NCUA Unanimously Approves CU Conversion Amendment

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Amidst a growing furor over credit union conversions, the NCUA board last week unanimously approved a new rule requiring credit unions converting to mutual savings banks to provide their members with expanded disclosures, including the potential financial gain by insiders from the charter switch.

"If indeed, a conversion is the right thing to do for a credit union, then I think certainly it can stand the light of day," said NCUA Chairman Dennis Dollar, who initiated the new disclosure rule.

"This is not an attempt to prevent conversions, but to make sure members understand what the ramifications are and to be able to make an informed decision," said Board Member Deborah Matz.

The new rule will require prospective credit union converts to disclose to members before they vote on the conversion any economic benefit any director or senior executive might receive as a result of the conversion, including a later conversion to a stock-issuing institution.

It will also require an explanation of how the switch to mutual savings bank, and potentially to a publicly traded bank later, will effect the voting rights of members.

Board Member JoAnn Johnson said the new rule is likely the first step in what are expected to be additional proposals aimed at tightening up the conversion process. NCUA officials have already started work on new rules that would amend the voting process for conversions, perhaps by requiring confidential voting and independent tabulation of votes.

Much of the recent furor over the recent credit union conversions has been prompted by the failed attempt by Columbia CU to convert to a mutual savings bank. NCUA, which monitored the vote because the Vancouver, Wash. CU is a federally insured state-chartered credit union, found widespread illegalities and improprieties in the Columbia vote process. The agency's 10-week review also found that management carefully concealed several important facts from voting members, including plans to eventually take the institution public in an initial public offering.

Dollar insisted the new disclosures were not prompted by the Columbia case, but may have been given momentum by the controversy. "This was well underway before Columbia," he said. "I think if Columbia never happened, this would still be good public policy."

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