Banks Form Group To Fight New Rules On CU Conversions

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The bankers are banding together to fight efforts to make it tougher for credit unions to convert to banks.

A group of state bank associations has joined to form the Coalition for Credit Union Charter Options and hired a powerful Washington lobbyist to make their case on Capitol Hill.

The organization of the new lobby group was prompted by new initiatives by NCUA to broaden disclosure requirements on conversion ballots; by credit unions lobbying Congress to make it more difficult to vote for a conversion; and the growing controversy over the failed conversion of Vancouver, Wash.-based Columbia CU, according to James Butera, a long-time thrift attorney and lobbyist hired to spearhead the new campaign.

"I think people feel we had an understanding how things would work in 1998. It seems to have worked well for five years. Now NCUA seems to be backing away," said Butera, referring to a provision in HR 1151 easing the way for credit union conversions.

The group, which currently consists of "three or four banks," said it is troubled by efforts in a new regulatory relief bill for credit unions that would roll-back the HR 1151 conversion provisions allowing a bare majority of voting members to approve a conversion to a mutual savings bank (CU Journal, Feb. 23). Prior to HR 1151, credit unions needed a majority of all members to approve a conversion.

But a provision in the CU Regulatory Improvements Act (CURIA) would roll-back the HR 1151 provision and require that at least 20% of members vote on a conversion.

In the failed Columbia CU vote only 16% of the credit union's 59,000 members voted, with just over half the voters, or 8% of all members, voting in favor of the conversion. That vote, however, was disqualified by NCUA after widespread irregularities and illegalities were found in the balloting.

The group is also concerned by recent moves at NCUA, which passed a new rule Feb. 19 to require broader disclosures on conversion to include potential financial gain by insiders and changes in member/depositors voting rights, and is looking at tightening voting requirements, as well. "We're just getting started," said Butera, who was hired separately by Columbia CU to lobby Congress on the issue.

Similar Situation In California

The effort appears to have been initiated by the growing Columbia controversy, where a scathing report by NCUA alleged that management carefully manipulated the vote to favor the conversion and to conceal plans to eventually sell the credit union to the public after the conversion, with a potential financial windfall for credit union executives and directors.

Meantime, two more converted credit unions, Kaiser Federal Bank (formerly Kaiser Employees FCU) and Citizens Community Federal Savings Bank (formerly Citizens Community FCU), are scheduled to go public this month in initial public offerings in which managers and directors are expected to reap tens of thousands in stock-based profits.

Early last month, Butera sent a letter to senators Richard Shelby (R-AL), the chairman of the Senate Banking Committee, and Robert Bennett (R-UT), who sponsored the 1998 conversion provision, claiming NCUA has "taken several recent steps designed to undermine existing law." The letter, signed by 22 state bank and thrift associations, urges the two senators to "take whatever legislative or other steps that would be appropriate to ensure that the NCUA ceases its obstructionist tactics and returns t a regulatory approach which observes both the letter and the spirit of the market-oriented and market-validated amendment which you successfully advocated in 1998."

NCUA Chairman Dennis Dollar, who initiated the agency's new disclosure rules, noted that Columbia was the first of 19 conversion applications rejected by the agency since he joined the NCUA Board, and insisted he is not opposed to credit unions' legitimate attempts to switch charters. "I would never oppose the members' right to choose what kind of corporate structure they prefer," said Dollar. "But members who have to vote should at least know what they're doing when they vote."

"In this post-Enron, post-WorldCom in which we live, it is unethical, in my opinion, if members are being asked to vote on the demutualization of their institution, then they should have the right to full transparency and to know what they are doing," said Dollar.

While the bankers are looking for credit unions to join in their lobbying efforts, no credit unions have signed on yet.

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