Amendment Puts Conversions In Members' Hands

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One credit union here has found a way to make it harder for future boards or management teams to convert to a non-credit union charter, and with a similar announcement from another credit union across the country, it could be the start of a trend of bylaws amendments by CUs.

The NCUA recently approved a bylaws amendment proposed by Chocolate Bayou Community FCU that essentially requires that any conversion away from the credit union charter must be initiated by the membership and then taken to the board and management, instead of the other way around.

"We believe that the credit union is the members', so any move away from the credit union charter must come from the members. This is a good way to make sure that management and board members can't enrich themselves at the expense of the membership," said CBCFCU CEO Gary Davis. "It doesn't make it impossible for the credit union to convert, but it makes it a decision for the membership."

Under the amended bylaws, any conversion would have to be initiated by a special membership meeting called by a petition of the membership.

"This is something that has to come from the membership, and that is only appropriate, because the credit union is the members'," Davis explained. "And the special meeting can only address the issue for which it was called, in this case, to discuss a conversion. So, the issue can't be tucked away inside a larger agenda and hidden from the membership."

Under the existing bylaws, a special meeting must be called by the board chair within 30 days of the receipt of a written request of 25 members or 5% of the members as of the date of the request, whichever is larger. "That's a whole lot more people than makes up our seven-member board," Davis pointed out. "Even if the board wants to instigate a conversion, it first has to sell at least 5% of the membership that this is a good idea. And that's before any voting takes place."

And that, Davis said, is key. One of the criticisms of the recent Community CU special meeting to vote on its pending conversion was that although the credit union board and management gave dissenting members ample time to express why they didn't favor the conversion, by that time it was already too late: more than 20,000 votes had already been cast even before there was any opportunity to discuss the move.

Requiring at least 5% of the membership to be behind any conversion attempt and allowing for discussion of the move before any voting begins, makes such a situation impossible, Davis noted.

"This requires that the board has to really sell the idea of conversion to the membership. It ensures that the membership really and truly are involved in the process from beginning to end," he offered. "This forces the board to make its case to the membership before a vote begins, they have to sell the conversion to the membership instead of just pull the wool over their eyes."

While the amendment does make it harder for a board to "sneak" a conversion past its membership, Davis said, it doesn't make it impossible for the credit union to convert if the need ever arises.

"We didn't want the credit union to not be able to convert if, for example, taxation comes down the pike," he explained. "If there is a legitimate reason to convert, the credit union can still make that happen, it's just going to require significant education of the members."

And that education, Davis said, starts now. "We are really working to explain the credit union difference to our members and explain why we believe the credit union charter really is the best charter for the membership," he observed. "We want to make sure that if someone in the future tries to sell them on a conversion, they will be well informed about what is at stake."

Davis said Chocolate Bayou started discussing ways to create a "poison pill" that would make it harder for future boards to convert the credit union to a bank charter in response to the continuing controversy over the conversions of two of Texas' largest credit unions: Community CU in Plano and OmniAmerican in Fort Worth.

"People were busy criticizing the Texas league and [league CEO and CUNA Chair] Dick Ensweiler about what they should be doing, and we just thought, 'that's not right,'" Davis related. "This isn't something the league should be doing, this is something that every single credit union should be doing."

So, CBCFCU's board started researching the options. One option looked at was requiring a larger number of members to vote on the merger, a move that has been proposed by Premier CU in North Carolina (see related story).

Although NCUA would not comment on whether it expects to see a flurry of similar bylaws amendments, clearly, that is the hope of some credit unionists.

Both CUNA and NAFCU said the decision to enact similar bylaws amendments is strictly a decision for individual CUs, but both trade groups hailed the recent actions as being a positive move.

"When we sent our amendment to our regional director, the regional director approved it and then sent copies of it all the other regional directors," Davis commented. "Our amendment can be a model for others."

And that, he said, is exactly what he wants to see happen.

"I would challenge other credit unions to do this, to do the right thing," Davis urged. "Just do it. It's a simple process. If your philosophy is that the credit union is truly the members', then you have nothing to lose."

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