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VANCOUVER, Wash.-A handful of members of Columbia Credit Union, which recently announced it was going to seek membership approval to convert to a state chartered mutual savings association, have cried foul regarding the disclosures they have received. “It was not done with the intention of informing the members of what’s going on,” credit union member Thomas Matica said of the disclosures. He characterized the “vote yes” language on the disclosures as one inch high and the rest in fine print. (Actually, the board’s recommendation to approve the conversion is in the same size print on the disclosure as the rest of the language, but it is bolded.) He also argued that the conversion would be the destruction of a democratic institution that the members started because they wanted to belong to a credit union. Matica admitted that he did not recall voting in the last board election. Joanne Pearson, CEO of Northwest Navigational Credit Union in Vancouver, who also happens to be a member of Columbia through a joint account she holds with her husband, also opposes the move. Why? Because, she said, “the members don’t know. They’re not given all the information.” She also feels that the credit union’s reasons for converting-expanded customer base and member business lending-are empty. “I believe you can still do business lending and do it well under the credit union charter,” Pearson said. These and a few other members have accomplished getting an article in a local newspaper, The Columbian, which also happens to be within the field of membership of the credit union. Columbia Credit Union CEO David Doss pointed out that The Columbian ran the article with less than five phone calls from members. Doss said he has fielded questions from a few members himself, but does not see a groundswell of opposition. As far as the disclosure’s layout and content, he stated, “I think it is balanced. I would have been fine putting everything in the disclosure, including the analysis we did.” He added that the board, which he sits on, felt the obligation to let the membership know their position on the conversion. Even if items were added to the disclosure, as NCUA Chairman Dennis Dollar has proposed, “you still have to get people to read it,” Doss pointed out. The members who have risen up against the conversion admitted that member apathy is something they’ve encountered too. Until the special meeting for the vote-Monday, Nov. 3 at 10 a.m.-Matica will drive around with his “Save Columbia Credit Union. Vote No.” sign on the back of his car. With all the changes NCUA has made to the credit union charter, CU Financial Services President Alan Theriault, who helps credit unions convert to mutuals, still keeps quite busy. Of Dollar’s proposal, he stated, “There are no more carrots, so out has to come the stick.” NCUA and the trades have done just about all they can to enhance the credit union charter, he pointed out and the chairman is concerned a fair number of credit unions may take this road. Dollar declined to comment on Columbia’s conversion, but the chairman’s Special Assistant for Public Affairs Nicholas N. Owens said, “The Chairman will not discuss a specific credit union’s issue. However, I can tell you that these issues clearly reflect the need for transparency and full disclosure during the conversion process and why it is important for members of America’s credit unions to have such disclosures. NCUA’s proposed rule provides for a clear understanding of potential issues arising from a conversation.” Washington State Department of Financial Institutions, which actually has authority over the conversion at this point, has disclosure regulations similar to NCUA’s, according to the Division of Credit Unions Program Manager Mike Delimont. He also said that the state does not require credit unions considering a thrift conversion to provide a balanced disclosure form. If and when NCUA makes changes to its disclosures, the state may revisit its requirements, Delimont said. He added that his office had received just one call from a Columbia member as of last week. All in all, the disclosures have cost Columbia about $75,000 Doss said, so the conversion process is not something to be taken lightly. You have to get a sense of the membership, he said. In addition, Washington State DFI Director of Banks Dave Kroeger explained that the rest of the process is not a cakewalk. The department looks into the financial history of the institution and its condition. They run a full scope examination of the credit union, just as if it were a bank, investigating its management structure and IT side. DFI interviews each of the directors. While the converting institution does not receive the exam results, the department does share its findings with senior management and the board. The idea is to give the credit union the idea of what the regulators will be looking for in a bank, Kroeger said. Once any concerns are addressed and the Federal Deposit Insurance Corporation approves the application for insurance, the credit union receives its thrift charter. Consumers care more about what they can get from a financial institution and less about the structure, Doss claims. “[Regarding] financial services, in our research, [there] seems to be less and less an overall consumer affinity for credit unions because they’re credit unions. They tend to be looking for overall value and convenience,” he explained. He added that Columbia’s members love their service, but a large part still does not understand what a credit union does. Additionally, Doss remarked that if he had access to secondary capital and relief on the member business lending side, there would probably be no need for the credit union to consider converting. For Columbia, 12.25% of assets (the federal statutory MBL cap) would be $72 million, which it is only $3-$5 million away from. Fortunately, Washington recently got the cap increased to 20% in that state, which would allow Columbia up to $108 million, but that is still not far away considering the credit union’s growth in this area. Washington Credit Union League President and CEO John Annaloro commented, “They’re still a member of this league and we support them completely at this time.” Contrary to talk in the credit union community, there is no set waiting period for a mutual thrift to convert to a stock held institution, Theriault said. He explained that Allied Pilots Association Federal Credit Union in Ill. converted to a mutual, then to a stock and had their capital within four months. He said that some of the confusion could stem from a former NCUA regulation that directors could not be paid for two years after converting. The Office of Thrift Supervision backs Theriault on this. OTS Deputy Chief Counsel for Business Transactions John Bowman said there is a “very informal” understanding at the agency that “examiners like to see one exam cycle” prior to allowing a mutual to convert to a stock form. The reason for this is because the agency does not know the institution well and wants to make sure “you have your act together,” Bowman said. Additionally, OTS wants to make sure the shareholders are not applying undue pressure to convert. There are also precautions taken following a conversion to a stock-held entity to prevent this type of pressure, he explained. For example, under OTS regulation no one can buy more than 10% of the institution’s stock for three years and charter provisions are inserted to extend that to five years. During that time, if a stockholder is permitted to purchase more than 10%, they can only vote up to that 10%. Additionally, for three years the stock entity cannot be sold without the express approval of the OTS director. But what happened to the capital of the mutual institution that was raised solely by the conducting of business by the institution? Bowman said that a liquidation account is created. “There is a recognition of the role the mutual accountholders played in raising the capital,” he said. In the event, the stock institution is liquidated, the mutual accountholders would receive part of their money back. If the institution is merged with another stock entity, the account continues, but if it is merged with a mutual, it become part of the capital of the mutual. In Washington State, no formal waiting period exists either, Kroeger said. However, the state regulations do not provide for the liquidation account as the federal level does. He added that at the time of the initial conversion from a credit union to a thrift, he has not heard public statements from any of the institutions regarding their future intentions. Even though Washington has some of the nation’s most liberal credit union regulations, in the opinion of the regulator and the league president, four of the 27 credit unions that have converted from credit union to mutual charters since 1995 have been in the state. For some reason, “the consultant community finds this a fertile ground,” Annaloro said. He speculated that much of it has to do with changes needed inside the beltway, specifically on the legislative side. He stated that there is “nothing in current banking that can’t be done on a non-profit basis.” DFI’s Delimont admitted to being puzzled as well. He added that the department is meeting with all the league chapters in the state. “I don’t know if we’ve had a definitive answer from the credit unions either,” he said. Theriault has the answer though. “Washington is a well-banked state,” he said, emphasizing that growth is absolutely crucial to survival and the credit union charter is outdated. [email protected]

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