GREENSBORO, N.C. – Two federal credit unions' recent decision to draft or to adopt a bylaw change addressing credit union-to-bank charter changes has begun to draw attention around the industry. The amendments – one of which has been approved by NCUA and the other remains pending – would not directly bar the institutions from changing their charters to those of mutual banks in the future. But the high degree of membership involvement in any charter change decision may result in an indirect ban on the charter shift. The first credit union to draft an amendment that received NCUA's approval was the $64 million Chocolate Bayou Community FCU, headquartered in Alvin, Texas. The credit union took the step because it hopes the amendment will guarantee its membership a strong and active voice in any charter conversion which might be contemplated. The bylaw amendment reads: "The Board of Directors shall not consider a conversion to a non-credit union without the request of its membership made at a special meeting of the membership called in accordance with the provisions set forth in these bylaws." The impact of the bylaw change is that it mandates that any move to convert the institution's charter away from being a credit union must originate in the membership and be approved at a special meeting called for that purpose, even before the credit union submits any conversion plan for approval or member vote. Since none of the charter conversions to date has had its roots in the credit union's membership, versus its leadership, the move effectively means charter changes will be blocked. "We wanted to make sure that the membership is duly informed about any possible conversion," explained Gary Davis, CEO of Chocolate Bayou and chairman of the Texas Credit Union League. "Now anyone who wants to convert the credit union will have to find someone in the membership to initiate the idea and then go through a petition drive to get the needed signatures for the special meeting." Davis also noted that by passing the amendment, the credit union hoped to set an example for credit unions which have been critical of the Texas League for not doing enough on the issue. "Now they can see a way they can have a direct impact on this issue in their own credit unions," he said. Davis said that he had not received much reaction to the amendment since NCUA had only recently approved it and his board had only just passed it. NCUA said no other credit union had yet applied to have the agency approve the change. Under NCUA's regulations, federal credit unions are required to use the agency's standard bylaws or apply to have a non-standard bylaw approved. Credit unions seeking to adopt a non-standard bylaw must apply to the NCUA Board through the agency's regional director with an application that explains the section of the bylaws to be amended; the reason why the amendment is desirable or necessary; what the proposed amendment will accomplish for the credit union; and the proposed wording of the amendment. This is the process that the second credit union, the $97 million Premier FCU, headquartered in Greensboro, N.C. has begun. It's CEO, Willie Combs, is a member of a North Carolina League Task Force on charter conversions. The bylaw which the CU's board has passed and sent to the NCUA for approval would require any move to a non-credit union charter to to require a vote by 50% of the active members. "We wanted to make sure that if ever the credit union made a charter change, our members would be as fully informed and participating as possible," explained Combs. She also praised her board for getting behind the proposed amendment very quickly. "I am very proud of the way they stepped up and said `this is the right thing to do for our credit union.'" Other CUs Following Suit? Both Davis and Combs estimated that other credit unions which felt strongly about the issue would follow suit, always with the knowledge that a future board of directors could always come along and repeal the amendment. But doing so, as Davis pointed out, should signal the membership that it needs to be aware of what the leadership might be contemplating. "I think the whole process of drafting and getting an amendment approved and then to repeal it should that ever happen will serve to help make everyone much more aware of the issue," Davis said. Dick Ensweiler, CEO of the Texas Credit Union League and Chairman of CUNA, endorsed the bylaw amendment approach as a way that a credit union could address the charter change question in its own terms. "Every credit union is going to be a little different and no one overall league policy or industry policy is going to address every circumstance," Ensweiler said, "but I have heard of credit unions which are interested in this approach." Jim Blaine, CEO of the $13 billion State Employees' Credit Union and an outspoken critic of credit union-to-bank conversions agreed that more credit unions are likely to at least investigate the bylaw amendment change and said that more credit unions need to be aware of what their bylaws say and of the need to keep them up to date and ready for what might come. "I am not trying to be alarmist," Blaine said, "but I am convinced that there are money interests in the investment and banking world who consider the entire credit union industry `in play,'" he said. "And credit unions need to be aware that they are walking around with a big red target right on their backs." Blaine argued that credit unions' retained earnings is what makes them a target and that similar efforts have undermined other mutual industries in this country and overseas. "We have seen it happen in England and we have seen it happening here," Blaine said. "Credit unions just need to be aware and to update their bylaws not only with an eye toward charter changes, but toward other forms of demutualization." Significantly, Blaine and Ensweiler mentioned that now would be a good time for credit unions to get some help from NCUA on the bylaws question because the NCUA has proposed changes to the federal credit union standard bylaws. Adopted at the June 2005 NCUA Board meeting, the proposed changes to the bylaws, none of which deal with change to a mutual banking charter directly, are open for comments until mid-October. Blaine and others mentioned that now might be a good time for credit unions to suggest NCUA adopt a standard bylaw amendment on credit union charter changes that could be available without a special approval process to any federal credit union. -

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