The nation's largest credit union trade group has told Lusitania Federal Credit Union to give up its bid for a mutual savings bank charter.
"A thrift charter is not in the best interest of the members," Dick Williamson, vice president of communications for the Credit Union National Association, said in a statement.
"Members lose their rights to ownership of the institution. They also lose the benefits of a nonprofit cooperative: lower loan rates, higher savings rates, and lower fees. To give all that up is paying too high a price for the possibility of a few more mortgages."
New Jersey-based Lusitania, which has complained about the National Credit Union Administration's limits on mortgage lending, applied to the Office of Thrift Supervision for a savings bank charter on Aug. 3. It is the first credit union to seek such a conversion.
Rather than seek the charter, the CUNA statement advised, $51 million-asset Lusitania ought to work with the regulator or convert to a state credit union charter.
Sandra Teixeira, a branch manager for Lusitania, said the credit union must convert because the NCUA has imposed a moratorium on mortgage lending, which accounts for 95% of its portfolio.
"Converting isn't an alternative," she said. "It's our only way of survival."
She added that the credit union wants to convert to a mutual savings bank, in which depositors would retain control, and has no intention of converting to a stock institution.
Lusitania's move has drawn criticism from others in the industry.
Some Garden State credit unions have been urging the credit union not to convert on their own, said an industry source who requested anonymity.
"This ranges from formal communications to someone getting on the phone and saying, 'What the hell are you doing?'"
Officials of the New Jersey Credit Union League - an affiliate of Madison, Wis.-based CUNA - will meet with the Newark credit union's board next week to discuss the reasons for conversion.
"We want to express our concern," said Barry Wood, president of the league. "Why would a credit union consider switching its charter to be a savings bank?"
The purpose of the meeting is not to persuade the credit union not to convert, Mr. Wood said.
CUNA has taken a strong line against conversions. The trade group supported a proposal by the NCUA that would give it the power to block any conversion attempt.
"CUNA can see no instance where a credit union board of directors would be acting in the best interest of its members in seeking a conversion to a bank or savings and loan charter," read an Aug. 1 comment letter sent to the NCUA.
The regulatory agency has said it won't allow any conversions until it issues a final policy on such transactions later this year.
