Lafayette Federal Credit Union's bid to convert to a mutual savings bank has touched off a fresh round of controversy in the long-running debate over credit union conversions.
Though the Kensington, Md., credit union filed its conversion application with the Office of Thrift Supervision on June 12, it did not release a public statement about its plan until Wednesday.
The timing of the application, coupled with Lafayette's two-month silence, has raised suspicions about its motives. At a rally in Washington on Thursday, lawmakers and some credit union members suggested that the $331 million-asset Lafayette was trying to rush the conversion through before new rules governing the process take effect.
Eleanor Holmes Norton, the District of Columbia's nonvoting delegate to the House of Representatives, called on Lafayette's board to delay its conversion to give its members more time to examine the plan's details and implications.
"I put the board and those who are helping them on notice," Rep. Norton said outside Lafayette Federal's branch at the Ronald Reagan Building and International Trade Center. "This is the wrong city, and this is the wrong time, to rush a conversion of a credit union to a bank, short of total transparency and maximum fairness."
A proposed rule the National Credit Union Administration issued June 22 is meant to ensure credit union members are informed appropriately when a credit union tries to convert.
The rule would require a credit union's board to provide members with advance notice of its intent to vote on a conversion proposal, creates a way for members to express their views on the proposal before a vote, and stipulates that directors can vote in favor of a conversion only if they feel it serves the members' best interests.
The change would be the third in as many years in the NCUA's rules on conversion disclosures. The additional disclosures have significantly slowed down the conversion process and in some cases have led to credit unions' abandoning plans altogether. In April, DFCU Financial Federal Credit Union in Dearborn, Mich., withdrew its plan to become a savings bank after a member revolt. The $1.8 billion-asset DFCU would have been the largest credit union in history to convert.
Michael V. Beall, the president and chief executive officer of the Maryland and District of Columbia Credit Union Association, said Lafayette's board, "seems to have worked to try to get in under the previous rules."
But Michael Hearne, Lafayette's president and CEO, said in a press release Wednesday that it had discussed the conversion plan at its annual meeting in May - weeks before the NCUA issued its proposed change.
The deadline for comments on the NCUA proposal is Monday.
"The timing of the proposed conversion was not related to the proposed rule in any fashion," said Kent Krudys, a partner at Luse Gorman Pomerenk & Schick PC, which is representing the credit union in the conversion.
Most credit unions that convert do so because savings banks have fewer restrictions on raising capital and expanding into new markets. About 30 credit unions have converted to thrifts in the last decade.
In its press release, Lafayette said that it had received a letter from the NCUA clearing it to proceed with the next phase of the conversion process.
Within the next several weeks the credit union plans to send its members the first of three mailings, which will include a discussion of the board's rationale for the conversion and how it would serve the best interests of members.
But some Lafayette members, including Scott Stiens, an Agency for International Development employee, say they are not convinced that the board has the members' best interests at heart. Many converting credit unions have later gone public, rewarding directors and officers with significant amounts of stock.
"They stand to be enriched at the membership's disadvantage," Mr. Stiens said.
He also said he is concerned that the conversion could lead to new fees and higher interest rates, because Lafayette no longer would be tax-exempt.
If members were fully informed about the conversion, "they would vote against it," Mr. Stiens said. "If they wanted to go to a bank, they could go down the street right now and pay more."
Alan Theriault, the president and CEO of the Portland, Maine, consulting firm CU Financial Services, which advises credit unions on converting to thrifts, said conversion opponents focus on director and officer compensation because they cannot make a good argument that service will suffer.
"They are trying to pick up on the popular aversion to CEOs and directors making more money than people think they should," he said. "That's an idea that sells."
Mr. Hearne said in the press release that members would vote on the proposal either by mail or at a special meeting that would be held this year.
He also said that Lafayette waited until Wednesday to provide further details about its plan because "we wanted to ensure that any public statements we make now or in the future are consistent with what we submitted to the NCUA for our members in connection with the special meeting."
Alan Kline contributed to this story.
