NCUA Confirms Invalidating Omni's Disclosures, Balloting; Agency Resolute About Decision

DALLAS – The ongoing conflict between NCUA and two Dallas area credit unions which are seeking to convert their charters to those of mutual banks remained tense last week over balloting issues. The NCUA both confirmed that it had invalidated the balloting in the $1.1 billion OmniAmerican Credit Union’s charter change effort (something it already did with Community CU) and that it would not change its decision based on anything either credit union might do to remedy the situation short of starting the disclosure and voting process again. On May 13, the agency sent a letter to the $1.4 billion Community Credit Union advising it that the first two of its disclosure packages violated its regulations because the disclosure language mandated by the agency was on the wrong side of the page which also contained a rebuttal statement from the credit union. NCUA has also confirmed that it sent a similar letter to OmniAmerican. There had been a question of whether NCUA would act in the same way towards OmniAmerican because that credit union’s disclosure packages might have appeared to have been in conformance with what the credit unions agreed to do. No OmniAmerican executives have returned calls about the situation, though one executive quoted in the local press confirmed that the credit union had received a letter and maintained, as Community executives have, that the credit union lived up to its agreement with the agency. Executives from both credit unions have said that the institutions would seek to “work with” the NCUA to resolve the dispute, which they have generally downplayed as “a folding problem.” Part of that effort appears to have been changing the disclosures in the third mailing so that they matched what NCUA said it wanted from the beginning from all three required mailings. Credit unions seeking to change their charters to those of mutual banks must set a date for a special meeting for members to consider and vote on the move and must mail a package of disclosures to their members about the potential change 90, 60 and 30 days out from the meeting. Community’s meeting is scheduled for June 21 and OmniAmerican’s for July 11. NCUA spokesman Nick Owens said that a change in the third mailing would not make the agency reconsider its judgment that the credit unions’ disclosures violated NCUA regulations and that any ballots based on the disclosures are invalid. Should a majority of members support the charter change, NCUA must approve the procedures of the membership vote in order for the charter change to take place. While the stakes are high for both CUs, they are very high for Community since the Office of Thrift Supervision and Federal Deposit Insurance Corporation have approved the credit union’s applications, pending the results of the vote. OmniAmerican’s applications are still pending with both agencies. Alan Theriault, a consultant with CU Financial Services, whose firm advised both Community and OmniAmerican, said he still hoped that “cooler heads would prevail” and that there could be compromise on the matter, but he said the credit unions would reserve their right to go to court if they believed they had no choice. “That’s the way our system works,” Theriault said. “The three branches of government have their roles and it’s the role of the judiciary to act as a check on the executive.” Theriault acknowledged that a case against the NCUA would face a high hurdle because of the deference the courts generally give to an industry’s regulators. Neither credit union has returned calls about its prospects for going to court as of press time. Meanwhile, two Dallas area newspapers have recently discovered the charter change story at two of the areas biggest credit unions. Articles in the Dallas Morning News, the Fort Worth Star-Telegram and the Dallas Business Journal both outlined the charter change effort generally and reported on the NCUA’s letters as well as the credit union’s response. Community CEO Gary Base is quoted in a story in the Dallas Morning News as saying Community needed to convert charters in order to compete with banks. “To have the ability to compete with the Bank of Americas, the Chases, you need to have high-quality service, offer all products and still provide locations,” the paper quoted Base as saying. The papers also quoted members of Community who oppose the charter change but Mark Arnold, spokesman for the Coalition for Member Trust, the organization of Community members who oppose the conversion, said the groups have not seen much of a bounce from the stories. “Essentially, they quoted us, but didn’t tell anyone anything about us, didn’t refer to our Web sites and didn’t give any Community member who might want to find out more about us a way to do so,” Arnold said. In other charter conversion news this week, an association of credit union executives in Washington D.C. has organized a public debate or discussion about the charter change conversion question. The Metropolitan Area Credit Union Management Association of Washington D.C will host a debate on July 11 between Jim Blaine, CEO of the $13 billion State Employees’ Credit Union, headquartered in Raleigh, North Carolina, and Richard Garabedian, with Washington DC law firm Luse Gorman Pomerenk and Schick. Garabedian has been a consultant on several credit union to bank conversions and his firm is a leader in the field of mutual holding company formations. The debate will take place during the group’s July 11 meeting in Arlington, Virginia. Blaine has gone on record as calling for greater public discussion of the charter change question and Garabedian has said he welcomes the chance to explain more about the charter change question and why it might be a good option for some credit unions. -