Texas CUL Adopts Position On Conversions

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The Texas CU league, faced with two proposed conversions to banks by billion-dollar credit unions, will not formally oppose those moves, but instead said it will seek to tell members that conversions are "not in their best interests."

The league's position was formulated by a task force formed by TCUL CEO Dick Ensweiler in the wake of announcements by Community CU, Plano, and OmniAmerican CU, Fort Worth, that they are seeking to become mutual savings banks.

The task force has recommended that the league "pursue state regulatory changes" to strengthen the Texas Credit Union Department's requirements for credit unions to convert.

Ensweiler told The Credit Union Journal that the changes will not include requiring a two-thirds vote by members to convert in place of the current rules, which require a simple majority approve a change in charters. Instead, the changes the league intends to pursue is that adequate information is disclosed to members, he said.

"What we want to do is make sure that the state has disclosure guidelines. Beyond that we will be looking to see what other remedies there can be but there is no interest to push that into a two-thirds vote," he said.

A two-thirds majority vote is required in Michigan, where Lake Michigan Credit Union recently failed to get the two-thirds vote it needed to convert, even though a majority of members voted in favor.

Ensweiler said that while a two-thirds vote was a consideration at one point, the idea was left behind. "We don't think it is our role to inhibit members from doing what they want. We just want them to make an informed decision."

The regulatory changes being sought are to have disclosures in Texas "equal to what the NCUA requires at a minimum." Earlier this year NCUA adopted more stringent disclosure requirements for federal credit unions seeking to become mutual savings banks.

The Texas league said that as part of those disclosures it wants to see members informed about the "personal gains to be had by directors or officers in the event of a conversion."

"If there is an opportunity for people to personally profit it should be disclosed," Ensweiler explained. Another area that may deserve attention relates to any eventual sale of stock, he said.

Ensweiler said the league will also try to reach out on its own to credit union members beyond what a converting credit union would be required to publish.

He said that the league has not yet decided how it will inform members of the two CUs currently seeking to convert in Texas that they would be best served by a CU and not a bank.

"We just got the policy adopted and we are now strategizing how to implement it," he said.

A mass media campaign with television ads has been ruled out in part because the NCUA already has mandated disclosure requirements.

Ensweiler said that efforts to target members of these credit unions are difficult because of lack of adequate data. "We don't know who the members are," he said.

He said that the credit union league would most likely publish its position on a website.

The league is not rushing to develop a strategy as any possible conversion would likely take some time. "Neither credit union has been approved by NCUA to pursue this so the urgency isn't there," he said.

Gary Tuma, president and CEO of the $280-million Smart Financial CU in Houston and chairman of the task force that made recommendations to the league for its policy on conversions, said that instead of hiring third party to voice the league position, Ensweiler has been charged wtih filling that role.

An ad campaign may not be necessary as there can be other type of communication, such as interviews on radio or in other local media. "There are a number of different ways to communicate in a community," he said.

Like Ensweiler, Tuma noted that credit unions seeking to convert may cite needs such as additional capital, but should also disclose the possibilities of personal enrichment for insiders.

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