Community CU Case Goes To Court

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The Board of Community CU voted last week to go to court to free themselves of the credit union charter after NCUA said it won't certify last month's member ballot overwhelmingly approving the $1.4-billion credit union's conversion to mutual savings bank.

Representatives of the credit union-the largest ever to seek conversion to bank-said they expect to file suit in federal court in Texas challenging NCUA's rulings as "arbitrary and capricious" and asking the court to overturn the federal regulator's ruling.

Community's board made its decision following three-days of deliberations after receiving a 10-page letter from NCUA in which the agency indicated it believes Community CU intentionally tried to mislead members in a controversial mail balloting in which the agency's required "box disclosures" on the effects of the conversion were concealed on the back of a sheet presented first giving the credit union's argument in favor of the charter switch.

A re-vote of the ballot was not a practical alternative, according to Mark Hord, general counsel for Community CU. "Our members are not inclined to do it, again," said Hord. "It's an incredibly poor use of our institution's money," he said of the prospects of conducting the vote over at a cost of as much as $600,000.

The board also rejected NCUA's suggestion to appeal last week's ruling by its Region Five Director to the full NCUA Board because after meeting last month with both members, JoAnn Johnson and Deborah Matz, they concluded the two were predisposed to invalidate the vote. In addition, said Hord, they believe there is no predetermined legal framework to file an appeal on conversion voting.

The Community CU vote has been certified by both the Texas CU Department and the federal Office of Thrift Supervision, but the Federal CU Act gives NCUA final say on whether to certify the conversion balloting for all federally insured credit unions.

On the same day Community CU received NCUA's decision, OmniAmerican CU was tallying a member vote that overwhelmingly-by a whopping 76%-approved the conversion of the $1.2-billion credit union located in nearby Fort Worth, Texas, to a mutual savings bank, too. But NCUA is almost certain to invalidate that vote, as well, because it has already notified the credit union that it disapproved of the mailed disclosures for the same reasons as those expressed to Community CU.

In its letter to Community CU, NCUA said the disputed disclosures so affected the balloting-which culminated in a 72% vote in favor of the conversion-that the agency ruled it will not certify the vote, as required for the credit union-to-bank conversion to be completed. As proof of its claims, NCUA Region Five Director Jane Walters said that the votes counted in the first two mail ballots sent to members which included the disputed disclosures were overwhelmingly in favor of the conversion, while voters in the third ballot that was changed to present NCUA's required disclosures first, narrowly opposed the conversion.

"NCUA believes the voting shift demonstrates as disingenuous CCU's attempt to trivialize the disclosure violation as an irrelevant folding issue or simple misunderstanding," Walters told the credit union. "NCUA also believes this voting shift indicates CCU's pro-conversion management does not have the strong suppport of members it says it has once members better understand the implications of the conversion."

But Hord strongly disputed NCUA assertion that the disputed disclosures represented an intentional effort to trick members into voting for the conversion.

He also dismissed NCUA's conclusion on the voting patterns and on other issues. For one, he said "it is impossible to say which of the 36,000 mail ballots returned-the largest single referendum ever for a credit union-were returned as a result of the first, second or third mailing." And voting on other credit union conversions show that the later votes that are returned generally come in negative. "We always expected that the last flurry of votes would be negative," he said. "The bottom line is, there's just no way to determine exactly why those people voted that way."

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