NAFCU Calls For Strong Steps Related To CU Conversions

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NAFCU has weighed in on credit union conversions to mutual thrift charters with recommendations it says are aimed at ensuring transparency in the process.

"Transparency and full disclosure are paramount," said NAFCU President Fred Becker. "NAFCU has always felt strongly that credit union members deserve to be fully informed about how a conversion will affect them. Credit union members need to know-before they cast their vote-that if a credit union converts to a mutual savings bank, their future voting rights will be affected, senior executives and directors could potentially reap large financial rewards if the bank converts to a stock-owned institution, and they may pay higher fees and rates."

The recommendations stem from work done by NAFCU's Conversions Task Force, which was chaired by NAFCU Director Brian McDonnel, the former CEO of Navy FCU.

Becker said the task force analyzed past conversions, reviewed statutory and regulatory requirements-including NCUA and OTS rules-and considered the conversion principles issued this summer by CUNA. "NAFCU shares CUNA's concerns, and those of others, and our in-depth research and recommendations provide specific action items for Congress and regulators to consider," he said.

NAFCU's recommendations include:

* A credit union should be required to hold a meeting of its membership, prior to the mailing of the ballots, to announce intent to convert.

* Resources should be allocated, or an opportunity should be provided, for members opposed to the conversion to express their concern.

* Clear, plain-language disclosures should be used to inform members of the potential ramifications of their voting to convert.

Ten Years Before Cashing In

* Directors and/or senior management of a converted CU should not be able to benefit financially from the transaction until at least 10 years after the initial conversion has taken place. Furthermore, there should be full disclosure of the potential maximum benefit a director or senior management could receive if the converting credit union were to convert to a stock bank after the 10-year period has passed. This would include an approximate amount in dollars that the individual could potentially receive based on the size of the institution.

* A minimum of 20% of a credit union's members eligible to vote should cast a ballot in the vote taken to convert, and a majority of those members must vote in favor.

Becker said the trade group examined closely the reasons cited for conversions-the need to raise additional capital and to offer member business loans-and "found them lacking."

Of the 29 that have converted, he said all but three were considered "well-capitalized" under NCUA's prompt corrective action regulations," he said. Similarly, said NAFCU, of these same 29 CUs, 19 (65%) had only negligible member business lending, and only four exceeded the aggregate member business lending limit at the time of conversion.

Becker also noted that of the 27 completed conversions to date, 18 have engaged in the sale of stock, thus any capital that was raised in the conversion is not necessarily benefiting the membership.

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