At the same time the NCUA is relaxing restrictions on credit union expansion and lending, it is backing legislation that the agency's critics say would make it harder for credit unions to become banks.
Not many credit unions have made the switch: 18 since 1995 with another five now in the process of converting. But Alan Theriault, a consultant who advises credit unions interested in converting, said the NCUA is worried that more of them-particularly some large ones-might try to become banks. He said fast-growing institutions are looking at conversion because it is easier for banks to raise captial.
"I think that they are pedaling a little faster because they're concerned about defections," Theriault said of the agency board. "There are some big ones that are looking at this. ...I don't think anyone would be surprised if a billion-dollar credit union decided to convert."
Theriault called the House bill sponsored by Rep. Paul Kanjorski (P-PA) and Rep. Ed Royce (R-CA), along with new disclosure rules that NCUA is considering on its own, part of a "coordinated effort" to block future conversions. Congress explicitly provided for conversions in the Credit Union Membership Access Act. Under the current rules a credit union interested in converting must allow its members to vote on its conversion plan. The Royce-Kanjorski legislation would not change that but would require a minimum level of participation-at least 20% of the members-for a conversion election to be valid. Right now there is no such minimum. For example, at least 4,000 members of a 20,000-member credit union would have to cast ballots. Of course, the converting institution would have to receive the support of a majority of those voting.
The problem is that these votes, like stock company proxy contests, are conducted largely by mail. Ensuring the voter participation that the Royce-Kanjorski bill proposes would be time-consuming and expensive, said Theriault, who works out of Portland, Maine.
"Their goal is to stop the conversion process," he said of the NCUA. The proposed changes, he added, "would make it very hard to convert."
American Banker
