Surprise Witness Slated For Conversion Hearings

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Congressional hearings this week on credit union conversions to mutual savings banks won't do much to further a bill that would ease NCUA's powers over the conversion process but will shed a lot of light on what is happening behind the scenes.

One witness who will be shining that light is Tom Dorety, president of Suncoast Schools FCU, who was approached a couple of years ago by some of the entities that have engineered the latest credit union-to-bank switches.

Dorety, who heads Florida's biggest credit union, will be appearing before the House Financial Services Subcommittee on Financial Institutions on behalf of CUNA.

He will tell the panel how he was promised stock, options and other riches of as much as $35 million if he were to take his $4-billion credit union down the road to publicly held savings bank.

Dorety, of course, rejected the entreaties, but others have not. Witness the recent conversions of Community CU (now Viewpoint Bank) and OmniAmerican CU (now OmniAmerican Bank) and the failed conversion of DFCU Financial.

Top executives in the two erstwhile Texas credit unions stand to earn millions of dollars in benefits over the next few years as their former credit unions evolve into publicly owned banks.

This week's hearing will focus on a bill by Rep. Patrick McHenry (R-NC) that would ease NCUA's powers over the conversion process by first preventing NCUA from requiring prospective credit union-converts to disclose plans beyond converting to mutual savings bank. That includes plans for stock offerings that have been shown to enrich insiders.

The McHenry bill would also limit NCUA's involvement in the drafting of ballots and other disclosures, unless those communications have fraudulent or inaccurate statements in them.

While McHenry conceded his bill has little chance of passing this Congress, it could lay the groundwork for future debate or legislation in the next Congress. For example, it could be attached to the Credit Union Regulatory Improvements Act (CURIA), which will not be acted on this Congress, but is expected to resurface next year.

A witness for NAFCU is expected to tell the lawmakers that NAFCU and the credit union movement as a whole do not object to a credit union conversion if that is the will of the membership.

But NAFCU's representative will suggest that any reforms to the system ensure that any benefits accruing insiders be clearly spelled out during the process-in fact NAFCU will suggest a 10-year ban on insider enrichment after the conversion. NAFCU will also suggest a member quorum of at least 20% of the membership be required in a vote to convert.

The group will also suggest that credit unions seeking to convert to mutual savings bank be allowed, even required, to hold member meetings before the board votes to explain the process and the benefits of the conversion.

This last recommendation is supported by NCUA, which will be targeted at the hearings by the banking lobby for being unreasonable in its oversight of the conversion process.

The banking groups expected to testify, including the savings bank trade association America's Community Bankers, have cited NCUA rules for restricting communication between management and members during the conversion process.

Of course, there are no such restrictions and, in fact, NCUA has urged credit unions going through the process to expand communications with members, even to the extent of holding special educational meetings.

The American Bankers Association has capitalized on last year's congressional criticisms of NCUA's handling of the Community Credit Union and OmniAmerican Credit Union conversions and added additional criticisms of the credit union regulator-an extension of the bankers' long war with credit unions.

The aim is to keep the heat on NCUA so that it affects actions in other areas, like field of membership.

But NCUA officials insist they are not intimidated and will explain to Congress their intention in monitoring credit union conversions is to shed more light on the process and contribute to a better-educated membership in the voting process.

The voting process is bound to bring the whole issue of credit union democracy into question. Among the potential issues for discussion during this week's hearings are:

* Whether credit unions that regularly use raffles to draw greater participation in elections, may use the same raffles to boost participation in conversion votes.

* Whether directors, many of whom are elected by 1% of membership year after year, are entitled to make the decision to launch a conversion.

* Whether the members, who have voted by a majority in every single credit union conversion, have been adequately informed of the ramifications of their vote.

* Or more prominently, at least in the DFCU Financial case, whether it is fair for 1% of members to act to remove a board for trying to convert the credit union to a mutual savings bank.

Ed Roberts can be reached at robertscuj cujournal.com

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