NASCUS: State Laws Should Apply to FISCUs Seeking to Change Charters

In a letter to the National Credit Union Administration (NCUA), Brian Knight, General Counsel of the National Association of State Credit Union Supervisors (NASCUS), wrote that NCUA should amend Section 741.208 of its regulations to recognize that state law should govern the conversion of a federally insured state credit union (FISCU) to non-credit union status.

This letter was brought to my attention by Marvin Umholtz's CU Strategic Hot Topics newsletter.

Brian Knight wrote:

Part 741.208 applies NCUA’s restrictive charter conversion and termination of share insurance rules to FISCU. NASCUS concedes that the Federal Credit Union Act gives NCUA authority for rulemaking with respect to credit union to non-credit union charter conversions. However, Congress’s grant of authority in this arena was intended as limiting. NCUA should show deference to state laws addressing conversions or mergers into non-credit unions. With respect to FISCUs, NCUA is only the share insurer, not the chartering authority. NCUA’s only concern in the conversion of a FISCU to non-credit union or non-NCUSIF [National Credit Union Share Insurance Fund] charter is preventing regulatory arbitrage, or any safety and soundness risk posed by reputational concerns. However, in the case of conversion to bank charter, the entity would remain federally insured, mitigating reputational risk. Vindication of the members’ rights and other governance issues are properly left to the chartering regulator – in these cases, the states.

I totally agree with Brian Knight that Congress intended to limit NCUA's authority dealing with charter conversions. The Credit Union Membership Access Act of 1998 instructed NCUA to pass regulations that are no stricter than similar regulations promulgated by the other federal banking agencies.

NCUA needs to amend its onerous and burdensome conversion rules making it easier for all credit unions, just not state charters, to opt for non-credit union status.