This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

20061 

Vol. 72, No. 77 

Monday, April 23, 2007 

DEPARTMENT OF HOMELAND 

SECURITY 

Office of the Secretary 

6 CFR Part 37 

[Docket No. DHS–2006–0030] 

RIN 1601–AA37 

Minimum Standards for Driver’s 

Licenses and Identification Cards 

Acceptable by Federal Agencies for 

Official Purposes 

AGENCY: Office of the Secretary, DHS. 

ACTION: Notice of public meeting; 

request for comments. 

SUMMARY: The Department of Homeland 

Security, Office of the Secretary, will 

hold a public meeting to receive 

comments on the Notice of Proposed 

Rulemaking, ‘‘Minimum Standards for 

Driver’s Licenses and Identification 

Cards Acceptable by Federal Agencies 

for Official Purposes,’’ published in the 

Federal Register on March 9, 2007 (72 

FR 10820). We encourage interested 

parties to attend the meeting and submit 

comments for discussion during the 

meeting. In addition, we will also seek 

comments via email for discussion 

during the meeting from any party who 

is unable to attend in person. The 

webcast of the public meeting will be 

viewable at http:// 

www.realidtownhall.com. 

DATES: Public Meeting: We will hold the 

meeting on May 1, 2007, from 10 a.m. 

to 2 p.m. 

ADDRESSES: We will hold the meeting in 

Freeborn Hall on the campus of the 

University of California, Davis. The 

university is located in the City of 

Davis, approximately 11 miles west of 

downtown Sacramento. The street 

address for Freeborn Hall is 104 

Freeborn Hall, One Shields Ave., Davis, 

CA 95616. 

FOR FURTHER INFORMATION CONTACT: For 

information concerning this public 

meeting, please contact Mike Kangior, 

U.S. Department of Homeland Security, 

Washington, DC 20528, at 202–282– 

8939. 

SUPPLEMENTARY INFORMATION: 

How Are Comments Being Solicited for 

This Rulemaking? 

In addition to the public meeting on 

May 1, 2007, the Department of 

Homeland Security is soliciting 

comments through the following 

methods: 

• Federal Rulemaking Portal: http:// 

www.regulations.gov. Follow the 

instructions for submitting comments. 

• Fax: 866–466–5370. 

• Mail: Paper, disk or CD–ROM 

submissions can be mailed to the 

Department of Homeland Security, Attn: 

NAC 1–12037, Washington, D.C. 20538. 

Please include the DHS Docket Number, 

DHS–2006–0030 on any comments 

submitted to DHS. Individuals that 

provide comments at the public meeting 

may also submit comments through one 

of the above methods. 

How Can I Get Additional Information, 

Including Copies of This Notice or 

Other Related Documents? 

The Federal Rulemaking Portal at 

www.regulations.gov maintains the 

public docket for this proposed rule. 

The docket number for the rule is DHS– 

2006–0030. Comments submitted during 

the public meeting, and any other 

documents submitted to DHS at the 

public meeting, including any 

comments that were not discussed at the 

meeting, will become part of this docket 

and will be available for inspection 

electronically at http:// 

www.regulations.gov. 

Where Can I Get Information on 

Service for Individuals With 

Disabilities? 

To obtain information on facilities or 

services for individuals with disabilities 

or to request that we provide special 

assistance at the public meeting, please 

contact Mike Kangior as soon as 

possible. You will find his address and 

phone number in the FOR FURTHER

INFORMATION CONTACT section of this 

notice. 

Why Is the Department of Homeland 

Security Holding This Public Meeting? 

This meeting serves as an additional 

opportunity for members of the public 

to submit comments on the proposed 

rule to DHS for consideration as part of 

the final rulemaking development 

process. 

What Issues Should I Discuss at the 

Meeting? 

The public meeting on May 1, 2007 

will provide a forum for members of the 

public to discuss various issues related 

to the proposed rule. Such issues may 

include consumer concerns, 

verification, privacy/security, funding/ 

implementation and law enforcement. 

For convenience to public participants 

who wish to attend the meeting, DHS 

intends to discuss these issues under 

the proposed agenda below. 

What Is the Agenda for the Public 

Meeting? 

Agenda 

The agenda for the meeting on May 1, 

2007 is as follows: 

• Session I—Introduction and 

Overview. 

• Session II—Presentation and 

discussion of public comments. 

Dated: April 17, 2007. 

Richard C. Barth, 

Assistant Secretary of Policy Development. 

[FR Doc. E7–7655 Filed 4–20–07; 8:45 am] 

BILLING CODE 4410–10–P 

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. 

DATES: Comments must be received on 

or before June 22, 2007. 


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20062 Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Proposed Rules 

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. 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 

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, memberowned 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., OGC Ops. 92–0101, 

96–0451, and 06–0127B. These opinion 

letters are available at 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., Save Columbia 

Credit Union Committee v. Columbia 

Credit Union, 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 FCU Handbook 

(Rev. 2006), p.68. 

B. Paragraph-by-Paragraph Analysis 

(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 

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 

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., Meyer v. 

Ford Industries, Inc., 538 P.2d 353, 358 

(Or. 1975) (broad interpretation); Corwin 

v. Abbott Laboratories, 819 N.E.2d 1249 

(Ill. App. 2004), app. den. 2005 Ill. 

LEXIS 609 (Ill. 2005) (phrase includes 

both financial and nonfinancial 

records); and Jewelers International 

Showcase, Inc. v. Mandell, 529 So. 2d 

1211 (Fla. Dist. Ct App. 3d Dist. 1988) 

(stockholder was entitled to inspect 

financial records such as general ledger, 


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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 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 

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 

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 

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., 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 

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., 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 

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 


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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 timeframe, 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 

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 

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 

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 Freedom of Information 

Act Guide and Privacy Act Overview, 

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 

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, 20 Ariz. App. 581, 514, P.2d 

752 (Ariz. Div. 1, 1973) (trade secrets); 

State Ex. Rel. Armour & Co. v. Gulf 

Sulphur Corp., 231, A.2d 470 (Del. 

1967) (trade secrets); and State ex rel. 

Jones v. Ralston Purina Co., 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. 


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Nationwide Corp. v. Northwestern 

National Life Insurance Co., 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, e.g., Azzar v. 

Primebank Federal Savings Bank, 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, 75 Cal. Rptr. 2d 893 

(Ca. Ct. App. 6th District 1998). In other 

jurisdictions, however, shareholders 

who are concerned with corporate 

mismanagement may inspect attorneyclient privileged documents. Beard v. 

Ames, 168 A2d 119 (N.Y. 1983); Garner 

v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 

1970). For example, in determining that 

stockholders could inspect 

communications between attorney and 

corporate management under some 

circumstances, the Garner 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. 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 memberowners 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 perpage 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 


pwalker on PROD1PC71 with PROPOSALS
20066 Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Proposed Rules 

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 

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 

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., 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). 


pwalker on PROD1PC71 with PROPOSALS
Federal Register / Vol. 72, No. 77 / Monday, April 23, 2007 / Proposed Rules 20067 

List of Subjects in 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.; 

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. 

[FR Doc. E7–7610 Filed 4–20–07; 8:45 am] 

BILLING CODE 7535–01–P 

NATIONAL CREDIT UNION 

ADMINISTRATION 

12 CFR Part 708b 

Disclosure of Merger Related 

Compensation Arrangements 

AGENCY: National Credit Union 

Administration (NCUA). 

ACTION: Proposed rule with request for 

comments. 

SUMMARY: NCUA is issuing a proposed 

rule on mergers to require all federally 

insured credit unions to include in the 

merger plan submitted to NCUA a 

description of any arrangements 

providing a material increase in 

compensation or benefits to senior 

management officials in connection 

with the merger. The proposed rule also 

requires federal credit unions to 

disclose the existence of such 

compensation arrangements in the 

materials provided to members voting 

on whether to approve the merger. The 

proposed rule will ensure members of a 

merging federal credit union and NCUA 

are fully informed about arrangements 

providing for a material increase in 

compensation or benefits to senior 

management officials before considering 

whether to approve the merger. NCUA 

believes this requirement will assure 

merger decisions are based on the best 

interests of the members. 

DATES: 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. Follow the 

instructions for submitting comments. 

• NCUA Web site: http:// 

www.ncua.gov/news/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 Part 

708b (Disclosure of Merger Related 

Compensation)’’ 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: Ross 

Kendall, Staff Attorney, Office of 

General Counsel, at the above address or 

telephone: (703) 518–6540. 

SUPPLEMENTARY INFORMATION: 


pwalker on PROD1PC71 with PROPOSALS