NAFCU Policy on Conversions Focuses on Transparency, Accountability

WASHINGTON – NAFCU unveiled its new policy on credit union-to-bank charter conversions with three policy suggestions which, it said, would introduce transparency and accountability into the process. Speaking at a press conference held in accordance with NAFCU’s Congressional Caucus in Washington on September 19, NAFCU President Fred Becker laid out the policy’s objectives: “Transparency and full disclosure are paramount,” said Becker. “NAFCU has always felt strongly that credit union members deserve to be fully informed about how a conversion will affect them. Credit union members need to know – before they cast their vote – that if a credit union converts to a mutual savings bank, their future voting rights will be affected, senior executives and directors could potentially reap large financial awards if the bank converts to a stock-owned institution, and they might pay higher fees and rates.” NAFCU formed a Conversion Task Force chaired by Brian McDonnnell, CEO of the $25 billion Navy Federal Credit Union and a NAFCU director, to draft a policy and prepare a white paper on conversion which was also released on September 19. The policy recommendations cover three areas: First, by a series of regulatory measures, the association said NCUA could require a credit union seeking to convert to hold a meeting of its membership before the ballots are mailed to announce and explain the credit union’s intention to become a bank. It could also require a credit union provide an opportunity for members to express their opinions about the conversion to other members and the agency could adopt a clear, plain language standard that could be required to inform members about the conversion. Second, through a change in statute, credit unions could push for a ban on the directors or senior management of a credit union from benefiting from the transaction for at least 10 years afterward. This would resurrect an idea which had been floated during the congressional debate over HR 1151, NAFCU executives explain. “Some of you may remember that in the course of the debate over HR1151, representatives [Jim] Leach (R-Iowa) and [John] LaFalce (D-New York – now retired) discussed a couple of measures addressing this issue,” Becker explained. Leach had wanted a five year moratorium on leadership benefiting from CU conversions and LaFalce had wanted a 50% voting threshold in conversion balloting. Leach, as the continuing member, has been open to the 10-year ban idea, Becker said, adding that the association was approaching a wide variety of legislators about its proposals, including Representative Patrick McHenry (R- N.C.), a lawmaker with legislation pending which would restrict the NCUA’s ability to regulate credit union-to-bank conversions. “We have met with Representative McHenry,” Becker said, “and he seemed especially open when we pointed out that under current rules there really is no way that members opposed to a conversion can meet and share their opinions,” Becker said. Finally, the association endorsed again CURIA’s requirement that a successful charter vote must win a majority of at least 20% of the credit union’s membership. Like a smaller version of the report introduced last week by the American Association of Credit Union Leagues, the NAFCU white paper on conversions sought to bring a higher degree of research to the question than has generally been available in the past. As part of its research, the association said that it found that all 29 of the credit unions that have either converted or begun the conversion process were well capitalized at the time they began the conversion process, thus suggesting that capital concerns may not have been truly driving those institutions’ actions. It also found that 19 of the 27 credit unions that completed the conversion process had only dabbled in member business lending and were nowhere near approaching the 12% statutory cap on member business loans suggesting that, at the time of conversion at least, the member business lending cap was not really an issue for most of the converts. Becker said that it was increasingly more difficult to see how any average credit union member could really benefit from a conversion of his or her credit union to a mutual bank. Maybe if a credit union member had been turned down for a business loan because the credit union was bumping up against the business lending cap, Becker said, that might be the “burning issue” for that member. Or maybe if a credit union member wanted a closer branch that could not be built because of capital issues, which might become their main concern he said. But absent those issues, Becker added, it’s becoming more clear that credit union conversions primarily benefit the very few at the expense of the many and while NAFCU does not oppose a credit union’s ability to convert the association beliefs credit union members deserve to know and understand what they is at stake in conversion balloting. -