NCUA Conversion Rules Mock Democracy
The credit union movement is based on the principle of democratic governance by members. It is a wonderful melding of free enterprise and the ideals that underpin our democracy.
But that was not evident in the Technology CU conversion. Democratic governance was thwarted by the heavy hand of NCUA and vigilantes that are unaccountable for their distortions and misstatements about charter conversion. Assertions by both sides were never subject to open debate.
You may or may not support conversion to a mutual bank charter. You may not agree that Technology Credit Union made the right choice. But you should be concerned that NCUA and the vigilantes prevented the credit union and its members from having an informed debate and choice about whether or not conversion is a valid option.
NCUA has created a charter change regulation that is overly restrictive and it clearly impedes Congressional intent to allow credit unions and their members to choose a mutual savings bank charter.
The NCUA charter change regulation-2 CFR 708a-says that its purpose in writing this rule, "is to be no more restrictive than those of other regulators." Given that guidance, how do the NCUA charter change rules compare to those of other regulators?
* 12 CFR Part 708a as amended by NCUA in December 2010 contains 6,110 words.
* The OTS's regulations governing a conversion of a federal savings bank to a national bank or state bank (12 CFR 563.22b) contains 125 words.
* The OCC's regulations governing the conversion of a national bank or state bank or federal savings bank (12 CFR 5.24 (e) and (f) contain 289 words.
Exercise in Government Control
The NCUA charter change process is an exercise in government control. The charter change rule makes NCUA the arbiter of what is best for members-not the elected board of directors.
At Technology CU every word and punctuation of all member communication had to be approved by NCUA. In essence member communications were dictated by NCUA. The NCUA further biases conversions by including a "warning to members" that in so many words says a conversion is a mistake. That warning makes the opposition's case.
Technology CU sent the opposition member's communications to the members "as is," including statements that they considered to be untrue or distortions of the facts Technology CU did not rebut the misstatements and distortions, because in other conversions NCUA only censored and altered board communications and not those of members who oppose conversion.
The conversion debate was one-sided. Imagine being in a debate and your speech is written by your opponent and the rules say that you can't rebut any of the opponent's words unless your opponent approves your reply. Those are the grounds rules set by NCUA.
The main statement against conversion by the opposition is that insiders get rich. That statement is pure speculation and ignores the fact that the FDIC clearly has rules which prevent insider abuse. The banking regulator has rules which govern the conversion process and prevent insider abuses and unfair enrichment.
The opposition claimed that after conversion rates and fees would be less favorable. This is also speculation. That statement just doesn't make any sense. Rates and fees are subject to market demand. If rates are not competitive savers move their money and borrowers borrow elsewhere.
The opposition pointed out that the credit union hired bankers in anticipation of conversion. If every credit union that hired bankers was taken to task, it would be a long list. Many of our best employees come from banks.
'Motives of Self-Interest'
The members of Technology CU never had a fair debate or an informed discussion. NCUA and the trades are both fighting conversion. They imply insiders are converting for their own benefit. But regulators and the trade associations clearly have motives of self-interest.
Why does NCUA allow conversion opponents to make unsupported and damaging allegations? Other regulators protect their institutions against unsupported statements. A state banking regulator prohibited credit unions from using the word "bank." NCUA has allowed Technology Credit Union's board and management no defense against the opposition's allegations.
Congress gave credit unions a very powerful option to convert to mutual savings bank. That option is one more tool to hold NCUA accountable. That option gives credit unions an exit strategy and the option to choose the set of rules, the best regulator and the best insurance fund. The option to choose your regulator and insurance fund is your best tool for holding both the regulator and insurance fund accountable for their performance.
Vigilantes At Work
The opposition was, in my opinion, supported by a hidden group. I call them vigilantes. The vigilantes who provided the opposition their information refuse to show themselves. They criticize the consultants and others who advised Technology CU. But all of the credit union's consultants work in the full light of day. It is easy to criticize those who support conversion but at least they are out in the open and accountable.
Technology's board and management will pay a big price for the risks they took. The vigilantes who supported theopposition will lash out again the next time someone dares to convert. And NCUA and its stacked deck of charter change rules will be there to help them.
The NCUA charter change process is government overreach and abuse of authority. The NCUA's motives are very clear. They have made it possible for vigilante justice to rule credit union conversions. The truth is whatever NCUA and the vigilantes say it is. Boards, management and the consultants they hire are portrayed to be the enemy and motivated by greed.
Credit unions are living in the NCUA Hotel. You can check in anytime you like, but you can never leave. If you want to convert to a mutual savings bank-you are risking your career and reputation. That isn't democracy.
Henry Wirz is CEO of SAFE Credit Union, N. Highlands, Calif.