For the increasing number of credit unions that want to become federal mutual thrifts, parting with the National Credit Union Administration can be quite painful.

Converting credit unions and the lawyers who prepare applications for these institutions say that the process of abandoning the federal credit union charter is unusually cumbersome and costly.

"NCUA doesn't want these institutions to leave the system," said Robert L. Freedman, a partner with Silver, Freedman & Taff law firm here who has successfully navigated the NCUA's approval process. "When an agency doesn't want you to do something, it can make life very difficult."

"There are always hurdles in conversions, but NCUA seems to have set them higher than anyone else," agreed Charles E. Sloane, a partner here with Malizia, Spidi, Sloane & Fisch law firm.

Under NCUA rules, a majority of a credit union's members must approve a conversion, the voting must be completed in 30 days, and communication with members is restricted, these lawyers complain.

NCUA officials defended the rules Thursday, saying they are necessary because credit unions are unique institutions.

"Credit unions are democratic cooperatives owned by members," said Robert Loftus, NCUA's director of public and congressional affairs. "We are happy to have people leave our fold, but by people we mean the owners of the credit union, not the officials running it. And those people should be as informed about the process as possible."

NCUA has approved charter conversions for four institutions, but only two-Lusitania Federal Credit Union, Newark, N.J., and Awane Federal Credit Union, Peterborough, N.H.-have become mutual thrifts.

The members of Citizens Community Federal Credit Union, Eau Claire, Wis., voted in June against making the switch.

Members of the fourth, Bucs Federal Credit Union, Owings Mills, Md., are expected to cast their votes on the conversion early next year.

Affiliated Federal Credit Union, Hurst, Tex., filed its application to convert on April 25. The NCUA did not respond until Oct. 17, when it asked the institution to revamp its prospectus, said Kenny L. Lee, president of the $8.5 million-asset credit union, who accused the agency of dragging its heels.

"They really haven't been responsive," Mr. Lee said. "This is all certainly quite a challenge."

Affiliated has the only application pending at NCUA, but as many as 20 other federal credit unions are contemplating the move, said Alan Theriault, president of CU Financial Services, a consulting firm that helps credit unions switch charters.

Interest in switching to mutual thrift charters increased after a 1996 court decision barred occupation-based federal credit unions from adding new companies to their fields of membership. NCUA has appealed the case to the Supreme Court, and a decision is expected early next year.

The biggest hurdle faced by conversion-minded credit unions is the strict voting requirement mandated by NCUA. To leave the NCUA's jurisdiction, a majority of the credit union's members must approve the conversion. What's more, members who don't vote are tallied as voting against the switch.

By comparison, converting to a state credit union requires only a majority of voting members under NCUA rules.

"Nowadays it is difficult to get anyone to vote, much less half of a credit union's members," Mr. Sloane said. "If the president had to get elected with a majority of votes, we'd never have a president."

Mr. Theriault, who advised Awane Federal throughout its conversion, said a major difficulty that the credit union faced was the short amount of time-one month after mailing ballots-the NCUA allots to collect votes from members.

"A window that incredibly short is highly unusual in the corporate world," said Mr. Theriault.

In addition, after the initial prospectus and ballot is mailed out to a member, the credit union is banned from simply mailing a postcard as a reminder to vote. Rather, any mailings must be accompanied by another full copy of the prospectus, which is often 80 pages.

"Members, especially the ones that keep small deposits, often ignore the first mailing," Mr. Theriault said. "Resending a prospectus makes the postage costs skyrocket by as much as $1.75 per member."

Lawyers argued that the conversion requirements simply add up to a major headache, Mr. Fisch said.

"Looking at all of these factors, I cannot reach the conclusion that NCUA is facilitating the democratic process," said Richard Fisch, a partner with Mr. Sloane's firm. "They have put in place procedures that are overly cautious, costly, and unnecessary."

Mr. Fisch noted that other federal regulators do not mandate such stringent exit requirements. For example, healthy federal mutual thrifts that wish to convert to stock ownership are required to get approval from a majority of voting depositors and simply give the Office of Thrift Supervision a month's notice of the change.

Similarly, a national bank that wants to leave the Office of the Comptroller of the Currency's supervision needs only to file a notice with the agency.

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