Feeney Wants to Make Sure State Charter is Attractive So Others Won't Find it Necessary to go the Bank Charter Route

CHICAGO – The moves by Texas’ Community Credit Union and OmniAmerican CU to convert to mutual savings bank charters are not the first CUs in the state to do so, but they’re certainly the largest, and it’s the size of the two credit unions that has put the Texas Credit Union Department “under the spotlight.” “When Share Plus FCU converted to Share Plus Federal Bank, hardly anyone took notice because they were very small at the time,” Commissioner Harold Feeney told Credit Union Times during an interview at NASCUS’ Annual Conference & Symposium. “But with Community and OmniAmerican both being billion-dollar credit unions, that’s getting us a lot more attention,” he said, adding that he’s gotten telephone calls from some credit unions that are concerned that the way the Texas Credit Union Department deals with the conversion applications and ensuing situation “could set a precedent” around the country. Feeney emphasized that the precedent-setting concern is not so much among state-chartered credit unions. Citing NASCUS data, he said of the 47 states with credit union laws, 26 prohibit state-chartered credit unions from converting to a non-credit union charter. That means any SCCU that wants to convert out of the credit union system has to first convert to a federal charter. “Most state regulators take the position that if there isn’t a regulation that says you can convert, then they assume you can’t,” said Feeney. But how can a state prohibit a credit union from converting to a non-CU charter if the CU is owned by its members and they demonstrate that’s what they want? Feeney said not all state credit union regulations use members and owners synonymously. The Texas statute, for example he said, only refers to `members’ and not to `owners.’ “The statute specifically give authority to members to do some things, but the statute puts the authority for the activities of the credit unions in the hands of the board. Anything the credit union wants to do has to come from the board. It gives the board the authority to make recommendations to members, but doesn’t give members the authority to make recommendations to the board,” Feeney explained. “The ownership issue of a credit union isn’t the tangible right that it’s made out to be,” Feeney said pointedly. “The only time it kicks in is if the credit union liquidates and is solvent. Then the surplus equity is shared with the members, based on their deposits,” he said. Once the Community CU and OmniAmerican CU conversion situation is resolved – whatever the outcome is – Feeney said the Credit Union Department “would want to take a look at the statute to make sure the credit union charter is attractive and that credit unions can serve their members effectively without feeling they have to go to a non-credit union charter.” Feeney said his office hasn’t received inquiries from other Texas state-chartered credit unions about converting to a non-CU charter since it received the applications from Community and OmniAmerican, “but then we didn’t have any before those either.” He added that he’s also been traveling around the state talking with presidents of state-chartered credit unions to get their perspective on conversions, and “in general none said they’re considering converting,” he said. In talking with the state-chartered credit union leaders, Feeney has also been asking them what changes if any they’d like to see made to the Texas credit union statute. “Most didn’t have any recommendations for what they’d like to see changed in our statute, but they would like to see more things changed at the federal level with things such as the member business lending limit and alternative capital. They also understand it would take an act of Congress to change that,” said Feeney. “The OmniAmerican and Community Credit Union issue came down to capital and their ability to generate secondary capital. Their ability to do that didn’t meet what they want to do,” Feeney explained. “The idea of slowing down their growth doesn’t meet with their business strategy. They tried and their boards tried to find ways for their capital to keep pace, but they decided that wasn’t possible short of slowing down. That wasn’t their strategy. Both credit unions wanted to be leaders in their markets,” he added. On Aug. 29, the Texas Credit Union Department held a forum to give credit union members and representatives the opportunity to express their opinions on the issue of credit unions’ ability to convert to mutual savings banks. Feeney said one of the outcomes of that meeting was that there will “likely” be a change in the existing rules and regulations for credit unions in Texas that address the issue. Feeney explained that the current regulations “lumps all types of credit union conversions together” including state to federal charter, and federal to state, as well as CU to MSB. “At this point, I’m not exactly sure what change will be made, but the Commission will probably recommend repealing the existing rules and adopt new ones that break out credit union-to-credit union conversions, from credit union-to-thrift conversions,” said Feeney. A second meeting was held Aug. 30 to give the general public – including banks – the opportunity to comment. Feeney explained that every four years the Credit Union Commission is required by law to review its rules and regulations. Before it does that, the Department typically makes recommendations to the Commission based on the feedback it receives from public notices it posts asking for comments on the rules and regulations being reviewed. The Commission, he said, “wants to give everyone the opportunity to give their input.” “If the conversion situation hadn’t come up we would not be holding the forums,” said Feeney. Once the forums are over, the Department will make its recommendations to the Commission for changes to that regulation, and the recommendation will then go through the same process as any other it makes to the Commission. Feeney is not concerned that the Community and OmniAmerican controversy will dilute the public’s perceptions of credit unions. “If credit unions maintain their philosophy of being socially responsible, I don’t think there’s anything the banks will be able to do to change the public’s need for credit unions.” He added, however that, “Credit unions need to do a better job educating members about the benefits of credit unions. I’m not sure the members of Community Credit Union or OmniAmerican Credit Union understood the difference,” said the Commissioner. -