NCUA last week sought to fend off congressional criticisms of its actions in the ongoing dispute over two Texas credit union giants and urged lawmakers to consider requiring that any credit union seeking to switch charters to mutual savings banks first liquidate and distribute its net worth to members.
"Congress should consider requiring, in connection with credit union conversions, that member equity be returned to the members who own it, as is done in the mutual insurance industry," NCUA Chairman JoAnn Johnson, suggested in a letter to Rep. Spencer Bachus (R-AL) chairman of the House Financial Services Subcommittee on Financial Institutions, days after several members of the committee criticized NCUA for invalidating the balloting at Community CU and OmniAmerican CU on what the lawmakers described as a technicality.
Meantime, NCUA rejected efforts by opponents of the Community CU conversion to halt the vote and agreed last week to stand aside and allow Community CU to hold its special membership meeting this week, where the controversial vote will be tallied. "The agency will not interfere with the special meeting of the members," said Nicholas Owens, spokesman for NCUA.
The agency also said it will not move to block a separate meeting next month where members of OmniAmerican CU will complete their ballot, according to Owens.
NCUA's decision came as Johnson was meeting with Community CU President Gary Base to discuss the federal regulator's position that the ballots the $1.4-billion credit union mailed to its 240,000 members were in violation of NCUA rules and regulations and must be redone in order for the vote to be certified, as required, by the agency. But there appeared to be no resolution of the dispute last week.
A group of Community CU members opposing the conversion to savings bank, the Texas Coalition for CU Members, had asked NCUA to move to stop the vote and the special meeting for fear that any affirmative vote on the charter change could be used in any subsequent balloting to sway voters or a court.
NCUA's actions to invalidate the vote for both credit unions is expected to draw fire during a hearing before the Senate Banking Committee this week on regulatory relief, when Johnson is scheduled to testify with other regulators. Both Richard Shelby (R-AL) the chairman of the committee, and Robert Bennett (R-UT) authored a provision of HR 1151, the 1998 CU Membership Access Act, making it easier for credit unions to convert to mutual savings bank by lowering the voting threshold to just a majority of a minimum of 20% of all credit union members, from the previous requirement of a majority of all members.
Robert Freedman, a Washington lawyer who has helped engineer almost every one of the 35 credit union-to-bank conversions, ridiculed the liquidation option proposed by NCUA's Johnson and opponents of the Community CU conversion. "I just think it's nonsense," said Freedman, a partner in Silver, Freedman & Taff, who is representing both Community CU and OmniAmerican CU.
Freedman, who has helped convert dozens of mutual savings banks to stock form, said Congress considered the liquidation requirement when they first allowed the conversion of mutuals in the 1970s but rejected it. Among the reasons, he said, is the havoc it could cause by allowing, in the case of credit unions, some ambitious credit union members to go from credit union to credit union, propose the conversion, then force a payout of the capital in each one. This is a fear that has been expressed by some in the credit union lobby.
Community CU, based on the Dallas suburb of Plano, and Fort Worth-based OmniAmerican CU, with $1.2-billion in assets, are the two biggest credit unions to ever seek conversion to mutual savings banks.
