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In the June 2, 2004 edition of Credit Union Times in his weekly column, publisher Mike Welch added an extraneous comment to an otherwise coherent message. He said: “As even supposedly impartial bank regulators encourage more credit unions to convert to bank charters, don’t expect those (conversion) numbers to go much higher than they already are thanks in part to the Columbia Credit Union charter conversion expose.” While profiting from Columbia sensationalism, Mr. Welch and Credit Union Times failed to “expose” the fact that (like his claim about the lack of bank regulator impartiality) a supposedly “impartial” NCUA is a “rogue agency” and “industry cheerleader” as some have charged; willing to twist HR-1151 rules to protect its revenues and appease credit union trade associations. Thus explains NCUA’s and credit union trade associations’ desperate actions to make conversion “harder” as Mr. Welch predicted last fall. NCUA’s behavior has sounded alarms for credit union executives and members of Congress that, among other concerns, it is way too reckless in its application of HR-1151. Ultimately, NCUA’s credibility and credit union powers will suffer as a result. These actions are actually good leading indicators of the end of meaningful credit union regulatory relief and the acknowledgment that PCA relief and a secondary capital law will fail. Yet NCUA continues to attack and undermine credit unions’ legal right to switch charters. It’s no coincidence that more has been done to enhance credit union powers since 1998, when Congress gave credit unions a choice, than in all the years before. Absent the bank conversion option, NCUA and the credit union trade associations, would fall back into complacency as their incentives to achieve results diminish. The future will prove that the so called Credit Union Times “expos” has done more to publicize the bank charter conversion option than all the efforts of CU Financial Services since 1994 when it first started advising credit unions about the conversion opportunity. In the weeks and months ahead as the need for additional powers and capital-raising authority accelerates and CUNA’s political initiatives stall, more credit unions are likely to consider and select the conversion option. Conversions to a bank charter were declared legal in 1998 as part of HR-1151. They are viewed by many members of Congress and credit union executives as the escape route and solution to address the widely publicized need for expansion powers, relief from product restrictions, and access to capital. Despite the credit union income tax advantage, it is an indisputable mathematical fact that a depository institution can do more for its members and its community, can offer more financial products and services, and can open more branches, if it is has a bank charter. Moreover, the mutual capital-raising process has survived decades of review and scrutiny by hundreds of board members and depositors, government officials, legal experts, the court system, and the United States Congress. Even clergy and rabbis are known to endorse the process. It is incorrect to suggest that credit union boards are not working in the best interest of their members in these conversions, as Mr. Welch and others dependent on maintaining the credit union status quo are fond of doing. All the boards that have worked with CU Financial Services have only taken the conversion step after reviewing the powerful business case, member benefits, and community benefits for the charter change and exhausted all reasonable options as a credit union. Board and management compensation issues, although a tangential part of the process, were of little importance and in most cases not even considered relevant. Moreover, each step of the way during the conversion process – from credit union to mutual, and from mutual to mutual holding company and even to full stock – members and depositors must vote. Management compensation plan details are public information and also must be approved by shareholders. There’s nothing secretive about the process, as some critics would have you believe by clamoring for expanded disclosure. A few believe the overturning of a legal vote in favor of conversion at Columbia Credit Union was justified, and that the entire incident is an expos of a dark underbelly of conversions, namely insider greed and inadequate disclosure. Apparently, Mr. Welch is among them. I would postulate, on the other hand, that what was exposed were the extremes credit union regulators and trade associations will go to in protecting their turf. Alan D. Theriault President CU Financial Services Portland, Me.

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