Compliance Blog

Dec 14, 2022

Converting from a State to a Federal Charter

Occasionally NAFCU will receive questions from credit unions regarding converting from a state to a federal charter. If your state-chartered credit union ever makes this decision, I’ve included some helpful information below that may help you in your conversion.

This Charter Application Introduction from NCUA provides some great information and states the following:

“The Federal Credit Union Charter Application Guide provides helpful information and recommendations for organizing groups to navigate the process of applying for a new (also called a de novo) federal credit union charter.  As described in this document, organizers are encouraged to refer to the agency’s Chartering and Field of Membership ManualSection 1753 of the Federal Credit Union Act, or Part 701 of NCUA regulations for information about specific requirements that need to be met in order for the agency to issue a federal charter.  Existing state-chartered credit unions that wish to convert to a federal charter should refer to Chapter 4, Charter Conversions, of the Chartering and Field of Membership Manual for the required application forms and procedures.” (Emphasis added).

It is important to note that Chapter 4 of Part 701 states that “federal credit unions receive their charters from NCUA and are subject to its supervision, examination, and regulation.” Additionally, it provides a helpful list of documents that must be submitted with the conversion proposal, including:

• “Conversion of State Charter to Federal Charter (NCUA 4000);

• Organization Certificate (NCUA 4008). Only Part (3) and the signature/notary section should be completed and, where applicable, signed by the credit union officials.

• Report of Officials and Agreement to Serve (NCUA 4012);

• The Application to Convert From State Credit Union to Federal Credit Union (NCUA 4401);

• The Application and Agreements for Insurance of Accounts (NCUA 9500);

• Certification of Resolution (NCUA 9501);

• Written evidence regarding whether the state regulator is in agreement with the conversion proposal; and

• Business plan, as appropriate, including the most current financial report and delinquent loan schedule.

If the state charter is applying to become a federal community charter, it must also comply with the documentation requirements included in Chapter 2, Section V.A.2 of this manual.”

Additionally, section 701.6(b)(2) states the following regarding conversion:

“(i) In the first calendar year following conversion:

(A) A federally insured state-chartered credit union that converts to a Federal credit union charter must pay an operating fee based on the average assets reported in the year of conversion on NCUA Forms 5300 or 5310 from the four quarters immediately preceding the time the Board approves the agency's budget in the year of conversion.

(B) An entity not insured by the NCUA that converts to a Federal credit union charter must pay an operating fee based on the assets, or average thereof, reported on NCUA Forms 5300 or 5310 for any one or more quarters immediately preceding the time the Board approves the agency's budget in the year of conversion.”

Additionally, credit unions that want to learn more about mergers may want to purchase NAFCU’s Merger & Acquisition Handbook.

I hope this blog helps your credit union if it ever decides to convert from a state to a federal charter. Ultimately, credit unions may want to discuss the conversion with local counsel for further assistance.


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About the Author

Tara Simpson, NCCO, Regulatory Compliance Counsel, NAFCU

Tara Simpson---NAFCU-Regulatory-Compliance-Counsel

Tara Simpson joined NAFCU as a regulatory compliance counsel in July 2022. In this role, Tara assists credit unions with a variety of compliance issues.

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