One State Wrestles With How To React To Conversions

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Dick Ensweiler, president of the Texas Credit Union League, jokes that he had just the right strategy in place when confronted recently with the thorny issue of what to do about credit union charter conversions: "I did what leaders do-I ducked for cover and formed a task force."

Joking aside, Ensweiler knows the issue is a serious one and the Texas league needs to offer the kind of response to efforts to become banks that its members would like to see (even if that means no response at all).

Putting all of this into motion was the announcement at the beginning of this year by the $1.7-billion Community Credit Union in Plano that it had applied to state and federal regulators to switch to a mutual savings bank charter. If successful, it would be the biggest conversion yet-four times larger than any other credit union that has successfully converted. In making its announcement, Community CU CEO Gary Base cited the flexibility of the thrift charter, and pointed to CCU's activities in mortgage and business lending as reasons for making the move.

Community CU's announcement led to calls from CEOs at Texas-league affiliated credit unions to Ensweiler about what the league planned to do in response. Ensweiler admits he didn't have a ready answer; it wasn't an issue the league has had to face before. The only other conversion to a bank in Texas had been done by a nonaffiliated credit union.

"I said to my people, 'What should we do about it?'" said Ensweiler. "I really wasn't sure what my role should be. I've heard from people on both sides. Some people say, 'Those sons of a gun. They're stealing the members' money.' Other people say it's the credit union's members' decision, and we don't get involved in member decisions."

The result was the nine-person task force formed by Ensweiler and the league from credit union CEOs. The task force met for the first time last week and will meet again this week when the TCUL hosts its Governmental Affairs Conference in Austin. The group did not emerge from that initial get-together with any unanimous message hammered out in steel. Rather, Ensweiler said the meeting was introductory in nature for the nine CEOs. The issue was discussed in general terms, and materials were distributed related to conversions from CUNA and other sources. Among those materials was the advertising done by the Michigan league in the wake of efforts by a large credit union in that state, Lake Michigan Credit Union, to convert to a bank charter. Those full-page ads in the Grand Rapids newspapers were headlined, "Before You Let Them Turn Your Credit Union Into A Bank, Know What You're Giving Up" (CU Journal, Nov. 15). LMCU failed to get the two-thirds vote it needed to convert.

Ensweiler noted that "Michigan did take an aggressive stance," but added that since the Michigan league placed its ads NCUA has put in place new proposals related to conversions that render some of those issues moot. In Michigan's case it wasn't as concerned with the conversion as it was with the disclosures the credit union had provided to members. NCUA has since OK'd rules for federal credit unions requiring them to tell members whether the conversion plans include the eventual sale of the institution in a stock offering, how much the conversion process is expected to cost, and the effects the switch will have on the ownership and voting rights of the current members/owners.

The position eventually adopted by the Texas league will get extra scrutiny for a couple of reasons. The Lone Star state is home to numerous other large credit unions. And Ensweiler also just happens to be chairman of CUNA, which he said will be "interested" to see what comes out of the Texas task force.

CUNA's position has been that the CU charter is best for consumers, so why change it; that any credit union seeking to convert should put the members' interests before those of management and directors (and they shouldn't be unjustly enriching themselves), and finally, that the key is to ensure members get to keep the credit union's net worth (which never happens). But that's also been a relatively low-key position; the trade group hasn't gone public against any CU converting to a bank.

For now, Ensweiler said the task force hasn't taken any stance. Members listened to arguments on both sides and will begin to shape their position as they meet again.

When it comes to charter conversions, Ensweiler said he is most concerned over one thing. "I'm not personally concerned that this is a trend and that people are getting greedy and looking at this for the wrong reasons," he said. "These are credit union people and they generally do the right thing. But I am concerned that there is something faulty in our rules and regulations; that this is a reflection that we have less than the optimal charter. I want to make sure a credit union can do everything it needs to do within the credit union charter."

That's why, he said, the Credit Union Regulatory Improvement Act (otherwise known as the CURIA for what ails credit unions) is so important), as it provides flexibility, Ensweiler said.

Of course, we'll know if CURIA is as good as advertised if the next conversion issue faced by trade groups is what to do about thrifts converting to a CU charter.

Frank J. Diekmann is Editor of The Credit Union Journal.

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