New Rules Would Open CU Conversion Process In Texas

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Texas, home to the two biggest-ever credit union conversions to mutual savings banks, adopted new rules that will require credit union management to notify members of a proposal to convert to MSBs before the matter is voted by the board of directors.

The new rules, adopted unanimously by the Texas CU Commission, will require that members be sent a notice explaining the details and ramifications of the conversion before a board vote, according to Harold Feeney, director of the state's CU Department.

The Lone Star State is believed to be the only one in the country that requires pre-notification to its members of a conversion to MSB.

The new rules will also require the credit union to provide a process for members to express their opinion on the conversion proposal.

The new rules were published last week in the Texas Register and are effective 20 days afterwards, according to Feeney.

Adoption of the new conversion rules come as NCUA is expected to propose similar amendments, requiring pre-notification and member communications, this week.

It was last year's conversions of two credit unions giants, $1.5-billion Community CU and $1.4-billion OmniAmerican CU, which caused a major controversy both in the credit union community and in Congress. The controversy was only resolved by a federal court order allowing the conversions to be completed.

Critics of MSB conversions say members are only informed of the decision to convert from a credit union only after the board has approved the charter change and is well on its way to completing the switch. They say the deck is stacked against rank-and-file members who may oppose the conversion and have little resources to express their opposition or to communicate with other members who also oppose the charter change.

Gary Janacek, chairman of the Texas CU Commission and president of Scott & White Employees CU, said he is pleased with the input the commission received from credit unions around Texas about the new conversion rules and the outcome of the vote. "We were able to enact clear and concise rules that will allow credit union members to be involved in the process early on, opening the lines of communication and allowing the board to do their fiduciary duties," Janacek said.

CU Commissioner Feeney said, "we think the new rules strike a balance between providing credit union members with the necessary information and allowing credit unions to conduct authorized activities, without unduly burdening the credit unions."

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