OLYMPIA, Wash. – Linda Jekel, the Director of the Credit Union Division of the Washington Department of Financial Institutions, admits that the credit union industry she regulates exists in paradox. While on the one hand the beneficiary of what many believe to be one of the strongest and most progressive credit union acts in the country, the industry nonetheless has seen three of its institutions choose to abandon being credit unions in favor of mutual bank charters in recent years, and Jekel herself was called in to referee a bruising fight over the fourth – a fight whose aftereffects linger in court. "I think the credit unions that have chosen to become banks have done so for a number of different reasons," Jekel said, adding that not all of them were directly related to the state's charter. "Institutions make their decisions based on their own criteria and I think it's definitely a good thing that credit union members should be allowed to make that decision should they decide to make it," she added. But while the first three conversions were controversial in their own right in some industry circles, Jekel has said that none of them matched the fight that blew up around her concerning Columbia's conversion. In the autumn of 2003 the $619 million Columbia Community Credit Union held a ballot on whether or not it should become a state chartered mutual thrift. Roughly 16% of the credit union's 55,000 members voted and the margin of victory for the conversion supporters was the closest in history, 414 votes. Members opposed to the conversion cried foul about the way the credit union conducted the ballot and the special membership meeting on November 3 which capped the voting. The complaints drew the attention of NCUA and DFI and led to members opposed to the conversion petitioning the credit union for a special meeting at which the credit union board could be recalled. After DFI issued an opinion that the members' petition was legal according to the credit union's bylaws and the state's credit union act, Columbia denied the petition, setting up a confrontation with the agency. NCUA, meanwhile, finally disqualified the previous conversion ballot and directed the credit union to vote over again if it wanted to go forward with the conversion. At the last word, Columbia compromised with the DFI by changing the date and some of the rules for its annual meeting and board elections and backed off converting its charter while the dissident members who still want a board change have taken the credit union and the board to court. Ironically, the Seattle born regulator who found herself at the center of that fight actually began her career with financial institutions working at a thrift, serving as a loan officer at Heritage Federal Savings for 14 years from the time she graduated from college with a business administration degree until she left to go back to school for an MBA "I believe my time working in the industry has actually helped me be a better regulator," Jekel said, "because it has given me experience of being on both sides of the desk." As the loan officer for the thrift, Jekel had been responsible for preparing the institution's documents for examination and for making sure the regulator's comments and instructions were carried out. After earning her MBA at Pacific Lutheran University, where she had also earned her bachelors, Jekel said the thrift industry didn't have many prospects. So a former supervisor of hers who had since become a regulator told her about an opening they had in the Division of Savings and Loans, and so Jekel applied, becoming a thrift regulator in 1989. At that time there was no formal Department of Financial Institutions and the different financial regulators were scattered about in different agencies. In 1993 the state reorganized them into a separate Department of Financial Institutions that regulates state chartered banks, thrifts, check cashers, mortgage and security firms in addition to credit unions. Jekel served seven years as the Credit Union Division's program manager under then director Parker Cann and took over the Department as Director in mid-2002. Eighty-seven of the 152 credit unions headquartered in Washington state are regulated by Jekel's Division, with state regulators overseeing $16 billion in assets compared to $3 billion overseen by the NCUA. But Jekel is also quick to point out that one reason for the seemingly lopsided asset count is that the $16 billion includes the Boeing Employees Credit Union which alone accounts for $4.6 billion. Conversion Trend Likely Continuing in Washington While Jekel stressed that each credit union decides to seek conversion for its own reasons, she also noted there may be a couple of factors at play. Highest among these is the need to craft different laws and regulations that the state's credit unions can use to help meet their capital needs. Jekel pointed out capital can be effectively increased by either making secondary capital more available or by changing the rules under which a credit union's so-called "at risk" capital is evaluated. "Of the two, I favor the at-risk approach," Jekel said, "because credit unions already have different approaches to how they use capital and different levels of risk. A credit union which adopts a more conservative approach with its capital doesn't need as high a standard as does a credit union which takes more risks." She also noted that Washington is not only known for a strong and progressive credit union act, but also for strong thrift and bank acts. Jekel pointed out that banking giant Washington Mutual has chosen to operate under Washington State's bank charter and that the state has a reputation for being a strong and fair regulator across its different charters. Jekel said the conversion issue has sharply divided Washington's credit unions, with roughly 50% arguing that credit unions should not be allowed to convert and the other 50% upholding their right to do so while conceding credit union members need to have as clear a picture as possible before making a decision. "It's a very strongly dividing issue," Jekel said, "there aren't any credit unions that just don't care about it or don't take a position," she said. Jekel also said that more conversions out of Washington seems likely, though perhaps not in the next few months. "Usually the institutions contact me to let me know they are actively considering taking this step, "Jekel said. "None have done so lately, but I think there are a lot of credit unions that are curious about it because of the attention the issue has drawn," she said. Jekel reported that she and other DFI officials were aware of the frustration that the dissident Columbia members felt about the compromise the agency had made with Columbia about the special meeting, but Jekel explained that the DFI had little choice. Under Washington law if DFI moves against any financial institution, whether credit union or not, that institution has the right to challenge the agency's action by Administrative action, a procedure that Jekel said could have gone on for years and could have wound up costing the credit union up to $250,000 in fees. "We have a pass-through provision that would have meant whatever legal fees we paid we would turn around and bill to the credit union," Jekel explained, and that would have ended up costing the credit union more time and money, she said. Instead DFI chose to be very careful about preserving the dissident Columbia members' rights to take the credit union to court, a course they have taken, since DFI believed that the members' would be more likely to reach a quicker resolution in the courts than under the state's administrative procedures. Jekel explained that while the administrative procedures' time frames can seem like a drawback, they were actually designed to make sure that all sides of a dispute had their rights protected and had the time and incentives to settle. She pointed out that the last time a state agency had to move against a credit union was in 1991. Looking forward, Jekel said the Columbia case had brought to DFI's attention certain parts of its own regulations that might need clarifying. Procedures mandating how credit union conversion and other votes be counted might be on the agenda, she said, and noted that credit unions in the state are reviewing their bylaws as well in the wake of the Columbia fight. "I think there may be a lot of these things that might have been gathering dust on shelves for a while now and need a review," Jekel said. Jekel said some Washington credit unions would likely continue to feel pressure to convert to bank charters as long as the broader capital issues remain unaddressed and that the capital issue would remain as one of her top priorities for the foreseeable future. [email protected]