Changes Likely After Hearings On Texas Conversions

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The Texas Credit Union Department is considering changes to its credit union-to-bank conversion rules in the wake of the controversy over the conversions Community CU in Plano and OmniAmerican CU in Fort Worth.

"Without tipping my hand too much, it would seem there needs to be more explanation [of plans to convert] on the front end of the process," TCUD Commissioner Harold Feeney told The Credit Union Journal. "The way it can be done now, the special meeting only has to be called for the vote, so if that's the only opportunity for members to ask questions or make comments, it's too late."

Take Community CU as an example. As was required by the existing regulations, CCU sent out notices with the required disclosures and ballots. Credit union members could-and in some cases did-call, write or visit the credit union during the balloting period to ask about the conversion, but there was no opportunity prior to the ballots being sent out for members to learn more about the plan.

And although the credit union's annual meeting happened to occur during this same time period, no discussion of the conversion was allowed at that meeting.

By the time the credit union held its special meeting for the final vote on the conversion, there was nothing to discuss: some 30,000 ballots had already been mailed into the credit union. So even though CCU did allow for questions and comments from members during the special meeting, the decision to convert had long since been made, even if no one yet knew what the outcome of the vote would be.

Though CCU's and OmniAmerican's conversions have been determined to have been handled properly given the existing regulatory framework (see related story), the controversy surrounding these conversions led the TCUD to hold two hearings on credit-union-to-bank conversions last week.

"[Monday] went in one direction and [Tuesday] it was a totally different direction," Feeney told The Credit Union Journal. The Monday hearing was hosted in the Texas Credit Union League's office and featured only speakers from the credit union movement, while the Tuesday meeting was held in the regulator's office and featured only people from the banking side, Feeney related.

"[Monday] really focused on making sure members are able to make an informed decision about conversions and not allowing anyone to become unjustly enriched in the process," Feeney reported. "Tuesday the message from the bankers was all about freedom of choice and making sure credit unions aren't restricted from being able to make an important business decision."

Speakers at the "all-credit union meeting" included TCUL CEO Dick Ensweiler, four members of CCU (all of whom were part of the Coalition for Member Trust that opposed the $1.4-billion CU's conversion), including Mark Arnold, Joe Arnold, Elaine Laroa and Martin Sisk; and Hal Coffman, CEO of Gulf Employees CU, Beaumont.

At the "all-bank meeting," a group of individuals who helped CCU and OmniAmerican with their conversions urged the TCUD not to listen to the "thought police" from out of state when deciding whether to make it tougher for credit unions to switch charters, though in fact, all of the pro-credit union speakers at the earlier meeting were from Texas.

"I told them 'if it ain't broke, don't fix it,'" Robert Freedman, a Washington attorney who has engineered most of the 35 credit union-to-bank conversions, told The Credit Union Journal, of his testimony.

Freedman, who was representing both his firm, Silver, Freedman & Taff, and the Texas Savings & Community Bankers Association, urged the state regulator to reject efforts by out of state interests, like N.C. State Employees CU and Self-Help CU, that financed the opposition to the ongoing conversions of Community CU and OmniAmerican CU, to toughen rules on conversions.

Other speakers included James Pledger, former Texas Savings and Loan Commissioner and now an executive with Cuero (Texas) State Bank, and a representative of the Independent Bankers Association of Texas, which is supporting efforts to ease credit union conversions to thrifts.

Even if the TCUD decides to change its rules regarding conversions, such regulatory change doesn't come quick.

Feeney estimated the soonest a new rule would be passed would be July 2006. In the meantime, Feeney and his staff will take the next two to three months to work behind the scenes to produce a draft by the end of the year. Feeney said the rest of the process likely will go like this:

* On the third Friday in January, the legislative advisory committee of the Texas CU Commission will meet and hold public hearings on potential changes to the regulators and look at the recommendations put together by Feeney and his staff.

* The third Friday of February, the commission will meet and consider the recommendations of the legislative advisory committee, and following that the commission will issue a proposal for comment.

* The next step will be the third Friday in June, when a review of all comments and a determination on the recommendations will be made.

Ensweiler also suggested the agency provide members with a mandated, side-by-side comparison of a credit union and a mutual savings bank, highlighting differences in ownership structure, product offerings, average loan and savings rates, etc.

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