The credit union movement appears split over proposals by NCUA to toughen the requirements for converting from a credit union to a mutual savings bank.
NCUA received as many comment letters from credit unions against the proposed amendments to its conversion rules as those in favor during the recent 60-day public comment period, with several credit union representatives telling the federal regulator the proposals are too intrusive.
"I believe the proposed rule oversteps the intent of the (CU Membership Access Act)," wrote Roger Michaelis, president of Clark County School Employees CU, Vancouver, Wash., in a comment letter emblematic of the opponents. "I think the additional disclosure requirements exceed conversion rules of other financial regulators and are more restrictive to other charter conversion rules."
"We do not understand why NCUA is entering this arena. The credit union industry has a lot more pressing issues than this," wrote James Mills, president of Three Rivers FCU, Fort Wayne, Ind. and a former NAFCU chairman.
In contrast, the majority of the 41 comment letters were submitted by CUNA and its state league affiliates, which unanimously endorsed measures making it more difficult for credit unions to convert and for insiders to profit by the eventual sale of stock in the converted institution. CUNA, for example, endorsed provisions requiring disclosures of the effect the conversion will have on a member's voting rights and potential financial gain to insiders by possibly going public in an initial public stock offering down the road. CUNA and several of the leagues also supported a proposed provision requiring credit unions to submit the proposal to members in a comment period.
What Prompted Proposal
The proposals were prompted by the growing number of credit unions, now 30, that have applied to convert to mutual savings banks, and the handful that have abandoned their mutual structure altogether through a subsequent stock offering. NCUA has proposed expanding required disclosures on the member ballots. In addition, legislation introduced in Congress would make it more difficult to convert by increasing the voting threshold from the current requirement of a bare majority of voting members to require that 20% of members vote.
The current controversy over the conversion of Columbia Credit Union has fueled the debate, because until recently those credit unions seeking to convert to mutual savings banks, or thrifts, were financially troubled or were severely hindered in their growth potential. But Vancouver, Wash.-based Columbia CU, with $600 million in assets, is a thriving and rapidly growing institution and is chartered to serve anyone in the state of Washington and portions of Oregon.
Both NCUA and state regulators are currently reviewing the close conversion vote based on member complaints that the management did not provide full and adequate disclosures about future voting rights, the affects of taxation after giving up the credit union charter, and whether management and directors plan to cash out through a stock sale down the road.
But does not appear to be overwhelming support for efforts to make it tougher to convert. In fact, the majority of credit unions commenting on NCUA's proposal suggested that it would be improper for NCUA to require expanded disclosures of future plans after converting to a thrift. Such disclosures entail too much speculation, wrote H. Greg McClellan, executive vice president of MAX FCU, Montgomery, Ala.
MAX Federal Credit Union has no plans at the present time or in the foreseeable future of a conversion," he wrote. "However, there are statements in the proposal that we oppose and we cannot support those portions of the proposed amendment that would needlessly box in the future direction and options of any credit union."
"We agree that conversion of credit unions to the mutual savings bank charter is not in the best interest of the credit union movement and may not be in the best interest of every credit union member," commented Ron Kase, president of Landmark CU, Milwaukee. "However, emotional thinking should not get in the way of laws, and charter conversions are perfectly legal."
Max Giovannini, chairman of the board for Security Service FCU, San Antonio, Texas, said the proposed rule is neither necessary or appropriate. "We respectfully suggest that the proposed disclosures be left to the discretion of the board of directors, as they are best suited to determine the courses of action that best serve member interests," he commented.
Tougher Conversion Rules Backed
But some commenters expressed support for tougher conversion standards.
Martin Eakes, president of Self-Help CU, Durham, N.C., a recognized leader of the community development credit union movement, said he supports expanded disclosures of potential financial gain by a credit union's insiders in a conversion. "Without proper disclosure, we believe that there is a significant danger that existing management and directors could 'cash in' on the retained earnings of the non-profit credit union," he wrote.
Brian McDonnell, president of Navy FCU, endorsed a comprehensive disclosure requirement that would address everything from member/depositor voting rights to a three-year business plan after the conversion. He also called for a congressional ban on managers and directors buying stock in a converted credit union for 12 months after an initial stock offering.
