VANCOUVER, Wash.-A handful of members of Columbia Credit Union,which recently announced it was going to seek membership approvalto convert to a state chartered mutual savings association, havecried foul regarding the disclosures they have received. “It wasnot done with the intention of informing the members of what'sgoing on,” credit union member Thomas Matica said of thedisclosures. He characterized the “vote yes” language on thedisclosures as one inch high and the rest in fine print. (Actually,the board's recommendation to approve the conversion is in the samesize print on the disclosure as the rest of the language, but it isbolded.) He also argued that the conversion would be thedestruction of a democratic institution that the members startedbecause they wanted to belong to a credit union. Matica admittedthat he did not recall voting in the last board election. JoannePearson, CEO of Northwest Navigational Credit Union in Vancouver,who also happens to be a member of Columbia through a joint accountshe holds with her husband, also opposes the move. Why? Because,she said, “the members don't know. They're not given all theinformation.” She also feels that the credit union's reasons forconverting-expanded customer base and member business lending-areempty. “I believe you can still do business lending and do it wellunder the credit union charter,” Pearson said. These and a fewother members have accomplished getting an article in a localnewspaper, The Columbian, which also happens to be within the fieldof membership of the credit union. Columbia Credit Union CEO DavidDoss pointed out that The Columbian ran the article with less thanfive phone calls from members. Doss said he has fielded questionsfrom a few members himself, but does not see a groundswell ofopposition. As far as the disclosure's layout and content, hestated, “I think it is balanced. I would have been fine puttingeverything in the disclosure, including the analysis we did.” Headded that the board, which he sits on, felt the obligation to letthe membership know their position on the conversion. Even if itemswere added to the disclosure, as NCUA Chairman Dennis Dollar hasproposed, “you still have to get people to read it,” Doss pointedout. The members who have risen up against the conversion admittedthat member apathy is something they've encountered too. Until thespecial meeting for the vote-Monday, Nov. 3 at 10 a.m.-Matica willdrive around with his “Save Columbia Credit Union. Vote No.” signon the back of his car. With all the changes NCUA has made to thecredit union charter, CU Financial Services President AlanTheriault, who helps credit unions convert to mutuals, still keepsquite busy. Of Dollar's proposal, he stated, “There are no morecarrots, so out has to come the stick.” NCUA and the trades havedone just about all they can to enhance the credit union charter,he pointed out and the chairman is concerned a fair number ofcredit unions may take this road. Dollar declined to comment onColumbia's conversion, but the chairman's Special Assistant forPublic Affairs Nicholas N. Owens said, “The Chairman will notdiscuss a specific credit union's issue. However, I can tell youthat these issues clearly reflect the need for transparency andfull disclosure during the conversion process and why it isimportant for members of America's credit unions to have suchdisclosures. NCUA's proposed rule provides for a clearunderstanding of potential issues arising from a conversation.”Washington State Department of Financial Institutions, whichactually has authority over the conversion at this point, hasdisclosure regulations similar to NCUA's, according to the Divisionof Credit Unions Program Manager Mike Delimont. He also said thatthe state does not require credit unions considering a thriftconversion to provide a balanced disclosure form. If and when NCUAmakes changes to its disclosures, the state may revisit itsrequirements, Delimont said. He added that his office had receivedjust one call from a Columbia member as of last week. All in all,the disclosures have cost Columbia about $75,000 Doss said, so theconversion process is not something to be taken lightly. You haveto get a sense of the membership, he said. In addition, WashingtonState DFI Director of Banks Dave Kroeger explained that the rest ofthe process is not a cakewalk. The department looks into thefinancial history of the institution and its condition. They run afull scope examination of the credit union, just as if it were abank, investigating its management structure and IT side. DFIinterviews each of the directors. While the converting institutiondoes not receive the exam results, the department does share itsfindings with senior management and the board. The idea is to givethe credit union the idea of what the regulators will be lookingfor in a bank, Kroeger said. Once any concerns are addressed andthe Federal Deposit Insurance Corporation approves the applicationfor insurance, the credit union receives its thrift charter.Consumers care more about what they can get from a financialinstitution and less about the structure, Doss claims. “[Regarding]financial services, in our research, [there] seems to be less andless an overall consumer affinity for credit unions because they'recredit unions. They tend to be looking for overall value andconvenience,” he explained. He added that Columbia's members lovetheir service, but a large part still does not understand what acredit union does. Additionally, Doss remarked that if he hadaccess to secondary capital and relief on the member businesslending side, there would probably be no need for the credit unionto consider converting. For Columbia, 12.25% of assets (the federalstatutory MBL cap) would be $72 million, which it is only $3-$5million away from. Fortunately, Washington recently got the capincreased to 20% in that state, which would allow Columbia up to$108 million, but that is still not far away considering the creditunion's growth in this area. Washington Credit Union LeaguePresident and CEO John Annaloro commented, “They're still a memberof this league and we support them completely at this time.”Contrary to talk in the credit union community, there is no setwaiting period for a mutual thrift to convert to a stock heldinstitution, Theriault said. He explained that Allied PilotsAssociation Federal Credit Union in Ill. converted to a mutual,then to a stock and had their capital within four months. He saidthat some of the confusion could stem from a former NCUA regulationthat directors could not be paid for two years after converting.The Office of Thrift Supervision backs Theriault on this. OTSDeputy Chief Counsel for Business Transactions John Bowman saidthere is a “very informal” understanding at the agency that“examiners like to see one exam cycle” prior to allowing a mutualto convert to a stock form. The reason for this is because theagency does not know the institution well and wants to make sure“you have your act together,” Bowman said. Additionally, OTS wantsto make sure the shareholders are not applying undue pressure toconvert. There are also precautions taken following a conversion toa stock-held entity to prevent this type of pressure, he explained.For example, under OTS regulation no one can buy more than 10% ofthe institution's stock for three years and charter provisions areinserted to extend that to five years. During that time, if astockholder is permitted to purchase more than 10%, they can onlyvote up to that 10%. Additionally, for three years the stock entitycannot be sold without the express approval of the OTS director.But what happened to the capital of the mutual institution that wasraised solely by the conducting of business by the institution?Bowman said that a liquidation account is created. “There is arecognition of the role the mutual accountholders played in raisingthe capital,” he said. In the event, the stock institution isliquidated, the mutual accountholders would receive part of theirmoney back. If the institution is merged with another stock entity,the account continues, but if it is merged with a mutual, it becomepart of the capital of the mutual. In Washington State, no formalwaiting period exists either, Kroeger said. However, the stateregulations do not provide for the liquidation account as thefederal level does. He added that at the time of the initialconversion from a credit union to a thrift, he has not heard publicstatements from any of the institutions regarding their futureintentions. Even though Washington has some of the nation's mostliberal credit union regulations, in the opinion of the regulatorand the league president, four of the 27 credit unions that haveconverted from credit union to mutual charters since 1995 have beenin the state. For some reason, “the consultant community finds thisa fertile ground,” Annaloro said. He speculated that much of it hasto do with changes needed inside the beltway, specifically on thelegislative side. He stated that there is “nothing in currentbanking that can't be done on a non-profit basis.” DFI's Delimontadmitted to being puzzled as well. He added that the department ismeeting with all the league chapters in the state. “I don't know ifwe've had a definitive answer from the credit unions either,” hesaid. Theriault has the answer though. “Washington is a well-bankedstate,” he said, emphasizing that growth is absolutely crucial tosurvival and the credit union charter is [email protected]

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