Differing Charter Conversion Language in State Credit Union Acts Make Conversion Route More Indirect than Others
ARLINGTON, Va. -- Credit union conversions to noncredit union, mutual charters continue to make headlines, but interestingly less than half of the conversions over the last 11 years have involved state-chartered credit unions. But how complicated would it be if a state-chartered credit union wanted to convert to another type of financial? According to information collected by NASCUS, 14 states do not allow state-chartered credit unions to convert to a noncredit union charter. They include Arizona, Illinois, Massachusetts, Minnesota, Mississippi, Missouri, Montana, New Jersey, North Carolina, North Dakota, Oregon, Virginia, West Virginia and Wisconsin. So any SCCU in these states would first have to convert to a federal credit union charter. Of those 14 states, Mississippi and West Virginia permit SCCUs to use the state's "wild card" provision to convert to a noncredit union charter by first converting to a federal CU charter. In addition, the law and regulations in Louisiana are silent on the issue of state-chartered credit unions converting to other types of institutions, and in four other states--Alabama, Alaska, Colorado and Kentucky--the issue is not specified in statutory or regulatory language. CU Financial Services' Web site shows that as of June 30, 2006 there have been 29 credit union-to-noncredit union charter conversions since 1995. Of those, 11 were former state-chartered CUs. They were Community CU, Texas (2006); OmniAmerican CU, Texas (2006); Washington's CU (2004); Community Schools CU, Mich. (2002); Professional Teachers CU, Tenn. (2001); CU of the Pacific, Wash. (2003); AAL CU, Wis. (2001); Citizens Community CU, Wis. (2001); Allied Pilots CU, Ill. (2001); Rainier Pacific CU, Wash. (2001); and Caney Fork Coop CU, Tenn. (2000). George Latham, deputy commissioner of credit unions in Virginia confirmed there is no statutory language in the state's credit union code that allows a state-chartered CU to convert to a noncredit union charter or for a noncredit union to convert to a state credit union charter. However, there is statutory language for a SCCU to convert to a federal credit union charter. Latham explained that Virginia's current credit union code was adopted in 1991, so it "pre-dates current events" of credit unions converting to noncredit union charters. He said there's never been any discussion to update that section of the code nor has there been a "groundswell against" that provision of the state's credit union code. According to Latham, there have been about three state-chartered credit unions that have converted to federal charters. He said he couldn't speculate on why there have been no statutory changes concerning credit unions converting to noncredit union charters, but said it might be because no SCCUs have been interested. If a state-chartered CU was interested in converting, it would either have to move to get the law changed or first convert to a federal credit union. CU Financial Services' Web site reports one Virginia federal credit union--@LANTEC Financial FCU--converted to a mutual savings bank charter in January 2004. The situation is similar in North Carolina where the state's credit union act also doesn't allow a state-chartered CU to convert to a noncredit union charter. However, Credit Union Division Administrator Jerrie Lattimore said the North Carolina General Statutes allow a credit union chartered under the laws of North Carolina to convert to a credit union chartered under the laws of another state, or a federal credit union, and vice versa. "The statute does not mention converting to any other type of financial institution, so a state-chartered credit union that wanted to convert to a noncredit union charter would first have to convert to a federal credit union charter and then be under federal rule," she explained. North Carolina's credit union act does have a parity provision with federal credit unions, but Lattimore said the CU division would have to write a rule to invoke federal parity, and there is currently only a parity rule pertaining to field of membership. Washington State has fared slightly worse with three former state-chartered CUs converting outside the credit union system, but Linda Jekel, director, Washington Division of Credit Unions and chairman of NASCUS said she doesn't consider that a large number. While the number of state-chartered credit unions in Washington State have declined--there are now 79--she said that's mostly due to consolidations and mergers, rather than conversions. Total Washington credit union assets are $18.5 billion. When Rainier Pacific CU converted to a mutual in 2001, Jekel said the state's credit union act had not yet been modernized and the CU converted using the wild card. The act was updated in 2001 after the conversion, and it now allows for a Washington state-chartered credit union to convert to a federal charter or other type of financial institution. The act also permits mutual savings banks to convert to a credit union charter. This has never occurred, and Jekel opined, "I doubt mutual savings banks know the process if they want to convert and the process could be beneficial to them. A number of banks have looked into applying for Subchapter S status to be tax exempt, so a credit union charter might be a good option for them to look at." What's more, Jekel added, a mutual in Washington State that converted to a credit union could have a community charter and be able to keep all its customers as members. "Every credit union should have a choice of whether it wants to convert to a federal charter or a mutual charter," said Jekel. "Competition between charters is what keeps them attractive and viable. The main thing is that members are well-informed and make an informed vote. The members should be brought into the communication as early in the process as possible, and the decision whether to convert should be decided by the members."