Lobbying by Bankers Stirs Effort to Rein in NCUA Efforts on Charter Conversions

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Intense lobbying pressure from the thrift industry has stirred up a hornets' nest on Capitol Hill, where members of Congress are buzzing NCUA over the agency's actions on credit union conversions.

The thrift lobby, spurred by America's Community Bankers, its national trade association, succeeded in convincing both Texas senators and 22 of the Lone Star State's 32 House members to call on NCUA to reconsider its stance invalidating the member votes to convert Texas credit union giants Community CU and OmniAmerican CU to mutual savings banks, or thrifts.

And a freshman member of the House Financial Services Committee, Patrick McHenry (R-NC), believed to be prompted by his home state's powerful thrift lobby, is poised to introduce legislation that would roll-back many of the regulatory amendments passed by NCUA the past two years expanding the regulator's oversight over the conversion process.

The increasing pressure on NCUA comes as the agency is preparing to void last month's member vote at Community CU, when 71% of voting members approved the conversion of the $1.4-billion Plano, Texas, credit union, based on a technical violation of the agency's rules in the mailing of 240,000 member ballots. The federal regulator has also indicated it is prepared to void the still-in-progress balloting at $1.2 billion OmniAmerican CU, based in Fort Worth, for the same technical violation.

The two conversions to mutual savings banks would be the largest ever for credit unions and have prompted an inter-industry battle over the conversion process.

On one side are leaders of the credit union movement who are worried over the increasing size and number of conversions to savings banks, now numbered at around 35.

Who's Behind Effort

On the other side is the mutual thrift industry, faced with declining numbers on its own, many of whom disappeared during the savings and loan crisis of the 1990s. Leading the lobbying campaign to ease the way for credit union conversions to thrifts are some familiar faces from the 90s, including America's Community Bankers, once known as the U.S. League of Savings & Loans, which was closely intertwined in the S&L crisis, and James Butera, a top thrift lobbyist on Capitol Hill who helped create a rump group earlier this year known as Coalition for Credit Union Charter Options. Butera has also been hired by Community CU to represent the credit union on Capitol Hill on the conversion issue.

OmniAmerican CU has also hired a powerful lobbying representative with the Washington firm of Bracewell & Giuliani to represent its interests.

While the thrift lobby remains mostly behind the scenes, it did pay for ads in the Capitol Hill newspapers Roll Call and The Hill during last month showing a variety of ice cream scoops and proclaiming that "Credit unions deserve a choice" in charters.

An ACB representative confirmed last week that they are working on legislation to limit NCUA authority on conversions, but would not discuss the details.

The thrift lobby has shown immediate results, helping convince both Texas senators, Republicans Kay Bailey Hutchison and John Cornyn, and a bipartisan group of 22 Texas House members to sign separate letters criticizing NCUA's actions on the two Texas-sized credit union conversions.

The most immediate threat to NCUA's authority, though, is a bill being drafted by McHenry, a junior member of the Financial Services Committee, who referred during last month's congressional hearing on regulatory relief to NCUA's actions in the conversions as "re-freaking-diculous."

According to a draft of the bill obtained by The Credit Union Journal, the proposal would roll-back new NCUA rules requiring credit unions seeking to convert to provide a variety of disclosures to members regarding future plans for selling stock to the public and the potential for insider profits. It would also eliminate the so-called quiet period during a conversion vote by allowing credit union executives to discuss their assets and benefits of the conversions in public and in the press to counter opponents or critics of the process.

It would also prevent NCUA from disapproving a converting credit union's methods and procedures once they have granted such approval, as was done in both the Community CU and OmniAmerican CU cases, absent fraud or "reckless disregard" for fairness in the voting process.

Motives Unclear

A spokesperson for McHenry would not discuss the specifics of the measure but confirmed the congressman hopes to formally introduce the bill as soon as the House returns this week from its Independence Day recess.

The motives of McHenry, who was one of half-dozen Financial Services Committee members to criticize NCUA's actions last month, are not clear. CUNA and the North Carolina CU League raised his ire during a close primary campaign last year, by helping fund his opponent in last year's election with an unusual independent ad campaign of $70,000. But a week after McHenry's 84-vote win, CUNA then sent the successful primary candidate a maximum $10,000 contribution for his general election campaign. McHenry is also reported to be supported in his credit union-conversion legislation by the North Carolina Bankers (and thrift) Association, a long-time credit union nemesis.

The credit union lobby said last week they have been working with McHenry and his staff on the issue. "Our main concern is that credit union members are protected and given the ability to access as much information as possible through the process as to what the consequences of the conversion would be. To the extent this limits their ability to do that we would be troubled," said CUNA lobbyist Gary Kohn.

While the ongoing conversions at the two Texas credit union giants has stirred this hornets' nest, it is unlikely the proposed bill would affect the two credit unions, even if it were to pass this Congress, according to NAFCU lobbyist Brad Thaler.

For one thing, NCUA is expected to formally reject the Community CU vote, then later on, the OmniAmerican CU vote, based on its previous position, likely shifting the dispute to the courts.

For another, with the legislation yet to be introduced, it will be some time, if ever, before Congress gets around to voting it. "I don't think this issue is going to be resolved any time soon on Capitol Hill," said Thaler.

Political Football

The conversion to savings banks/thrifts has been somewhat of a political football in recent years. During the campaign to pass HR 1151, the CU Membership Access Act, when conversions were relatively new and limited to smaller credit unions, the thrift lobbyists succeeded in getting a provision inserted in the bill to require a simple majority of voting members to approve the charter switch. Previously, a majority of all members was required.

As the number and size of credit unions switching charters has grown the credit union movement has sought to make it more difficult. First, the credit union lobby has drafted a proposal as part of the CU Regulatory Relief Act, or CURIA, to require at least 20% of all members vote on a conversion, a sometimes difficult threshold in credit union votes. Then, at the urging of credit unions, NCUA has expanded its disclosure requirements in the last two years, including those detailing plans to sell stock through an initial public offering, or the potential for stock grants and options for the institutions directors and managers.

The ongoing congressional criticism could make it difficult for the 20% voting threshold to pass Congress. But of greater concern is what affect the heat shed on NCUA could have on other provisions in CURIA and a separate regulatory relief bill that would give NCUA expanded powers to set limits on investments and loan maturities, something now in the hands of Congress.

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