Though there is no evidence that any of New Jersey’s 20 state-chartered credit unions are interested in becoming thrifts, a lawmaker there is set to unveil legislation that would allow them to do so anyway.
State Sen. Peter Inverso — who is also a banker — said his bill would let state-chartered credit unions become mutual thrifts if a majority of the members casting ballots in a conversion election approve. He said he plans to introduce it next month.
Though its prospects are uncertain, the legislation will probably draw additional attention to a once-fringe issue that in recent weeks has vaulted to the forefront of the long-running battle between banks and credit unions.
On July 11 the National Credit Union Administration, citing a technicality, blocked a Texas credit union from becoming a bank — even after members approved the charter change by a wide margin.
The decision invalidating the conversion vote of the $1.4 billion-asset Community Credit Union in Plano, Tex., prompted a firestorm of criticism from Congress, banking trade groups, and limited-government activists. The next day Rep. Patrick McHenry, R-N.C., introduced a bill that would limit the NCUA’s authority in approving conversions of credit unions to thrifts.
Sam Damiano, the president of the New Jersey League of Community Bankers, insists that the proposed New Jersey legislation is not a response to the controversy surrounding the NCUA’s actions.
Indeed, he and other supporters acknowledge that the legislation would not prevent the agency from invalidating conversion votes of New Jersey-chartered credit unions.
Mr. Damiano said he brought the issue to the attention of Mr. Inverso, the president and chief executive of the $741 million-asset Roma Bank in Trenton, simply as an effort to repair an oversight in the state code, which makes no mention of conversion for state-chartered credit unions. The legislation, if passed, would give them the same option to convert that federally chartered credit unions have.
“This is a straightforward piece of legislation. Right now there is nothing in the code” that would let a credit union become a mutual thrift, said Mr. Damiano, whose group represents about 30 New Jersey mutuals.
Mr. Inverso, a Republican, said it is possible that credit union officials would misunderstand his motives.
“There will be some who will believe this to be a reaction to the position the NCUA has taken to stymie conversions,” he said.
Scott Rekant, a spokesman for the New Jersey Credit Union League, declined to comment, saying he did not know much about the proposed bill. But Michael A. Horn, counsel to the league, said credit unions should support it.
“I cannot imagine why credit unions would oppose this, since all it does is give them another option,” said Mr. Horn, who is helping to draft the legislation.
Marshall McKnight, a spokesman for New Jersey’s Department of Banking and Insurance, which regulates New Jersey-chartered banks and credit unions, said the agency was aware of Mr. Inverso’s proposed bill and would support it.
Because only about two-dozen credit unions have become thrifts since 1995, conversion has historically been a minor issue in the feud between banks and credit unions, overshadowed by larger issues such as taxation, field of membership, and business lending.
But banking trade groups pushed it to the top of their agenda after the NCUA invalidated Community Credit Union’s conversion bid because it said a disclosure document mailed to members along with the ballot was folded improperly. More than 36,000 members voted in the election and 71% approved the changeover.
After the regulator announced its decision, Community filed a lawsuit in the U.S. District Court for the Eastern District of Texas asking a judge to overturn the ruling. The case is pending.
On Friday the Credit Union National Association and the National Association of Federal Credit Unions, the industry’s two largest trade groups, filed friend-of-the-court briefs supporting the NCUA ruling.
