ALEXANDRIA, Va. -
The self-styled Coalition for CU Charter Options has fought NCUA efforts to regulate conversions for at least five years and is represented in its suit by long-time thrift lobbyist Jim Butera, and is headed by Lee Bettis, former CEO of AGE FCU, which he helped convert to a thrift. Butera also represents the American Bankers Association, and he helped craft the proposal to ease credit union conversions to thrifts, which failed in the last Congress.
Despite claims to represent credit unions, the group has yet to divulge any names of its credit union supporters or contributors, even in the court documents. "I can't tell you who the credit unions are. There are many credit unions who are members of the coalition, and many credit unions who have contributed to the Coalition," said Bettis, a regular critic of NCUA's practices on regulating credit union conversions. "I can assure you, there are many, many credit unions."
The suit claims NCUA violates 1998 amendments to the Federal CU Act, passed as part of HR 1151, the CU Membership Access Act, which require it to adopt substantial regulations on conversions to other charter types required by other federal regulators. The 1998 law was passed by Congress to ease field of membership in the face of a Supreme Court ruling that barred multiple group additions.
The suit asks the court to bar NCUA from enforcing enforcing the new rules, just as four credit unions are in the process of converting to mutual savings banks.
Protecting Consumers
NCUA Chairman JoAnn Johnson responded to last week's suit by saying the conversion rules were aimed at protecting consumers/members of credit unions and she is confident they will stand up to the legal challenge.
"The new conversion rule," Johnson said, "enhances the ability of the members of credit unions to make informed decisions about their ownership of the institution, and how that ownership would change if a conversion to another form of financial institution would occur. Consumers deserve more, not less, transparency and openness as they consider their choices. NCUA stands firmly behind the credit union members, and looks forward to the court's review of this fundamental issue."
The original rules governing conversions were set out in little-noticed amendments to the Federal CU Act, included in HR 1151, and they remained unchanged until 2004. That's when a number of larger credit unions, including several billion-dollar giants, began the process to convert, and NCUA reacted by amending its rules to include more disclosure requirements.
NCUA Rebuffed By Federal Court
In fact, NCUA was rebuffed by a federal court when it tried to block the conversions to banks of $1.4-billion Community CU (now Viewpoint Bank) and $1.2-billion OmniAmerican CU (now OmniAmerican Bank). Since then, two billion-dollar credit unions have sought to switch to banks, with one, $1.4- billion Think FCU, succeeding, and another $1.8-billion DFCU Financial withdrawing its application in the face of member opposition.
HR 1151, the suit points out, required NCUA to adopt rules on conversions that are "consistent with rules promulgated by other federal regulators, including the Office of Thrift Supervision and the Comptroller of the Currency," and are to be "no more or less restrictive than that applicable to charter conversions by other financial institutions."
But, the suit notes how NCUA began changing the rules, as the number and asset size of credit unions seeking to convert began to increase, with the agency adding a series of new regulations making it increasingly more difficult and expensive for credit unions to convert their charter." It cites examples, such as required 'boxed" disclosures that suggest credit unions offer better loan and deposit rates and that credit union members will lose their voting rights on conversions to mutual savings banks. It cites other disclosure requirements, such as those stating directors and management may receive an increase in compensation.
Such "boxed" disclosures are not required by other regulators, the group points out in the suit.
In December, NCUA amended its regulations for the third time since 2004, requiring, among other things, advance publication of the board of directors' plans to vote; establishment of a means of member-to-member communications; individually signed certification by each director in support of the conversion; ballot limits; and bans on certain statements not previously approved by NCUA.
These requirements, according to the Coalition, are all in excess to those of the OTS and OCC.
"As a result of the amendments," says the suit, "the NCUA charter conversion regulations are now 20 times longer, manifestly inconsistent with and indisputably more restrictive than the rules promulgated by other financial regulators.
"The regulations added in 2004, 2005, and 2006 are without legal basis and, in fact, represent a less than subtle effort by the NCUA to subvert the will of the Congress as expressed in (HR 1151) and to deprive the (coalition members) of their statutory and constitutional rights," they claim.
"Every year, it gets harder and harder for credit unions to convert," Bettis said last week.
The shadowy Coalition, though it won't disclose who it represents, has been fighting NCUA on behalf of those credit unions trying to switch to banks for several years. Some of the supporters of the group, in fact, helped to get the conversion regulations into HR 1151. Those provisions were little-noticed by the credit union lobby, mainly because there were few credit unions converting at the time, and those that were small.
The group, along with thrift lobbyist Butera, was also influential in getting Rep. Patrick McHenry (R-NC) to introduce a bill in the last congress that would restrict NCUA's power over conversions and ease the way to more credit union charter switches. The bill was never voted on.
