Nearly two years after federal credit unions won authority to expand their fields of membership, Joe Schroeder, president and chief executive officer of Rockwell Federal Credit Union in Downey, Calif., is still waiting for permission to solicit new customers.

Mr. Schroeder said he had hoped that the Credit Union Membership Access Act would allow Rockwell, which serves employees of Rockwell International Corp., to expand its membership to include Boeing Co. employees. Boeing acquired Rockwell's defense unit in late 1996.

The National Credit Union Administration - the regulator of federal credit unions - has yet to give $462 million-asset Rockwell Federal the green light, however, because it believes there are enough credit unions serving Boeing in Southern California.

Rockwell Federal's solution: conversion to a state charter. As Mr. Schroeder sees it, California regulators are more likely than federal regulators to look favorably on applications by credit unions to expand their fields of membership.

"There is no doubt in my mind that it is tougher for federal credit unions [to expand] than it is for state credit unions," said Mr. Schroeder.

Mr. Schroeder's opinion is widely shared in California, where 22 federal credit unions converted to state charters from 1996 to 1999. Twelve more, including Rockwell, have applied for state charters in 2000.

California is trying to capitalize on the unrest by improving its credit union charter.

One bill in the Legislature would permit state-chartered credit unions to underwrite and sell fire, casualty, and life insurance policies. The legislation sailed through the Assembly Banking and Finance Committee, passing 13-0 in an April 24 vote, and insiders said the bill could win final approval in late August.

Not surprisingly, banking groups fiercely oppose the bill.

"This is the type of bill you get when you have a cheerleader for a regulator," said C. Kendric Fergeson, chairman and chief executive officer of National Bank of Commerce in Altus, Okla. Mr. Fergeson serves on the American Bankers Association's governmental affairs committee. "California is not interested in regulating credit unions; it just wants them to get bigger and bigger."

Conversions are not limited to California. Since 1997, 136 credit unions nationwide have switched from federal to state charters. By contrast, from 1997 to 1999 only 16 state-chartered credit unions took the reverse route.

The nation's top credit union regulator, NCUA chairman Norman E. D'Amours, downplayed the statistics and even pointed out that the rate of federal-to-state conversions is slowing. But a prominent trade association official is predicting a new spate of defections by federally chartered credit unions.

Bank trade groups, meanwhile, are keeping a close eye on the debate. Though bankers would normally be celebrating glitches in implementation of the credit union law, some are concerned about various state bills that could give even more bank-like powers to tax-exempt credit unions.

Industry observers say the trend is driven by two factors. First, they say that despite the passage of the credit union legislation in 1998, the NCUA is still proceeding cautiously in granting approvals for expansion. Second, state lawmakers and regulators are simply making state credit union charters more attractive.

Fred R. Becker Jr., president of the National Association of Federal Credit Unions, expects more federal credit unions to switch. He said many credit union executives are convinced that federal regulators are giving too narrow an interpretation to the Credit Union Membership Access Act. "I think the numbers of conversions will pick up along with the asset size" of the converting credit unions, he said.

"This is a matter of significant concern," Mr. Becker said. "I have heard more about the federal charter than any other issue since I started this job [on Jan. 31], and I continue to hear more about it from federal credit union executives."

Take Rob Givens, president and chief executive officer of the $167 million-asset Whittier (Calif.) Area Federal Credit Union.

Mr. Givens wants Whittier, which mainly serves teachers, to become a community credit union, open to anyone who lives, works, or worships in Whittier. Both federal and state charters permit community credit unions, but state regulators make the conversion process much easier, Mr. Givens said, adding that the state has approved similar applications for several competing credit unions.

"With the federal regulators, we were looking at adding groups one at a time, and that creates a lot of overhead," Mr. Givens said. "We wanted to streamline the process instead of going through a bunch of applications, and state regulators are a little easier to work with."

Mr. D'Amours, however, said most states pattern their credit union charters after the federal charter, giving their regulators the same authority as the NCUA. He added that most of the federal credit unions that have converted to state charters are located in a few states - most prominently California - that have "liberal" field-of-membership regulations.

Indeed, last year California had 17 federal-to-state conversions. The next highest state had two.

Mr. D'Amours also said the pace of conversions has slowed, from 65 in 1997 to 41 in 1998, and to 30 last year.

Still, Mr. D'Amours said he would "take whatever steps are necessary" to prevent an exodus from the federal charter. He said the NCUA board would study the membership issue, though he appeared to rule out any sweeping changes.

"I do not think that there are any systemic problems, but we are going to do what we can to see that [regulators] act on applications as expeditiously as is reasonably possible," he said.

According to NCUA figures, there are 10,628 federal and state credit unions in the United States, with 75.4 million members and $411.4 billion of assets. If an exodus were to occur among the more than 6,500 federal credit unions, the entire industry would suffer, Mr. Becker said.

"We have a dual chartering system, just like banks," Mr. Becker said. "To the extent both are viable, it is good for the economy and good for the country."

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