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DALLAS – Faced with two big credit unions announcing their intentions to change to a mutual bank charter, the Texas Credit Union League has adopted a policy which it hopes will both educate credit union members about their potential losses in charter change and alter the overall environment for credit unions seeking to become mutual banks. The $1.4 billion Community Credit Union, headquartered in Plano and the $1.2 billion OmniAmerican Credit Union, headquartered in Fort Worth have both applied to become mutual banks and are waiting for NCUA to approve the documents they will send to their members in advance of the member votes. “This policy statement puts Texas credit unions firmly on record that we believe that conversions to a bank are not in the best interest of credit union members,” said Dick Ensweiler, CEO of the Texas Credit Union League and Chairman of CUNA. “Credit unions provide members with an unparalleled level of personal service and satisfaction they will lose if their credit unions become banks.” The new guideline sets out the measured response that Ensweiler has championed ever since the two credit unions announced their charter changes in that it declines to act in an aggressive public way on the two charter conversions and defers to the NCUA’s newest approach to dictate what converting credit unions must tell their members. New Policy Working In Different Arenas The TCUL’s approach mandates activity in several areas. First, TCUL will review existing state and federal regulations to assess how well they protect member interests in conversions. TCUL will also work with the Texas regulator to make sure Texas regulations regarding disclosures are at a parity with those of the NCUA, the League said. Second, the League will make available sample bylaw language for Texas credit unions that wish to adopt a provision prohibiting personal gain by their directors and/or officers in the event of a mutual bank charter conversion. This sample language may echo other bylaw amendments that have set requirements for minimum percentages of members participating in charter change votes as well as mandated supermajorities for victory, but will restrict itself to targeting avarice among credit union CEOs and directors of converting credit unions. Critics have alleged desire for profit from conversions has been an important reason some credit union leaders have sought to make a charter change. Third, TCUL will prepare background materials and information regarding conversions to help members gain knowledge on the impact of proposed conversions. It will also create a Web-based central repository for Texas credit union members, the media and the general public with information regarding conversions and their impact on credit union members. Finally, the League will work with CUNA to adopt a uniform policy towards the charter conversion question, the League said. But observers noted immediately that the steps that the League declined to take might undermine the steps that it took. For example, despite publishing information a credit union member might need on a Web site, the League policy declined to mandate an advertising campaign that would publicize the site. During the fight over whether the $1.1 billion Lake Michigan Credit Union would become a bank, the Michigan Credit Union League both set up a Web site that explained what it thought the credit union had neglected to tell its members and publicized it to credit union members living in Western Michigan. But the League maintained that just because the policy had not mandated publicity, that didn’t mean that it precluded one either. “I don’t think it’s accurate to say that the League will not mount an advertising campaign,” said Allison Griffin, vice president with the League. “The policy left the door open for it and might take that step later.” Griffin also pointed out that the policy explicitly empowered the League officers to talk to the media and the public about things credit union members need to know in the event of a specific conversion. Practicality, cost and uncertainty about the impact of NCUA’s newest disclosure regulations were among the things that lead some members of the League’s 10-member task force not to call for a widespread publicity campaign, according to some task force members. “The fact is that we don’t have what they had in Michigan, where all the action took place in essentially one community,” explained Gary Tuma, CEO of the $276 million Smart Financial CU, headquartered in Houston, and chairman of the task force. “Texas is a big state with some very big cities where advertising would be very expensive,” Tuma said. “We also don’t know that the new NCUA disclosures are not going to make sure the credit unions disclose what needs to be disclosed already.” Watt Pritchard, CEO of the task force and CEO of the $94 million River City FCU, headquartered in San Antonio, agreed, noting in addition that credit unions belong to their members and members have the right to do what they want with their own property. “What makes this such a hard issue is that it touches on so many different aspects of what credit unions are and what we are about,” Pritchard said. “If the members of a credit union want to make a change of charter, and if they have access to all the facts, then they can do that. What concerns us is that they have enough information to make a clear decision.” Pritchard acknowledged as well that the strength of a credit union’s relationship with its members is what will ultimately impact the quality of a conversation a credit union has about a potential charter change. Programs such as indirect auto lending had brought his credit union more members, he pointed out, but it is up to his credit union to build a more significant relationship with new members such programs bring. More connected and aware members, Pritchard opined, would be ones more familiar with the benefits of being a credit union and would be ones more likely to participate in a charter change decision. “The thing about this democracy is that it cuts both ways,” Pritchard said. “It requires responsibility and not everyone wants to take that responsibility.” Pritchard, Tuma and Ensweiler said that credit union reaction overall has been fairly positive, and Hank Klein, the outspoken CEO of the $400 million Arkansas FCU, headquartered in Jacksonville, agreed. Where he had previously criticized the Texas League for being slow to act on the charter conversion question, he now praised the League’s effort to make its opinion on charter conversions clear. “I think Dick Ensweiler should be praised for making it clear that the Texas Credit Union League stands up for credit unions and not for mutual banks,” Klein said, adding that a lot will depend on how well the NCUA’s newly mandated disclosure documents inform the two credit unions’ members. “I think it’s a very good first step,” Klein said. “We won’t be able to tell whether it’s enough until later.” -

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