The National Credit Union Administration has outlined nearly two dozen concerns about the disclosure materials drafted by a $1.8 billion-asset Dearborn, Mich., credit union seeking to become a mutual savings bank.
The agency lacks the power to stop DFCU Financial Federal Credit Union, which serves Ford Motor Co. employees, from switching its charter, but the agency can dictate the terms of the member vote and the disclosures to members. If the agency objects to the disclosure documents or the way the vote was conducted, it can invalidate the result and force the credit union to try again.
Critics of the NCUA claim that it has used its authority to throw roadblocks in the path of credit unions that want to become banks, and that the response to DFCU is another example of regulatory abuse.
In its Jan. 12 letter to DFCU's lawyers, the NCUA twice raised the specter of overturning the result if its concerns were not addressed.
"We're certainly in favor of full and fair disclosure, but I can't help but get the feeling that we've heard all this before," said Krista Schonk, a regulatory counsel at America's Community Bankers. She said that the NCUA cited disclosure concerns in a failed effort to block two Texas credit unions from converting last summer.
In those cases, the $1.4 billion-asset Community Credit Union in Plano and the $1.1 billion-asset OmniAmerican Credit Union in Fort Worth sued the NCUA after regulators moved to overturn their conversion votes, objecting to how disclosure statements mailed to members were folded.
The NCUA backed down, and both credit unions later converted.
A consultant working with DFCU predicted that the disclosure problems would be resolved, and that the conversion process would get back on track soon. A DFCU spokeswoman did not return a call for comment.
"I don't think there is anything we won't be able to comply with," Alan Theriault, the president and chief executive officer of CU Financial Services in Portland, Maine, said Monday. "There are no deal killers."
DFCU, which would be the largest credit union to undergo a conversion.
Mr. Theriault, who also advised Community Credit Union (now ViewPoint Bank) and OmniAmerican, said that DFCU's disclosures were "substantially the same" as the Texas credit unions'. But he said that the NCUA was far more critical of the Michigan institution's disclosures.
"The only problem it had with Community and OmniAmerican was the way the pages were folded," Mr. Theriault said. "This time they gave us 10 pages of comments on a 12-page document."
Among other things, the NCUA reproached the credit union for urging members to vote quickly; downplaying the fact that they have up to three months to cast their ballots; failing to make it clear that members could chose to vote in person at a special meeting; and offering to mail ballots on members' behalf to the third-party vote-counter.
Observers questioned the merit of some of the NCUA's comments.
For instance, the agency questioned DFCU's plan to appoint the members of its supervisory committee to its board of directors after the conversion. David Baris, the executive director of the American Association of Bank Directors, said that a credit union's supervisory committee is analogous to a bank's audit committee, and that audit committee members are always directors.
"The only stipulation is that members of the audit committee have to be independent of management, but they are expected to be board members," Mr. Baris said Monday.
Keith Leggett, an economist with the American Bankers Association, said Monday that the NCUA's comment about the supervisory committee shows "they don't really understand the corporate governance structure of banks."
Mr. Theriault said that DFCU submitted a revised disclosure package Monday and plans to begin mailing ballots to members as soon as it gets the NCUA's approval. Nicholas Owen, a spokesman for the agency, said it has up to 30 days to respond.
Once the ballots are mailed, DFCU members would have 90 days to vote. DFCU would need to win a majority of the votes cast for the conversion plan to take effect.
