How to Convert From a Federal to a State Charter

CUCollaborate outlines the process for converting from a federal to state charter to ease field of membership restrictions imposed by NCUA.

Sam Brownell


May 20



View all posts by 

Sam Brownell

Articles Posted by

Sam Brownell

A squiggly pink arrow pointing downward and to the right.

Even though the NCUA recently opened up some of its field of membership options, some credit unions may still find a state charter better suited to their strategy and needs. In addition, some state credit union field of membership regulations include a parity clause that allows credit unions chartered in that state to follow the federal FOM regulations if they provide greater authority than the state regulation.

In the first quarter of 2019, two federal credit unions converted to state charters with total assets of nearly $1.3 billion, while one credit union converted to a federal charter, totaling $149 million in assets. Late last year, CUCollaborate covered Merrimack Valley Credit Union’s conversion to a state charter and why it made sense for their future.

Any federal credit union can apply for a state charter. The credit union must contact the NCUA prior to beginning the process, explaining why it is converting. The agency added, “It is important that the credit union provide an accurate disclosure of the reasons for the conversion. These reasons should be stated in specific terms, not as generalities. The federal credit union converting to a state charter remains responsible for the entire operating fee for the year in which it converts.” The credit union must also comply with Section 125 (page 26) of the Federal Credit Union Act (FCUA) and the appropriate state laws and regulations.

So, here’s how you do it:

  1. The conversion proposal must be approved by a majority of the board of directors
    at a meeting held in accordance with the federal credit union's bylaws. The conversion proposal will be submitted to the CURE director and must include a current financial report; current delinquent loan schedule; explanation and appropriate documents relative to change in insurance; a resolution of the board of directors; a proposed Notice of Special Meeting of the Members (NCUA 4221); a copy of the ballot to be sent to all members (NCUA 4506); if the credit union intends to continue with federal share insurance, an application for insurance of accounts (NCUA 9600); evidence that the state regulator is in agreement with the conversion proposal; and a statement of reasons supporting the request to convert.
  2. If the federal credit union intends to continue federal share insurance after converting to a state charter, submit an Application for Insurance of Accounts (NCUA 9600) to the Office of Credit Union Resources and Expansion director simultaneously with the conversion proposal request. The Office of Credit Union Resources and Expansion Director has the authority to approve or disapprove the application.
  3. If the converting federal credit union plans to convert to private insurance or if its application for continued insurance is denied, insurance will cease in accordance with the provisions of Section 206 (page 49) of the FCUA.
  4. When converting to nonfederal share insurance, the credit union must comply with the membership notice and voting procedures set forth in Section 206 of the FCUA and part 708 of NCUA's Rules and Regulations, and address the criteria set forth in Section 205(c) of the FCUA (page 45).
  5. Federal insurance ends of the date of conversion, or if converting to a nonfederal insurance, federal insurance will end one year after conversion. Either way, the credit union will receive a refund of its capitalization deposit when insurance ceases.
  6. The CURE director then reviews the package for completion and compliance. Some
    further investigation may be required, and special conditions may apply. The NCUA CURE director will notify the credit union and the state regulator of the decision.
  7. If the proposal is not approved, the NCUA will notify the credit union in writing with specific reasons why it was not approved, suggestions for gaining approval and the appeal procedures.
  8. The credit union has 30 days to amend its proposal or provide additional information. The CURE director then has another 30 days for a final decision.
  9. The credit union may then appeal the decision to the NCUA board within 60 days of the last denial.
  10. Once approved, the members may vote on the proposal. The proposal must be distributed to the credit union’s members for approval and date set for a meeting to vote on the proposal. Members may vote in person or by written ballot to be filed by the meeting date.
  11. Members must receive advance notice, as laid out in NCUA 4221, and it must specify the purpose, time and place of the meeting; a brief but complete statement of the pros and cons of conversion; outline the associated costs; that members can vote in person at the specified meeting or by written ballot ahead of the meeting; in bold font that the issue will be decided by a majority vote; and the form must be accompanied by NCUA 4506, Federal to State Conversion—Ballot for Conversion Proposal.
  12. The proposed conversion must be approved by a majority of all of the members who vote on the proposal, a quorum being present, in order for the credit union to proceed. If the proposed state-chartered credit union will not remain federally insured, 20% of the total membership must participate in the voting, and of those, a majority must vote in favor of the proposal. Paper ballots cast by members will be counted with votes cast at the meeting. In order to have a suitable record of the vote, the voting at the meeting should be by written ballot as well.
  13. The board will certify the results of the vote within 10 days to the CURE director, verified with affidavits of the CEO and the Recording Officer on NCUA 4505.
  14. Once approved by a majority of members, the board must ensure it’s in compliance state laws and regulations. The board must double check that the state charter has been received within 90 days of the member vote and that the NCUA CURE director is kept up-to-date on the conversion process, including material delays and difficulties. In that case, the CURE director may set a new date for conversion completion.
  15. The conversion is complete when:
  16. The board of directors will submit a copy of the state charter to the CURE director within 10 days of its receipt, accompanied by the federal charter, the federal insurance certificate and the preceding month-end financial reports.
  17. The CURE director will notify the credit union and the state regulator in writing of the receipt of evidence that the credit union has been authorized to operate as a state credit union.
  18. The credit union shall cease to be a federal credit union as of the effective date of the state charter.
  19. If the CURE director finds a material deviation from the provisions that would invalidate any steps taken in the conversion, the credit union and the state regulator shall be promptly notified in writing. This notice will include the nature of the adverse findings and may be sent either before or after the copy of the state charter is filed CURE. The notice will inform the credit union as to the nature of the adverse findings. The conversion will not be effective and completed until the improper actions and steps have been corrected.
  20. If the CURE director is satisfied that the conversion has been accomplished in accordance with the approved proposal, the federal charter will be canceled.
  21. After the conversion, the credit union must follow state requirements for closing the records. The credit union can no longer use the term federal credit union.
  22. Changing signage, records, accounts, investments, and other documents should be accomplished as soon as possible after conversion. Unless it violates state law, the credit union has 180 days from the effective date of the conversion to change its signage and promotional material. The NCUA CURE director has the discretion to extend the timeframe for an additional 180 days. Checks with the federal chartered name can be used by the members until they run out.
  23. If the state credit union is not federally insured, it must change its name and must immediately cease using any credit union documents referencing federal insurance.
  24. If the state credit union is to be federally insured, the Office of Credit Union Resources and Expansion Director will issue a new insurance certificate.

Federal & State Charters

No items found.