**7535-01-U**

**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:** Proposed Rule.

**SUMMARY:** The National Credit Union Administration (NCUA) is issuing
a proposed 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 the nonconfidential
portions of the credit union's books, records, and minutes. This
proposal standardizes and clarifies existing member inspection rights.

**[D]{.smallcaps}ates:** Comments must be received on or before June 22,
2007.

**ADDRESSES:** You may submit comments by any of the following methods
(**Please send comments by one method only**):

-   Federal eRulemaking Portal:
    [**http://www.regulations.gov**](http://www.regulations.gov/).
    Follow the instructions for submitting comments.

-   NCUA Web Site:
    **<http://www.ncua.gov/RegulationsOpinionsLaws/proposed_regs/proposed_regs.html>.**
    Follow the instructions for submitting comments.

-   E-mail: Address to **<regcomments@ncua.gov>.** Include "\[Your
    name\] Comments on Proposed Rule 701.3" in the e-mail subject line.

-   Fax: (703) 518-6319. Use the subject line described above for
    e-mail.

-   Mail: Address to Mary Rupp, Secretary of the Board, National Credit
    Union Administration, 1775 Duke Street, Alexandria, Virginia
    22314-3428.

-   Hand Delivery/Courier: Same as mail address.

**FOR FURTHER INFORMATION CONTACT:** Paul Peterson or Annette Tapia,
Staff Attorneys, at the above address or telephone number (703)
518-6540.

**SUPPLEMENTARY INFORMATION**

A.  ***[Background]{.underline}***

This proposed rule provides 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.

FCUs are not-for-profit, member-owned cooperatives organized to provide
financial services and products to their members. The financial
interests of members in their credit union are similar to the financial
interests shareholders have in for-profit corporations. Corporate
shareholders have various methods to protect their financial interests
in the corporation, including the right at common law and in various
state statutes to inspect corporate books and records. Because of the
similarity of interests between credit union members and corporate
shareholders, NCUA legal opinions going back many years have stated that
FCU members may inspect the 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. *[See,
e.g.]{.underline}*, OGC Ops. 92-0101, 96-0451, and 06-0127B. These
opinion letters are available at [www.ncua.gov](http://www.ncua.gov/).

The NCUA Board believes regulating member inspection of FCU records is
preferable to reliance on state corporation law. Corporation law on
shareholder inspection, for example, varies from state to state, and
FCUs should have a consistent standard regardless of an FCU's location.
Some FCUs have branches in multiple states, further complicating the
application of state law to inspection requests. In addition, some
courts may refuse to apply their 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. *[See, e.g.]{.underline}*,
*[Save Columbia Credit Union Committee v. Columbia Credit
Union]{.underline}*, 139 P.3d 386, 393-95 (Wash. App. 2006)(refusing to
apply state corporation law to records inspection request by members of
a state-chartered credit union).

The Board considered when and why members might want to inspect FCU
records. The law charges members with responsibility for important
decisions that affect both the FCU and the members' financial interests.
For example, a vote of the FCU's members is required on the election and
removal of directors, mergers, conversion from federal to private
account insurance, conversion from a federal to state charter or
conversion to a mutual savings bank, and voluntary liquidations. In
these situations, members may want to inspect FCU records to better
inform themselves before voting and to ensure that directors are acting
in the best interests of the members. There are other situations where
the members want to inspect records to protect their financial
interests, as discussed further below.

The Board also considered how stakeholders of depository institutions
other than credit unions may inspect their institution's books and
records. 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 ownership interests of members in an FCU are
similar to the ownership interests of stockholders in a stock savings
association; the issues on which FCU members and stock bank shareholders
vote are similar; and the regulatory and supervisory powers of NCUA and
OTS over their respective regulated institutions are also similar.
Accordingly, this proposed rule tracks, in large part, the OTS Rule. The
proposal is also consistent with existing NCUA guidance on member
inspection of FCU records. *[See]{.underline}* FCU Handbook (Rev. 2006),
p.68.

**B. *[Paragraph-by-Paragraph Analysis.]{.underline}***

**(a) Member inspection rights.**

Proposed paragraph (a) establishes the right of a group of members of an
FCU, upon submission of a proper petition, to inspect and copy the
credit union's books and records of account and minutes of the
proceedings of the credit union's members, board of directors, and
committees of directors. This inspection right is similar to that in the
OTS Rule, with the use of a member petition in lieu of the stockholder
affidavit requirement in the OTS Rule.

The member petition must meet the requirements in proposed paragraph
(b). Also, inspection rights are limited to the nonconfidential portions
of the credit union's books, records, and minutes. Proposed paragraph
(d) defines confidential books, records, and minutes; all other books,
records, and minutes are nonconfidential.

*[Minutes.]{.underline}*

The Board intends the phrase "minutes of the proceedings at all meetings
of its members, board of directors, and committees of directors" to
include any summary or recording of the proceedings and all documents,
reports, studies, and visual aids considered by the meeting
participants. The Board believes this broad interpretation of minutes is
appropriate. For example, in situations where an FCU membership vote is
required, the vote is either about the election or removal of directors
or officers or is precipitated by the actions of the directors as in the
case of a merger or conversion. Members should have access to the
directors' deliberations to help members decide how to vote and help
members determine if the directors are acting in the members' best
interests.

*[Books and records of account.\
]{.underline}*

Courts have interpreted the phrase "books and records of account"
differently. Some courts have interpreted the phrase broadly to include
both financial and nonfinancial records while other courts have
interpreted the phrase to include only financial records. *[See,
e.g.,]{.underline}* *[Meyer v. Ford Industries, Inc.]{.underline},* 538
P.2d 353, 358 (Or. 1975)(broad interpretation); *[Corwin v. Abbott
Laboratories]{.underline}*, 819 N.E.2d 1249 (Ill. App. 2004), *[app.
den]{.underline}*. 2005 Ill. LEXIS 609 (Ill. 2005)(phrase includes both
financial and nonfinancial records); and *[Jewelers International
Showcase, Inc. v. Mandell]{.underline}*, 529 So. 2d 1211 (Fla. Dist. Ct
App. 3d Dist. 1988)(stockholder was entitled to inspect financial
records such as general ledger, balance sheets, and profit and loss
statements).

The NCUA Board believes a narrow interpretation is best. The plain
language meaning of "of account" supports a limitation to accounting
records. Stockholder inspection of corporate records under the Model
Business Corporation Act (MBCA) is expressly limited to minutes and
"accounting records," and the Counsel to the Federal Home Loan Bank
Board (FHLBB), in interpreting the predecessor to the OTS rule, has
cited to the MBCA as authority for the OTS rule. Letter from Julie
Williams, FHLBB Deputy General Counsel, dated September 17, 1986,
located at 1986 FHLBB LEXIS 82 (*[hereinafter]{.underline}* 1986 FHLBB
DGC Letter); and Model Bus. Corp. Act §16.02(b)(2)(1984). The Board
believes the financial interests of members are adequately protected by
combining a broad interpretation of minutes with a more restrictive
interpretation of the phrase books and records of account.

*[Inspection and copying]{.underline}*.

Generally, a member's right to inspect FCU minutes and records includes
the right to make copies of those records. Obtaining copies enables
members to provide the information to other members or, in some cases,
to experts for independent analysis and review. If an FCU believes that
certain of its records should not be copied, it may request that the
regional director impose conditions on the inspection, as discussed
further below.

**(b) Petition for inspection.**

Proposed paragraph (b) establishes the member petition requirements.

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; that the members signing the petition have not
within five years preceding the signature date sold or offered for sale,
and do not now intend to sell or offer for sale, any information
obtained from the credit union; and that the members signing the
petition have not within the past five years aided or abetted any other
person in procuring any information from the credit union for purposes
of sale. The petition must name one or more members 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 250 members, must sign the
petition.

The language of this proposed paragraph is similar to language in
paragraphs (b) and (c) of the OTS Rule.

*[Minimum signature requirement]{.underline}*.

The OTS Rule requires stockholders seeking records to own a certain
number of shares and to submit an affidavit describing their request to
the savings association. For shareholders who have owned their shares at
least six months, the affidavit generally must be signed by shareholders
representing at least one percent of the outstanding shares. OTS Rule,
paragraphs (b)(1) and (2). The proposal substitutes a member petition
for this stockholder affidavit. The petition also employs a minimum
signature requirement of one percent of the members, representing an
ownership interest roughly equivalent to one percent of the shares of a
stock association. The proposed rule further provides that a minimum of
20 members and a maximum of 250 must sign the petition. The one percent
and minimum and maximum signature requirements are similar to those
established in NCUA's standard FCU bylaws for members seeking a
nomination by petition to run for election to an FCU's board of
directors. NCUA Standard FCU Bylaws, Art. V, Sec. 1 (Rev. April 2006).

*[Proper purpose]{.underline}*.

The purpose of an inspection must be related to the business of the
credit union. A proper purpose includes attempting to ascertain and
protect members' financial interests and to ascertain possible
mismanagement. *[See, e.g.]{.underline}*,1986 FHLBB DGC Letter
(interpreting OTS Rule).

The issue of member inspection of records may arise, for example, in the
context of a member vote on merger or charter conversion. Members of a
merging or converting credit union may desire access to the due
diligence performed by their directors, and other credit union books and
records, to determine if the directors are acting in the members' best
interests. Members of a credit union merging with another credit union
may also have an interest in determining if they are receiving an
appropriate share adjustment. 12 CFR 708b.103(a)(5). Members may have a
financial interest in ascertaining how the proposed merger or conversion
will affect their services, rates, and fees and how the directors
analyzed this issue. Members of a credit union merging with a bank may
have a further interest in determining the value of their shares plus
any associated premium and whether the directors carefully considered
all the available merger opportunities with a view to maximizing the
financial benefit to the members. Members of a credit union converting
to a bank may also want to know if their directors considered the
possibility of a merger and appropriate payments to members.

Members may wish to obtain FCU records in other contexts. For example,
some members might want records about FCU decisions that have a direct
effect on the members, such as a determination to close a branch office
or to discontinue a service or product.   Members electing directors
might want records from the credit union about the qualifications of and
benefits received by sitting directors. Members might also want
records about the qualifications and compensation of senior management.

*[Burden of proof on proper purpose]{.underline}*.

Generally, in the absence of evidence indicating an improper purpose,
courts do not assume that stockholders of a corporation requesting an
inspection intend to use the information improperly just because it
would be possible for them to do so. [*Fears v. Cattlemen's Inv.
Co*.]{.underline}, 483 P.2d 724, 730 (Okla. 1971). The requirement in
the proposed rule that petitioners state they are not intending to sell
the information, nor have they aided or abetted such sales in the past
five years, helps ensure a proper purpose. The minimum signature
requirement in the proposal also helps ensure a proper purpose because
members seeking signatures will have to convince other members that they
share a common and appropriate purpose. Accordingly, a petition meeting
the requirements of paragraph (c) creates a presumption of proper
purpose, and an FCU should have substantial evidence of improper purpose
to deny inspection for that reason.

*[Description of records]{.underline}*.

The petition must describe the particular records sought and the
description must be specific enough to allow the FCU to identify
responsive records. The FCU may ask the petitioners for more information
if necessary to help understand the scope of the request.

**(c) Inspection procedures***.*

Proposed paragraph (b) provides the inspection procedures. 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 in person or by
an agent or attorney and at any reasonable 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.

Unless a regional director imposes conditions on a particular request
for records, the member's right to inspect records includes the right to
make copies. In many cases, the credit union will mail or deliver copies
of the requested documents to the individual(s) designated by the
petitioners. In some cases, however, the petitioners may request an
inspection of requested documents at the credit union before copies are
made or the credit union may ask the petitioners to come to the credit
union to pick up the copies. The Board recognizes original documents may
be at a credit union office some distance from where the petitioners
live and that conducting an on-site inspection or pick-up may be
difficult or expensive for petitioners. The Board expects credit unions
and petitioners to work out reasonable, mutually acceptable arrangements
for on-site inspection or pick-up, including, for example, movement of
documents or copies to a credit union branch location convenient to
petitioners.

The language of this paragraph is similar to language in paragraph (b)
of the OTS Rule. The proposed 14-day compliance time frame, not found in
the OTS Rule, will ensure that an FCU responds promptly to the member
petition. The proposed paragraph also recognizes that members may have
additional inspection rights, including, for example, inspection rights
related to merger compensation in another pending NCUA rulemaking.

***\
*(d) Confidential books, records, and minutes.**

Proposed paragraph (d) provides that members do not have the right to
inspect portions of the books, records, or minutes of an FCU under
certain circumstances: first, if federal law or regulation prohibits
disclosure of that portion; second, if that portion contains nonpublic
personal information; and, third, if that portion contains information
about credit union employees or officials the release of which would
constitute an unwarranted invasion of personal privacy.

*[Federal law or regulation prohibits disclosure]{.underline}*.

The provision prohibits credit unions, for example, from disclosing
nonpublic records generated by NCUA, including reports of inspection
that might otherwise be considered by the FCU's board of directors and
included within its meeting minutes. 12 CFR 792.40, 792.49.

*[Nonpublic personal information]{.underline}*.

The members of a credit union are both its customers and its owners, and
the credit union maintains sensitive personal and financial information
about members that must be protected. The OTS Rule protects the privacy
of a bank's customers by providing that no stockholder may inspect any
list of depositors or borrowers or their addresses, deposit, or loan
records or any data from which that information can be constructed. The
proposed rule provides similar protection for the personal and financial
information of a credit union's members, but instead of a reference to
specific sensitive information as in the OTS Rule, the proposal will
protect all nonpublic personal information as that term is defined in
NCUA's rules on the privacy of consumer financial information. 12 CFR
part 716. Nonpublic personal information includes information such as
the fact an individual is a member, account numbers and balances,
transaction information, consumer reports, and any information provided
by the member to obtain a financial product from the credit union. 12
CFR 716(r). Information that is publicly available or information that
does not identify a particular member would not be nonpublic personal
information. 12 CFR 716(q).

*[Information about credit union employees or officials]{.underline}*.

The proposed rule also protects from inspection information about the
FCU's employees and officials if disclosure would constitute a clearly
unwarranted invasion of personal privacy. This terminology is similar to
the confidentiality provision in the Freedom of Information Act. 5
U.S.C. 552(b)(6). Some categories of information that will receive
confidentiality treatment include marital status, financial status,
children, medical conditions, dates of birth, religious affiliations,
citizenship data, sexual inclinations, and social security numbers.
*[See]{.underline}* *[Freedom of Information Act Guide and Privacy Act
Overview]{.underline}*, U.S. Department of Justice (May 2004 ed.).

As an exception to this confidentiality provision, FCU members may
inspect materials describing the compensation and benefits provided to
senior executive officers. The member-owners of a credit union have a
financial interest in how their credit union is managed, and that
interest extends to knowledge about who the senior managers are, their
qualifications, and their compensation levels. The members' interest in
this information outweighs any privacy interests the senior managers may
have in the information. Accordingly, the rule provides that members may
inspect information about the qualifications, compensation and benefits
of senior executive officers, as defined in §701.14 of NCUA's rules:

> Senior executive officer means a credit union's chief executive
> officer (typically this individual holds the title of president or
> treasurer/manager), any assistant chief executive officer (e.g., any
> assistant president, any vice president or any assistant treasurer/
> manager), and the chief financial officer (controller). The term
> "senior executive officer" also includes employees of an entity, such
> as a consulting firm, hired to perform the functions of positions
> covered by the regulation.

12 CFR 701.14(b)(2).

*[Other considerations]{.underline}*.

This proposal provides confidentiality only for materials the release of
which is prohibited by federal law, materials that contain nonpublic
personal information, and personal information about FCU employees and
officials. In some states, courts have withheld other types of documents
from shareholder inspection, such as confidential internal
correspondence or materials containing corporate trade secrets. *[See,
e.g., Morton v. Rodgers]{.underline}*, 20 Ariz. App. 581, 514, P.2d 752
(Ariz. Div. 1, 1973)(trade secrets); *[State Ex. Rel. Armour & Co. v.
Gulf Sulphur Corp.]{.underline}*, 231, A.2d 470 (Del. 1967)(trade
secrets); and *[State ex rel. Jones v. Ralston Purina Co.]{.underline}*,
358 S.W.2d 772, 778 (Mo. 1962)(internal correspondence). As one court
noted, however:

> Both under the common law and under our statute a stockholder of a
> corporation is entitled to examine the books and records of the
> corporation . . . . The right rests upon the proposition that, while
> the corporation holds the legal title to its property, the
> stockholders are deemed to be the real and beneficial owners thereof
> and, as such, are entitled to information concerning the management of
> the property and business which they have confided to the officers and
> directors of the corporation as their agents . . . . It ordinarily is
> not enough to deny the right that the information sought is of a
> confidential nature.

*[Nationwide Corp. v. Northwestern National Life Insurance
Co.]{.underline}*, 251 Minn. 255, 256; 87 N.W.2d 671, 672 (Minn. 1958).

This proposal, like the OTS Rule, has no confidentiality provisions
related to internal memoranda or trade secrets for several reasons.
First, credit unions do not generally have trade secrets, that is,
secret formulas or technology on which the success of the organization
is dependent, and cases that deal with confidential internal
correspondence generally do not provide a standard by which
confidentiality can be measured. Second, it is unlikely that, given the
narrow interpretation of "books and records of account" intended by the
Board, any materials deserving of confidentiality would appear among
those materials subject to inspection. Third, even if confidential
materials appear among the materials subject to this rule, requested
materials must be relevant to the petitioners' stated business purpose
before they become subject to inspection. *[See,]{.underline}*
*[e.g.,]{.underline}* *[Azzar v. Primebank Federal Savings
Bank]{.underline}*, 499 N.W.2d 793, 798 (Ct. App. Mich.
1993)(interpreting the OTS Rule). Finally, and as discussed above, if a
credit union has substantial evidence of an improper purpose, it may
deny inspection for that reason.

In the unlikely event there are portions of relevant FCU books and
records of account or minutes the public release of which might cause
the credit union substantial competitive injury or financial damage, the
dispute resolution paragraph of the proposed rule permits the regional
director to place conditions on member inspection that balance the
interests of the member-owners in the requested information against any
interests the credit union may have in maintaining confidentiality. The
regional director's authority to resolve disputes is discussed further
below.

The NCUA Board also considered if privileged information, that is,
exempt from discovery in court cases, should be withheld from members.
Case law on the corporate shareholder's right to inspect privileged
information differs by jurisdiction. In California, for example,
shareholders lack the right to inspect corporate books and records
covered by the attorney-client privilege. *[National Football League
Properties, Inc. v. Oakland Raiders]{.underline}*, 75 Cal. Rptr. 2d 893
(Ca. Ct. App. 6^th^ District 1998). In other jurisdictions, however,
shareholders who are concerned with corporate mismanagement may inspect
attorney-client privileged documents. *[Beard v. Ames]{.underline}*, 168
A2d 119 (N.Y. 1983); *[Garner v. Wolfinbarger]{.underline}*, 430 F.2d
1093 (5^th^ Cir. 1970). For example, in determining that stockholders
could inspect communications between attorney and corporate management
under some circumstances, the *[Garner]{.underline}* court stated:

> But in assessing management assertions of injury to the corporation it
> must be borne in mind that management does not manage for itself and
> that the beneficiaries of its action are the stockholders.
> Conceptualistic phrases describing the corporation as an entity
> separate from its stockholders are not useful tools of analysis. They
> serve only to obscure the fact that management has duties which run to
> the benefit ultimately of the stockholders.

*[Id.]{.underline}* at 1101.

The Board believes member-owners with a proper purpose should have
access to relevant FCU information. Accordingly, and like the OTS Rule,
this proposal does not include confidentiality protection for privileged
information, but that does not mean that privileged material will
automatically be subject to inspection. Privileged material would have
to be the subject of a proper petition with a valid purpose; it would
have to fall within the scope of "books and records of account" or
"minutes;" and it would have to be relevant to the petitioners' stated
purpose, all before it would be subject to inspection. Proposed
paragraph (f) also provides regional directors with authority to resolve
disputes, and a regional director could place conditions on the release
of the privileged material where appropriate.

The FCU may have other minutes or books and records of account that it
has designated as confidential by policy or otherwise. That designation
by an FCU does not defeat the inspection rights of members. If the
requested material does not contain confidential information as
described in §701.3(d), the member-owners have the right to inspect it
upon a proper petition. Again, as discussed below, a regional director
may impose conditions on inspection and copying in appropriate cases.

In some cases, materials requested by members may include a mix of both
confidential portions and nonconfidential portions. An FCU must make as
much of the nonconfidential material available to members as possible,
redacting or withholding only the confidential portions.

**(e) Costs.**

Proposed paragraph (e) states that an FCU may charge petitioners the
direct and reasonable costs associated with search and duplication but
it may not charge for other costs, including indirect costs or
attorney's fees.

While the OTS Rule does not specifically address the reimbursement for
costs of shareholder inspection and copying of stock savings association
records, an OTS legal opinion describes that reimbursement:

> In our view, a federal stock association may charge a requesting
> Qualifying Shareholder reasonable expenses for document searches,
> duplication, and direct costs associated with producing and delivering
> documents. However, a requesting Qualifying Shareholder is not
> obligated to pay the association\'s attorneys fees in order to gain
> access to review the association\'s books and records required to be
> made available to shareholders under section 552.11.

Letter from Harris Weinstein, OTS Chief Counsel, dated December 5, 1991
(1991 OTS LEXIS 68). The proposed paragraph (e) addresses costs in a
manner similar to that described in OTS legal opinions.

Typically, the direct costs of search and duplication would include only
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. Requesters need not reimburse
the credit union for other 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.

As noted above, the petition must recognize the obligation of the
petitioners as a whole, or certain named petitioners, to pay the direct
and reasonable costs associated with search and duplication. Petitioners
may also include in the petition, if they want, a maximum amount that
they are willing to pay; and the FCU, if it wants, may provide
petitioners with an estimate of the search and duplication costs. The
rule does not require, however, that petitioners pay in advance, or
agree to pay any specific amount, before the FCU provides the
petitioners with the requested documents.

**(f) Dispute resolution.**

Proposed paragraph (f) provides, 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.
Depending on the circumstances, conditions imposed by the regional
director might include limitations on making copies or a requirement
that the parties enter into a contract restricting the use or further
dissemination of the material.

The OTS Rule does not contain a dispute resolution procedure. The NCUA
Board believes that a dispute resolution procedure is necessary to
protect both the inspection rights of members and the FCU's interests.

In other circumstances involving member disputes with FCUs, NCUA usually
refers the dispute to the FCU's supervisory committee for resolution.
The proposed rule does not require such referral because, in certain
circumstances, such as a pending member vote on a charter or share
insurance conversion or a merger, members' need for the information may
be time sensitive. Still, in the event of a dispute over access to FCU
records, petitioners, if they desire, may contact an FCU's supervisory
committee before taking it directly to the regional director. Similarly,
if a regional director receives a request from a petitioner for dispute
resolution and determines that resolution is not time sensitive, the
director may refer the matter to the FCU's supervisory committee for
analysis and response before the director makes any decision about the
dispute.

The NCUA Board does not believe that specific time frames for regional
director action are appropriate. The time needed for dispute resolution
could vary significantly from case to case depending on the complexity
of the dispute. In addition, the Board does not believe a right to
appeal to the Board is necessary.

***C. [Request for Public Comment]{.underline}.***

NCUA's goal is to promulgate clear and understandable regulations that
impose minimal regulatory burden. The Board requests public comments on
whether the proposed rule is understandable and minimally intrusive and
also solicits specific suggestions to improve the content of the rule.

***D. [Regulatory Procedures]{.underline}*[.]{.underline}**

**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 proposed 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 proposed 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
does not anticipate that the proposed rule, if adopted, would 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 is
submitting a copy of this proposed regulation 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.

The proposed rule standardizes and clarifies the circumstances and
conditions under which FCU members may inspect and copy an FCU's books,
records of accounts, and minutes of meetings. The FCU must permit
inspection of relevant records if it receives a member petition stating
a proper purpose for inspection and signed by at least one percent of
members, with a minimum of five and a maximum of 250.

NCUA does not believe members will use this petition authority often.
NCUA estimates that there will be, perhaps, five such petitions per
year. NCUA also estimates it will take an FCU that receives a petition
approximately 20 hours to evaluate the petition, locate relevant
documents, and make them available for inspection and copying. Five
petitions times 20 hours per petition equals 100 annual burden hours
associated with this proposed collection of information. The Board also
notes that the costs of document search and duplication will fall on the
petitioners and not on the FCU.

Organizations and individuals that wish to submit comments on this
information collection requirement should direct them to the Office of
Information and Regulatory Affairs, OMB, Attn: Mark Menchik, Room 10226,
New Executive Office Building, Washington, DC 20503, with a copy to Mary
Rupp, Secretary of the Board, National Credit Union Administration, 1775
Duke Street, Alexandria, Virginia 22314-3428.\
\
The NCUA considers comments by the public on this proposed collection of
information in:

-   Evaluating whether the proposed collection of information is
    necessary for the proper performance of the functions of the NCUA,
    including whether the information will have a practical use;

-   Evaluating the accuracy of the NCUA\'s estimate of the burden of the
    proposed collection of information, including the validity of the
    methodology and assumptions used;

-   Enhancing the quality, usefulness, and clarity of the information to
    be collected; and

-   Minimizing the burden of collection of information on those who are
    to respond, including through the use of appropriate automated,
    electronic, mechanical, or other technological collection techniques
    or other forms of information technology; *[e.g.]{.underline}*,
    permitting electronic submission of responses.

The Paperwork Reduction Act requires OMB to make a decision concerning
the collection of information contained in the proposed regulation
between 30 and 60 days after publication of this document in the Federal
Register. Therefore, a comment to OMB is best assured of having its full
effect if OMB receives it within 30 days of publication. This does not
affect the deadline for the public to comment to the NCUA on the
proposed regulation.

**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 proposed 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 proposed rule does not constitute a policy that has
federalism implications for purposes of the executive order.

**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, Pub. L. 105-277, 112 Stat. 2681
(1998).

**List of Subjects**

**12 CFR part 701**

Credit unions, records.

By the National Credit Union Administration Board on April 12, 2007.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Mary F. Rupp

Secretary of the Board

Accordingly, NCUA proposes to amend 12 CFR part 701 as follows:

**PART 701 -- ORGANIZATION AND OPERATIONS OF FEDERAL CREDIT UNIONS**

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.]{.underline}; 42 U.S.C. 1981 and 3601-3610. Section 701.35 is also
authorized by 42 U.S.C. 4311-4312.

2\. Add §701.3 to read as follows:

§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:

\(1\) Books and records of account; 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 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; that the members signing the petition have not within five years
preceding the signature date sold or offered for sale, and do not now
intend to sell or offer for sale, any information obtained from the
credit union; and that the members signing the petition have not within
the past five years aided or abetted any other person in procuring any
information from the credit union for purposes of sale. The petition
must name one or more members 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 250 members, must sign the petition.

\(c\) *Inspection procedures.* Within 14 days of receipt of a petition,
the federal credit union 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 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.\
\
(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 portion contains nonpublic personal information as defined in
§716.4 of this part; or

\(3\) The portion contains information about credit union employees or
officials the disclosure of which would constitute a clearly unwarranted
invasion of personal privacy. Members may, however, 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, as that term is defined in §701.14 of this part.

\(e\) *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*. 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, if appropriate.
The decision of the regional director is a final agency decision and is
not appealable to the Board.