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ALEXANDRIA, Va. – Even though it concluded months ago, the fight over whether the $660 million Columbia Community Credit Union should change its charter to that of a mutual bank lives on in the pages of comments on NCUA’s most recent proposal to tighten the rules governing credit union disclosures in such cases. In November of 2003, just under 10,000 Columbia members, out of a membership of 58,000, participated in a ballot changing the credit union’s charter to that of a mutual bank. The margin of victory for the charter change was 414 votes, and opponents of the measure cried foul, questioning both the information the credit union had disclosed to members and the way it had conducted the vote. After weeks of investigation, NCUA and the Washington State Department of Financial Regulation declined to certify the vote and said Columbia would have to vote again. By that time opponents to the proposed charter change had started petitioning to change the board in a special election. After interventions from both the courts and the regulators, the credit union held the special vote in late March and members voted, very narrowly, to retain the current board. But in the credit union’s customary election which had been delayed until September, four of the board members who had voted for the charter change were replaced by members who opposed the charter change and the waves of emotion and suspicion that have surrounded that fight and the whole issue remained evident in the NCUA’s comments. Writing as president of Save CCU, the group of members which fought the conversion, Steve Straub applauded the agency for its proposal to make credit unions seeking charter change disclose more to their members, but said similar situations needed additional disclosures, particularly of the roles and amounts of money paid to third parties. It appears that NCUA remains concerned about profiteering that may occur in connection with a charter conversion and which can adversely affect the membership and capital of the institution, Straub wrote, adding: “Such profiteering can occur not only among the board and management.but also among the firms that provide services to the converting credit union,” especially any which are routinely disclosed already. “If the NCUA believes as do we that `the members deserve to know how much of their money will be spent on the conversion effort’ then the members must know who is receiving the money as well as receiving a full disclosure of any financial relationship among the service providers. In this post Enron-era, and in the light of the principals of Sarbanes-Oxley, there can be no substitute for full disclosure,” Straub wrote. Straub reminded the agency of the affair leading up to the vote in which it was disclosed that an official of a credit union which had previously become a bank had made a deposit at the credit union in advance of the conversion vote and had made statements in the trade press about the public making deposits into converting institutions to reap the rewards. Straub said that it appeared the former-CU officer had been introduced to Columbia by CU Financial Services, a consultant in both Columbia’s conversion and that of the officer’s credit unions and noted that the officer had made these statements at the same time that Columbia was telling its members that it was not going to convert to a stock issuing institution. “Is this type of conduct merely altruistic by the consultant?” Straub asked. “Let the members judge by full disclosure,” Straub wrote, adding the tag line from a recent article on corporate disclosures that “sunshine is the best disinfectant.” Straub’s concerns were also echoed generally by the $22 billion Navy Federal Credit Union which went as far to suggest language for the additional disclosures it thought appropriate. In its comment to the agency’s most recent disclosure proposal, Navy Federal suggested new paragraphs that would first reveal the retained earnings of the credit union and then illustrate where that wealth might go in a conversion. “If [xyz Credit Union] converts to a mutual savings bank, it may subsequently sell stock to prescribed purchasers or issue stock as employee or executive compensation,” Navy Federal wrote. “A stock institution’s net worth, among other things, is reflected in the value of its stock. Consequently, insiders and those able to purchase significant quantities of the bank’s stock may benefit the most from the retained earnings of the members of the former credit union.” But supporters of the proposal were not the only voices from which the NCUA heard. Both the Washington D.C. law firm of Silver, Freedman and Taff and the Coalition for Credit Union Charter Options apparently tried to orchestrate campaigns among credit unions to get them to object to NCUA’s proposed new charter change disclosures. The coalition began this weekend and includes primarily banks and banking organizations. Silver, Freedman and Taff advises credit unions going through the process of changing their charters to those of mutual banks The law firm submitted its own four pages of mostly objections to the proposed regulation and the $60 million Bay Ridge FCU, headquartered in Brooklyn, New York, among others, submitted a letter with identical text, as did the law firm of Bracewell and Patterson, L.L.P. headquartered in Austin, Texas, “on behalf of several of our credit union clients.” Calls to Bracewell’s public relations firm failed to uncover how many credit union clients Bracewell claims to have or why they felt the need to address the NCUA through a law firm rather than directly on their own. For its part the coalition apparently sent out a mass mailing on September 14 urging credit unions to write the agency with their concerns and objections and offered to hide their identities should the credit unions seek anonymity. But the letter appears to have backfired, in at least a small way. In a September 23 letter, the $376 million Arkansas FCU, headquartered in Jacksonville, Arkansas, both rebuked CCUCO for its stand and expressed strong support for NCUA’s proposed regulations. In a letter addressed to James Butera, the executive director of the coalition, CEO H.C. Klein thanked Butera for reminding him to comment on the rule and added: “I think it’s criminal (yes, criminal) that since the passage in 1998 of the Credit Union Membership Access Act (H.R. 1151) that credit unions have been allowed to convert to mutual savings banks and strip the reserves acquired over many, many years by many, many members out of the credit union and into the pockets of a very few individuals.” But Herbert Moltzan, the CEO of BUCS Federal Bank, headquartered in Owings Mills, Maryland, offered the unique perspective of someone who has been through the process. BUCS Federal Bank used to be BUCS FCU until 1998 when the credit union was the first to convert to a mutual bank under the previous Credit Union Act, a process which required a detailed disclosure and a yes vote by 50% of all members. “In general I strongly oppose the changes,” Moltzan wrote. “The overall tone of the regulation is such that it is an obvious attempt by NCUA to bias the members’ view toward future conversions.” Moltzan recommended that credit unions changing to banks be required to state up front whether they would use the one member one vote standard that credit unions use or whether it would allow members with larger balances to have more votes. He also attacked the NCUA’s contention that added expenses as a bank might lead to lower savings rates and higher fees. “In our case this did not happen and I doubt it did in any other credit union conversions,” he wrote -

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