Converting CU To Tap State Loophole; Complaints Lodged
Columbia Credit Union, which is in the process of converting to a mutual savings bank, has invoked a loophole in the state credit union statute that will allow it to have its conversion vote certified under NCUA rules instead of the state's more stringent voting requirements covering state-chartered credit unions.
Brian Witt, a well-known credit union attorney representing Columbia CU, said the $600-million credit union has invoked the so-called wildcard, or parity, provision in the Washington CU Statute that allows state-chartered credit unions to follow standards governing federal credit unions if it "serves the convenience and advantage of members of credit unions, and maintains the fairness of competition and parity between credit unions."
The move will allow the credit union convert to skirt the state's strict requirement that two-thirds of voting members approve the conversion, which would have meant the close 52% to 48% vote member vote on the conversion would have failed, and instead allow Columbia CU to seek certification by the state's Department of Financial Institutions and NCUA under the more liberal federal rules requiring a simple majority of voting members.
The member vote was the closest of the 27 credit union conversions to mutual savings bank so far. Just 9,228 of the credit union's 59,000 members, less than 16% of membership, voted in the pivotal election, with 4,821, or 52%, favoring the conversion, and 4,407 voting against. With 414 votes separating the two sides, a mere 208 votes could have changed the outcome.
Linda Jekel, the director of the DFI's CU Division, which is reviewing the conversion vote, confirmed that Columbia CU has invoked the parity provision, which the state statute allows the credit union to do on its own.
Both the DFI and NCUA are reviewing the close conversion vote because of member complaints about the process and the disclosures to members (CU Journal, Dec. 1). NCUA, which is required to certify the vote within 10 days after its completion, has delayed its final ruling because of the review. "We're continuing to look into member complaints," said Clifford Northup, spokesman for the federal regulator. "We're working closely with the state regulator. Ultimately, we're going to have to make a decision on whether the vote stands or whether they'll have to do it again."
Witt, who has represented several other credit unions during the conversion process, said he is confident the ballots mailed to members will withstand the scrutiny. "In terms of disclosures, NCUA signed off on it, so there's nothing left for the credit union to do," he said. He also denied allegations made by several members about the Nov. 3 special members meeting. "Everybody at that meeting had a full opportunity to speak. There was no one who was not allowed to speak. All questions were answered."
But Lloyd Marbet, a Columbia CU member who has asked the DFI and NCUA to review the vote after attending the special meeting, disagreed. Marbet said several potential questioners were ruled out of order and not allowed to express their opinions or to ask questions. "That's just not so," he said of Witt's assertion.
Marbet said several members wanted to ask management about future plans for the credit union, including the possibility of the converted institution going public and any stock rights vested in officers and directors. "But they didn't want to talk about it," he insisted.
"That's so premature, it's not even an issue," responded Witt. "That's something the board hasn't even considered. The board can't even consider that issue until they are a bank."