Texas CU League Puts Up its Site About Credit Union Conversions, Hoping to Round Out Picture

DALLAS – The almost 500,000 members of both the $1.4 billion Community Credit Union and the $1.2 billion OmniAmerican Credit Union who are being asked to approve their credit unions’ application to become mutual banks now have another place to find answers to their questions. The Texas Credit Union League has launched a Web site (www.creditunionmember.org) designed to provide the members of those credit unions, as well as credit union members in general, those answers. The two Dallas-area credit unions have applied to become mutual thrifts and seek to build support among their membership for the change. Roughly 7% of the state’s total credit union membership would become bank customers overnight if they approve the change. Both institutions have sent disclosure packages to their members with details of the proposed change, in accordance with the NCUA’s regulations. But those disclosures have drawn only criticism from Dick Ensweiler, CEO of the TCUL. “If a member who really didn’t understand the credit union difference were to read these well-crafted marketing materials, they would not realize what they are being asked to give up,” said Ensweiler. “In fact, they wouldn’t even know they were being asked to vote to convert to a bank.” NCUA mandates that certain information unique to each credit union, for example the cost of the charter change, be disclosed to members. But with the exception of the NCUA mandated information, the disclosures from the two credit unions were virtually identical. Ensweiler questioned the disclosures at Community’s annual meeting on April 25 but the credit union would only respond that it had fulfilled its obligation according to NCUA’s regulations. “I am particularly disappointed in the disclosures,” Ensweiler said, “because I had been assured that the disclosures would be very forthcoming and be models of how such documents should be prepared,” he said. Alan Theriault, a consultant with CU Financial Services, which has both Omni and Community as clients, is on record saying that the firm recommends language in the disclosures that it believes NCUA will approve and that most credit union members don’t read the disclosures anyway. Unlike a similar site prepared by the Michigan Credit Union League when the $1 billion Lake Michigan Credit Union tried to convert to a mutual bank, the Texas site looks a good deal like its home page, with similar layout and geography. It also addresses issues other than credit union conversions, with links along the right side that address the taxation issue. But along the left side, the site asks the visitor whether their credit union is asking to convert and includes links to more information. Because the site must address more than one credit union’s attempt to change charters, it does not specifically address either Community’s or OmniAmerican’s disclosures. Rather, the site takes issue with contentions that often appear in the disclosures and seeks to address them point by point. “The credit union may claim that the credit union has no ability to raise capital other than through profits (i.e., net earnings), which are generated almost exclusively through fees and interest charged to members,” the site says in one of its points. It then adds: “This statement seems to suggest that only credit unions charge fees and interest on loans as a means of generating earnings. This, in fact, is how all financial institutions operate. It is true that stock banks have the ability to raise capital by issuing stock or bonds. However, this does not change the operational focus on lending and the assessment of fees. In fact, bank loan rates and fees are typically higher than those offered by credit unions.” The site also included a table that laid out answers in such issues as membership and stock offerings, which included a question whether there would be an advantage or disadvantage to branching because of conversion. Ironically, the table might have sold credit unions short since it did not mention shared branching, an innovation which is open to credit unions but which may not be open to banks. David Barr, a spokesman for the Federal Deposit Insurance Corporation said that shared branching as a bank was one of the things that the insurer would take into account when a credit union asked to convert because, in some circumstances; a bank would not be able to use a shared branching network due to federal regulations. In fact, in becoming a bank, Community has had to leave the Texas Credit Union League’s shared branching network, losing it access to over 30 shared branches where its possible future customers could conduct transactions. Only time will tell how much of an impact the Texas’ site may have on the two credit union conversions. The League is working with the Dallas and Fort Worth media to get information about the site in front of as many credit union members as possible but has declined, so far, to purchase any adverting on the topic. Richard Garabedian, a consultant, is a partner in the Washington, D.C. law firm of Luse Gorman Pomerenk & Schick, which consults with credit unions seeking to convert charters. Garabedian expressed reservations about the role of leagues in putting up sites like this. Garabedian pointed out that in similar issues facing stock issuing corporations both sides trying to influence shareholder opinion would be regulated by the Securities and Exchange Commission. -