Credit Unions Changing to Thrift Charters Brings Fight On Many Fronts

ARLINGTON, Va. – Citing everything from a need to raise more capital to a desire to make more business loans and preserve their independence, a very small minority of credit unions continued to pursue the option of changing their charters from those of credit unions to those of mutual banks. But despite their relatively small numbers, the charter changers have sparked a debate that, this year, percolated among credit union members, leaders, regulators and lawmakers. In total, since March of 1998, 29 credit unions have either voted to change their charters and become mutual thrifts or have made applications with their regulators to do so. The membership of six of those voted to merge with banks, while 19 of the remaining 23 have actually begun operations as banks. The remaining four either await the day they will begin operating as banks or the day the membership will vote on their charter change proposals. The most recent two to file to change charters did so at the end of this year. Sunshine State Credit Union, a $149 million state chartered institution headquartered in Tallahassee, Florida, filed an application to make the change with the Office of Thrift Supervision on November 21. Share Plus FCU, a $160 million institution headquartered in Plano, Texas filed with the agency on December 1 (See related story on Page 4). On November 3, a majority of 16% of the membership of Columbia Credit Union, a $600 million state chartered CU headquartered in Vancouver, Washington, voted by the narrowest margin ever to approve their institution’s switch to a state chartered mutual thrift. A mere 414 votes out of almost 10,000 cast measured the win and the narrow contest, combined with a contentious and controversial membership meeting about the question, has left a lawsuit about the vote likely. Complaints filed with the NCUA about the vote have, as of early December, held up the agency’s certifying the vote and Washington State officials have announced that they are reviewing their state’s regulations regarding the details of charter change. If NCUA certifies the ballot and unless a court overturns it, Columbia’s vote will make that institution the third state-chartered institution in Washington State to have made the change. The situation in Washington has helped draw attention to the activities of Alan Theriault of CU Financial Services and John Garabedian, a lawyer with Jenkens and Gilchrist, in promoting charter change. Some in Washington have suggested that these firms have been an engine in the charter change efforts and have promoted an idea which might otherwise remain repugnant to many credit unions. Critics also note that there is no similarly organized effort to defend the notion of credit unions remaining credit unions. One of the complaints raised by Columbia members unhappy with the vote concerned the disclosures the credit union made to members about the vote. These disclosures, they argued, were too one-sided in favor of the change and downplayed the very real changes in institutional governance that such a charter change represented. Their complaints echoed those of NCUA Board Chairman Dennis Dollar who, in October, proposed regulations that would tighten the disclosures required of credit unions going though the charter process. Not only would a credit union seeking to change its charter change have to more completely disclose that the voting rights in a mutual thrift were not the same as the “one member, one vote” standard used by credit unions, it would also have to disclose whether it contemplated moving on to becoming a stock issuing bank as well as the fact that the credit union leadership might profit from the change. Opponents of the proposal argue that the proposed disclosure rules would conflict with other agencies’ regulations as well as Federal law. Finally, conversion opponents have also sought relief in Federal law. The federal statutes that made it relatively easier for a credit union to change its charter are contained in the Credit Union Membership Access Act and the newest proposed federal legislation on credit unions would, among other things, mandate that 20% of a credit union membership would have to vote in the decision to change a charter in order for it to go forward. [email protected]