Throughout Lafayette Federal Credit Union's six-month campaign to convert to a mutual thrift, its president and chief executive has refused to respond a chorus of critics alleging that the conversion would only enrich officers and directors.
But in an interview with American Banker, Michael Hearne finally fired back at his detractors, arguing that a charter switch is the best way to ensure the Kensington, Md., credit union's continued profitability.
"It's not just by coincidence that there were 20,000 credit unions in the 1980s and there's only 8,500 now," Mr. Hearne said last week in his first interview in months. "The fact of the matter is that it is an unpleasant work environment for credit unions, particularly smaller ones."
The $330 million-asset Lafayette has hit one roadblock after another since unveiling its conversion plan in June. Members opposed to the plan have said repeatedly that a charter switch was not in their best interests and could lead to higher fees and less favorable rates on loans and deposits.
The National Credit Union Administration is double-checking the results of a Dec. 16 vote in which members approved the conversion by a mere 18 votes. On Friday the auditing firm that tallied the votes, RSM McGladrey Inc., announced that it has discovered errors that could change the outcome.
Mr. Hearne would not comment this week on an RSM McGladrey letter dated Jan. 5 saying that it had withdrawn its certification of the vote while it recounts the ballots.
But in the interview last week, he made his case for why Lafayette needs to convert. He also had some strong words for credit union trade groups that he believes are behind efforts to "derail" conversion efforts by Lafayette and other credit unions, and he questioned whether a tax exemption is reason enough for a credit union to remain a credit union.
Credit unions have been lobbying for legislation that would let them make more business loans and raise capital through means other than retained earnings, but so far lawmakers have been unreceptive.
Credit unions may never "get the kind of regulatory relief we've been working towards," he said. "So we've decided, 'Let's take this upon ourselves and change our charter now, while we're in good financial shape, rather than later, when we are forced to.' "
Losing tax-exempt status would be the most significant drawback of a conversion, but it is not a deal-stopper, Mr. Hearne said.
"Right now we've got about $6 or $7 million laying around doing nothing because regulatorily, as a credit union, & we've got to keep a couple million on deposit, not earning any interest," he said. "So we're already paying that tax."
Lafayette's members voted 2,555 to 2,537 to approve the board's plan to convert to a mutual thrift, but a group of members opposed to the plan immediately challenged the vote's integrity.
In a Dec. 21 letter, the opposition group urged the NCUA to invalidate the vote, alleging that Lafayette's board withheld information, mishandled ballots, and intentionally misled members. The agency has since contacted Lafayette as part of a review of the proceedings.
In the Jan. 5 letter to Lafayette, Dale A. Hotz, a managing director at RSM McGladrey, wrote that his Minneapolis firm had "discovered certain errors in the vote tabulation for the dates in question," which "may impact the overall outcome of the voting."
He also wrote that his firm is examining the nature and the cause of the errors and expects to have the results recertified by Friday.
Mr. Hearne said that credit union trade groups and a relatively new organization, the National Center for Members Trust, are behind much of the organized opposition.
(The center, founded by three credit union executives, supports groups actively engaged in conversion opposition throughout the country. It has provided legal support to the group opposed to Lafayette's conversion, and it helped create the group's Web site, www.savemycreditunion.coop.)
"The credit union industry - between the Credit Union National Association, the Maryland Credit Union League, the National Association of Federal Credit Unions, and this National Center for Members Trust, their avowed purpose is & no credit union converting is a good idea," Mr. Hearne said. "So they have organized specifically to derail these processes and make it as difficult as possible for people in my position and to dissuade others" who may be considering a conversion.
"Their whole idea is just to lob grenades into [Lafayette's] camp," he said. His credit union's strategy: "Don't respond to them, talk directly to members, and take the chance that we get abused for not being as responsive as we could have been."
Mr. Hearne also rebuffed criticism regarding the fate of branches inside two federal buildings. Conversion opponents have said he intentionally misled members into thinking the branches would remain open after the conversion, without having obtained written agreements with the building administrators to do so.
But Mr. Hearne said he expects the branches to remain open, regardless of the outcome of the conversion process.
He also said he has not been surprised by the controversy Lafayette's conversion bid has created, in light of the fierce opposition surrounding the recent conversion attempt by DFCU Financial Credit Union in Dearborn, Mich. However, he regrets his decision to avoid speaking to the press during this process.
"I probably, in hindsight, should have spoken to the press a little more, or at least taken a little bit more of a lead in getting our word out there," Mr. Hearne said.
Still, he argues that his staff went to great lengths to keep members informed.
"In addition to our disclosures and the Web site where we put all of our information up, I and & [Lafayette's chief operating officer] held eight different town hall meetings. We called literally about 10,000 members, just to make sure they got their ballots," Mr. Hearne said.
