Technology Credit Union in San Jose, Calif., had aimed to become the first credit union in more than three years to convert to a mutual thrift.
That effort failed, and the credit union's chief executive and an industry consultant blame the National Credit Union Administration.
Only 23% of the $1.6 billion-asset institution's members who voted backed the plan. Members voted on Sept. 12 but it took Technology Credit Union another week to disclose the outcome.
"Members at the special meeting voiced frustration, saying we did not make a compelling case," Barbara Kamm, the credit union's CEO, said in a Thursday release announcing the results.
"We, too, are frustrated that we were unable to communicate our views effectively and in the open manner we would have preferred," added Kamm, a former Silicon Valley Bank executive who joined the credit union in January 2010. She lamented "the regulatory process and the related rules that govern how credit unions can communicate about charter change with their members." Kamm could not be reached for additional comment.
Industry observers say the NCUA is to blame. If not for the NCUA, there would be a "flood" of credit unions converting to mutual savings banks, says Alan Theriault, the president of CU Financial Services in Portland, Maine, who has advised credit unions on conversions. He says the NCUA has made conversions nearly impossible over the past decade.
For instance, credit union managers must secure the NCUA's blessing for any pro-conversion statements they make to their institution's members. "It's very difficult for a credit union to talk about the real reasons for converting because the NCUA ultimately can invalidate their vote and force them to revote," Theriault says.
The last credit union to convert was Coastway Credit Union of Cranston, R.I. It switched in mid-2009, becoming Coastway Community Bank. Since January 2007, five credit unions have converted to mutuals; the largest was Think Mutual Bank, a $1.3 billion-asset thrift in Rochester, Minn.
The $197 million-asset Har-co Maryland Federal Credit Union in Bel Air and the $1.9 billion-asset HarborOne Credit Union in Brockton, Mass., have conversion applications and votes pending.
The NCUA has fortified its defenses to bar conversions because it is protecting its turf, Theriault says. "All these rules [have] created a minefield," he says.
Pressure from NCUA examiners is often cited as the reason for converting, says Douglas Faucette, a lawyer at Locke Lord. "The guys that want to do this are those looking for greater investment powers, particularly credit unions that are heavily invested in mortgage loans. They're getting pressure from regulators saying they've got too much concentrated in mortgages."
The NCUA did not return a call seeking comment.
The NCUA's rules make sure that a credit union's members are fully informed about what managers are trying to do, says Pat Keefe, a Credit Union National Association spokesman. "There should be transparency," Keefe says. Members should "be fully informed what's in it for them and know they have the right to make decisions about what happens to the institution that they own."
There are sound financial reasons to convert that offset losing tax-exempt status. Theriault says mutuals have more options to raise capital and are no longer limited by membership rules. There are also concerns about the viability of the NCUA's Share Insurance Fund after the failures of some corporate credit unions.
"There is a clear advantage to being a part of the Federal Deposit Insurance Corp.'s Deposit Insurance Fund, Theriault says.