Columbia CU Victim Of Proposal Gone Bad
As an attorney who represents banks, thrifts and credit unions and served as counsel to 10 credit unions that converted to thrifts I have seen first hand the advantages that my converted clients have realized.
When I helped author the charter conversion provisions in H.R. 1151, the intent was to provide a strategic option for credit unions. It was to allow credit unions that needed the benefits of the thrift charter to make the transition under a reasonable procedure. It was never intended as a vehicle of insider enrichment. Those who choose such option for insider enrichment are breaching their fiduciary duty. Those who advocate such enrichment for the purpose are likely to precipitate the process being stopped. Management does not need a thrift charter to be adequately compensated. Columbia Credit Union, unfortunately, has been victimized by a proposal that went very bad.
Columbia is a textbook case, as found by the NCUA, of the consequence of failing to properly inform the members and to comply with state and federal law. Blaming the NCUA is misplaced. Who is to blame? Is it the board? Is it the consultant? Is it the conversion attorneys? It certainly is not the members, they were and continue to be, the victims of a drive-by shooting. Even more distressing is that their capital was spent and continues to be spent as the drama unfolds.
Should conversions be allowed to continue. In my opinion they should because for some it is an appropriate path. Any credit union that chooses this option must clearly and completely provide all material information to the membership and not take their approval for granted. In addition, no matter what you tell them the reasons are, if it is not in the disclosure statement it is meaningless. In that case, as Columbia learned, the members will search elsewhere for answers, including the statements of the consultant.
Richard S. Garabedian
Jenkins & Gilchrist