, and the final rule now provides that a regional director 
has the discretion to refer a dispute to the supervisory committee. If 
a regional director refers a dispute to the supervisory committee, the 
rule states petitioners who are dissatisfied with a supervisory 
committee response can resubmit the dispute to the regional director 
for a final agency decision.
    Several commenters thought the rule should include a timetable for 
the regional director to act on a dispute. The Board declines to impose 
a timetable or other deadline for dispute resolution. If one or both of 
the parties to a dispute desire a rapid dispute resolution, they should 
inform the regional director and, in appropriate cases, the regional 
director will move forward quickly to resolve the dispute. The amount 
of information in dispute and the resources needed by the regional 
director to resolve the dispute may vary from case-to-case; in some 
cases, there may be no need for any sort of rapid dispute resolution. 
Accordingly, artificial regulatory deadlines are impracticable.
    A few commenters sought clarification about whether an FCU could 
withhold information pending the regional director's decision on a 
dispute. The Board's intent with this rule is that an FCU may withhold 
information that is in dispute pending the regional director's 
decision.
    Some commenters thought the regional director's decision on a 
dispute should be appealable to the NCUA Board. After careful 
consideration, the Board declines to grant any administrative appeal 
rights. The regional director's decision will be NCUA's final agency 
decision, and any party that believes itself injured by that decision 
may, if it desires, pursue judicial action.
    Accordingly, and except as discussed above, the Board adopts Sec.  
701.3(f) as proposed.

C. Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act requires NCUA to prepare an analysis 
to describe any significant economic impact a rule may have on a 
substantial number of small credit unions, defined as those under ten 
million dollars in assets. This final rule standardizes and clarifies 
the rights of members to inspect FCU records. The rule is not a 
significant departure from existing practice that FCUs must permit 
inspection under the same terms and conditions that state law requires 
for shareholders to inspect corporation records. The rule requires that 
a minimum of one percent of the FCU's members sign a petition to obtain 
access. In some states, this burden on the members might exceed the 
burden on shareholders to obtain access and so reduces the likelihood 
of an FCU having to grant access. Accordingly, the Board has determined 
and certifies that this rule will not have a significant economic 
impact on a substantial number of small credit unions.

Paperwork Reduction Act

    Section 701.3 contains information collection requirements. As 
required by the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), 
NCUA submitted a copy of the proposed Sec.  701.3 as part of an 
information collection package to the Office of Management and Budget 
(OMB) for its review and approval of a new collection of information. 
On July 13, 2007, the OMB approved the collection and assigned it 
Control Number 3133-0176.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. The rule would not have substantial direct 
effects on the states, on the connection between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this rule does not constitute a policy that has 
federalism implications for purposes of the executive order.

[[Page 56253]]

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule would not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Public Law 105-277, 112 
Stat. 2681 (1998).

Small Business Regulatory Enforcement Fairness Act

    The Small Business Regulatory Enforcement Act of 1996 (Pub. L. 104-
121) provides generally for congressional review of agency rules. A 
reporting requirement is triggered in instances where NCUA issues a 
final rule as defined by section 551 of the Administrative Procedure 
Act. 5 U.S.C. 551. The Office of Management and Budget has determined 
that this rule is not a major rule for purposes of the Small Business 
Regulatory Enforcement Fairness Act of 1996.

List of Subjects in 12 CFR Part 701

    Credit unions, Records.

    By the National Credit Union Administration Board on September 
27, 2007.
Mary F. Rupp,
Secretary of the Board.

0
The NCUA Board amends 12 CFR part 701 as follows:

PART 701--ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS

0
1. The authority citation for part 701 continues to read as follows:

    Authority: 12 U.S.C. 1752(5), 1755, 1756, 1757, 1759, 1761a, 
1761b, 1766, 1767, 1782, 1784, 1787, 1789. Section 701.6 is also 
authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 
15 U.S.C. 1601 et seq.; 42 U.S.C. 1981 and 3601-3610. Section 701.35 
is also authorized by 42 U.S.C. 4311-4312.


0
2. Add Sec.  701.3 to read as follows:


Sec.  701.3  Member inspection of credit union books, records, and 
minutes.

    (a) Member inspection rights. A group of members of a Federal 
credit union has the right, upon submission of a petition to the credit 
union as described in paragraph (b) of this section, to inspect and 
copy nonconfidential portions of the credit union's:
    (1) Accounting books and records; and
    (2) Minutes of the proceedings of the credit union's members, board 
of directors, and committees of directors.
    (b) Petition for inspection. The petition must describe the 
particular records to be inspected and state a proper purpose for the 
inspection, that is, a purpose related to the protection of the 
members' financial interests in the credit union. The petition must 
state that the petitioners as a whole, or certain named petitioners, 
agree to pay the direct and reasonable costs associated with search and 
duplication of requested material. The petition must also state that 
the inspection is not desired for any purpose other than the stated 
purpose; that the members signing the petition will not sell or offer 
for sale any information obtained from the credit union; and that the 
members signing the petition have not within five years preceding the 
signature date sold or offered for sale any information acquired from 
the credit union or aided or abetted any person in procuring any 
information from the credit union for purposes of sale. The petition 
must name one member, and one alternate member, who will represent the 
petitioners on issues such as inspection procedures, costs, and 
potential disputes. At least one percent of the credit union's members, 
with a minimum of 20 members and a maximum of 500 members, must sign 
the petition. Each member who signs the petition must have been a 
member of the credit union for at least 180 days at the time the 
petitioners submit the petition to the credit union.
    (c) Inspection procedures. (1) A Federal credit union must respond 
to petitioners within 14 days of receiving a petition. In its response, 
a credit union must inform petitioners either that it will provide 
inspection of the requested material and, if so, when, or, if a credit 
union is going to withhold all or part of the requested material, it 
must inform petitioners what part of the requested material it intends 
to withhold and the reasons for withholding the requested material. As 
soon as possible after receiving a petition, a credit union must 
schedule inspection and copying of nonconfidential requested material 
it determines petitioners may inspect and copy.
    (2) Inspection may be made in person or by agent or attorney and at 
any reasonable time or times. The credit union may, at its option, skip 
inspection and deliver copies of requested documents directly to the 
petitioners. Member inspection rights under this section are in 
addition to any other member inspection rights afforded by the credit 
union's charter or bylaws or other Federal law or Federal regulation.
    (3) If the credit union denies inspection because the petitioners 
have failed to obtain the minimum number of valid signatures, the 
credit union must inform the petitioners which signatures were not 
valid and why.
    (d) Confidential books, records, and minutes. Members do not have 
the right to inspect any portion of the books, records, or minutes of a 
Federal credit union if:
    (1) Federal law or regulation prohibits disclosure of that portion;
    (2) The publication of that portion could cause the credit union 
predictable and substantial financial harm;
    (3) That portion contains nonpublic personal information as defined 
in Sec.  716.3 of this part; or
    (4) That portion contains information about credit union employees 
or officials the disclosure of which would constitute a clearly 
unwarranted invasion of personal privacy.
    (e) Costs. A Federal credit union may charge petitioners the direct 
and reasonable costs associated with search and duplication. The credit 
union may not charge for other costs, including indirect costs or 
attorney's fees.
    (f) Dispute resolution. (1) In the event of a dispute between a 
federal credit union and its members concerning a petition for 
inspection or the associated costs, either party may submit the dispute 
to the regional director. The regional director, after obtaining the 
views of both parties, will direct the credit union either to withhold 
the disputed materials or to make them available for member inspection 
and copying. The regional director may place conditions upon release. 
The decision of the regional director is a final agency decision and is 
not appealable to the Board.
    (2) The regional director has the discretion to refer any dispute 
to the credit union's supervisory committee for review and resolution. 
If petitioners are not satisfied with the supervisory committee's 
response, they may resubmit the dispute to the regional director.

[FR Doc. E7-19557 Filed 10-2-07; 8:45 am]
BILLING CODE 7535-01-P