Only one New York credit union has ever converted to a mutual savings bank, but that could change now that Gov. George E. Pataki has signed legislation making it easier for state-chartered credit unions to switch.
The bill, which had the full backing of the state’s banking industry, will eliminate the requirement that credit unions obtain the approval of the New York State Banking Department before getting a member vote. The department, which regulates all New York State-chartered financial institutions, had no comment on the law, which Gov. Pataki signed last week and takes effect Jan. 1.
The New York Credit Union League did not support the bill and there is no evidence that its members are clamoring to become banks, according to Michael A. Lanotte, the league’s senior vice president and general counsel.
Mr. Lanotte said the bill was spearheaded by banks, which have been increasingly vocal in their opposition to credit unions’ expanding fields of membership and growing involvement in business lending.
Michael P. Smith, the president of the New York Bankers Association, said his group was not behind the introduction of the bill but strongly supported it.
“In our view, if a credit union wants to have the powers of a bank, they ought to convert,” he said.
Despite the fact that only 21 credit unions nationwide have ever switched to bank charters, conversion has emerged as a contentious issue.
Credit union trade groups, the National Credit Union Administration, and a number of state regulators object to the practice because it weakens their industry while strengthening banks.
Bankers, not surprisingly, encourage it because every credit union that converts means one less tax-exempt competitor.
Just three weeks ago, the NCUA, which regulates federally chartered credit unions, approved a rule that toughens the disclosures they must make to members before taking a conversion vote.
Bank trade groups claim that the new rule is intended to put more obstacles in the way of credit unions seeking to convert.
As a result of the changes, converting credit unions must now distribute a series of NCUA-drafted statements to members warning them that they could lose their voting rights and see their institution sold to a stock-traded company if it becomes a bank.
Using its powers as the industry’s insurer, the NCUA has made the disclosures mandatory for state-chartered credit unions as well as the federal chartered ones it oversees.
“What NCUA is trying to do is put up a wall,” said Alan D. Theriault, a consultant who works with credit unions interested in converting. “It knows it can’t give credit unions any more powers, so it’s trying to keep them from” becoming banks.
If 2004 is any measure, more credit unions are becoming interested in converting. Three have done so this year and a fourth, Sunshine State Credit Union in Tallahassee, is in the final stages. That makes this the busiest year for conversions since 2001, and more are on the horizon.
Lake Michigan Credit Union in Grand Rapids has announced its intention to become a bank, and with just over $1 billion of assets its conversion would be the largest ever.
It is unclear what impact the New York legislation, which was sponsored by Assemblywoman Catherine Nolan, a Democrat, and Sen. Hugh Farley, a Republican, will have. Only 36 of the 601 credit unions there are state-chartered.
The one New York credit union that has converted was Beacon Federal Credit Union in Syracuse, which became Beacon Federal Savings Bank in 1999.
