The Office of Thrift Supervision has certified Community Credit Union's membership vote to convert to a mutual bank charter, leaving NCUA as the sole holdout on the $1.4-billion CU's proposed conversion-and the pressure is on, now that both of Texas' senators have called on the agency to certify the vote.
In its order certifying CCU's conversion vote, OTS did more than just weigh in on Community's conversion; it also took the opportunity to chastise NCUA for its ruling that CCU's disclosures were "disapproved" after having preliminarily approved the documents and even suggests that some of the NCUA-required disclosures were misleading.
"The NCUA raised no objection to the additional information that the credit union placed on the reverse side of the single sheet of paper, and, in fact, preliminarily cleared the credit union's disclosures, including the disclosures placed on the reverse side of the boxed disclosures. Similarly, the (Texas Credit Union Department) preliminarily cleared the same disclosures," OTS Acting Director Richard M. Riccobono wrote in the June 29 order. "OTS concludes that there is no reason to object to the credit union's addition of information set forth on the reverse side of the boxed disclosures, because the additional information mitigates potentially misleading statements included in the NCUA's required disclosures."
For example, OTS noted, the third required disclosure set forth by NCUA implies that members will have no subsequent vote with respect to any conversion of the institution to the stock form of ownership and in the event of such a conversion, the institution's executives will profit by obtaining stock far in excess of that available to the general membership.
"In fact, even if the management of a credit union that converts to a mutual savings bank charter ultimately proposes to convert to the stock form of membership, the members must approve that conversion under a more rigorous vote requirement than that pertaining to the conversion to a federal mutual savings bank," Riccobono said. "Also, OTS' regulations strictly limit the amount of stock any executive may purchase in a conversion. In addition, executives cannot purchase any more stock in the conversion than any other member."
Strongly Worded Footnote
OTS added a footnote in its review that states, "because the credit union included the additional information, and placed it appropriately, it is unnecessary for OTS to determine whether the disclosures mandated by the NCUA's regulation would by themselves be so misleading that they would taint the vote of a credit union's members."
OTS' implication that NCUA's own actions are potentially misleading came on the heels of a letter to NCUA from Texas' two Republican senators, Kay Bailey Hutchison and John Cornyn, alerting the federal regulator that they are keeping an eye on the agency's actions in CCU's conversion, as well as that of neighboring would-be convert OmniAmerican CU, whose membership vote is slated for July 11.
In the letter to NCUA, Cornyn and Hutchison suggest it would be inappropriate for NCUA to invalidate the membership vote based on discrepancies in the disclosures the credit unions sent out to their members, since the regulator had originally approved those very disclosures before they were mailed to members.
At press time, NCUA had not officially invalidated CCU's vote because it had not yet received the certified vote from the credit union, but the agency had vowed weeks before the vote that it would not validate the vote because the disclosures had not been folded the right way.
NCUA has said that although it did preliminarily approve of the content of the disclosures and that the content itself had not been changed, it did not approve of the way the material was presented. The disclosures, NCUA holds, were to be folded in such a way that the so-called box disclosures required by NCUA appeared on the front of the document, with the CU's rebuttal statements to appear on the back. In the case of the first two of the three required disclosures sent out by CCU, the credit union's statements appeared first with the box disclosures on the back.
With the OTS' criticism and the pressure coming from Sens. Cornyn and Hutchison, there are two big questions: will NCUA stick to its guns and invalidate the vote; and would such an action potentially harm the agency's-and by extension the credit union movement's-cachet on Capitol Hill?
"I think, clearly, NCUA is in a tough position right now," said Alan Theriault, a conversion consultant who has worked on most of the credit union conversions to date, including both Community Credit Union and OmniAmerican Credit Union. "If I were a credit union executive, I would be concerned that if Congress starts looking at NCUA's judgment in general, that could hurt any future legislative efforts on behalf of credit unions with respect to the share insurance fund and other issues."
Support For NCUA
CCU Member Mark Arnold, who helped create the Coalition for Member Trust to oppose the conversion, said his group hopes NCUA will stand by its decision to invalidate the vote, even in the face of pressure from lawmakers.
"It's clear that they are putting extreme lobbying pressure on NCUA, and it's sad that they felt they needed to do that," said Arnold, who is also a former CCU employee and currently works at Neigborhood CU. "We encourage NCUA to stand by its decision."
But Arnold made it clear his group doesn't want to see any harm come to the credit union movement as a whole.
"In the big picture, yes, there are more important things than the conversion of these two credit unions," Arnold noted. "We wouldn't want to do anything that would harm credit unions. The issue of congressional scrutiny and the potential harm to the movement is debateable, but yes, we are all about credit unions and only want to support credit unions. That's why we want our credit union to stay a credit union."
