Charter Conversions Debated

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BEL AIR, Md.-The recent move of Har-Co FCU to a bank charter has brought CU conversions back to the forefront.

Banks have long encouraged more credit unions to convert and compete on even terms as tax-paying financial institutions, noted analysis by American Banker, an affiliate of Credit Union Journal. Such conversions are rare and nearly ceased during the financial crisis. Formidable obstacles remain even though conditions have improved.

"There's a lot of opposition in the credit union world to this" kind of conversion, said Kip Weissman, a partner at Luse, Gorman, Pomerenk & Schick. He called most of opposition "unfair" as thrifts have "a better regulator, more regulations and it's easier to raise capital."

Most lawyers dealing in such applications say NCUA is the main roadblock. "The OTS and other bank regulators make it a relatively easy process, but the NCUA makes it difficult," Weissman said. "The NCUA wants to protect its turf. Some have said it's regulatory over reach."

NCUA "has erected a lot of barriers to make it difficult for credit unions to exercise their right to be a mutual," said Keith Leggett, a senior economist at the American Bankers Association.

But others say NCUA is trying to protect members' rights and services. "The choice of charter should be up to the credit union's members, who need all the facts so they can make a well-informed decision. From the members' perspective, we think a bank charter is certainly less appealing," said CUNA CEO Bill Cheney in an e-mail. "Studies have shown it doesn't take long before the newly converted bank starts lowering savings rates, raising loan rates and hiking fees-in other words, starts acting like a bank."

NCUA did not respond to questions.

Not every one is buying the objections. "That is a big fallacy out there," said William White, president and CEO of the last converted credit union, Coastway Community Bank in Cranston, R.I. "The fact that we're growing in a very healthy manner in mortgage and business lending shows that you can be very rate competitive."

White said the bank's annual taxes and assessment from FDIC are equal to or less than what it paid the NCUA in assessments when it was a credit union.

The main reason why Coastway converted was because it reached the NCUA's 12.25% limit of business loans to total assets in the mid-2000s. White said the CU tried to work around it by becoming a loan participant and selling off other loans but they decided to become a thrift to open up ways to grow.

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