WEST PALM BEACH, Fla. – The U.S. credit union system has always prided itself on the dual-chartering system that CU experts say offers CUs charter choices and continually raises the bar on charter provisions that affect the operations of credit unions. With so many critical issues currently in front of CUs, Credit Union Times wanted to know state-chartered and federal charter CUs' views. We asked Terry West, president/CEO, VyStar CU, Jacksonville, Fla., and Patrick McPharlin, president/CEO, Michigan State University FCU, East Lansing, Mich. – both billion-dollar CUs – their opinions on some of these issues. – [email protected] CU Times: The issue of credit unions converting to mutual charters is high on credit unions' radar screen. The two currently most noticeable are OmniAmerican CU and Community CU, both billion-dollar state-chartered credit unions. Do you think these types of conversions threaten the balance of the dual-chartering system? West: I don't think these types of conversions threaten the balance of a dual-chartering system. We were originally a federally chartered credit union and converted to a state chartered credit union because of some options our state charter provided for field of membership expansion. From my personal perspective, a credit union charter, whether state or federal provides ample opportunity to serve members well, without needing to become a mutual charter. I am concerned about why credit unions feel they need to convert to a mutual charter of any form and believe they are sending a negative message to consumers about the value of credit unions when they decide they need to become a bank. However, I respect a credit union's right and the right of their members to choose what they want their institution to be and how they want it to meet their needs. I often ponder the motives for those types of conversion. I believe NCUA is taking the right approach in requiring full and accurate disclosure to the members of converting credit unions as those member/owners are asked to vote to convert to a mutual charter. Members own their credit unions and they need to fully understand what they are voting on, what they gain or lose both short term and long term by converting to a mutual charter. NCUA is requiring that member/owners at least be given an opportunity to fully understand what they are voting to do with their credit union, long term ownership and equity. McPharlin: The conversions of the credit unions have nothing to do with the provisions for state or federal charters. The credit unions who are converting are not doing it to better serve the membership, or to better execute a business plan. CU Times: CURIA and Reg Relief both include provisions to strengthen the federal charter. Will comparable regulations need to be made on the individual state charter levels? West: That will depend upon the individual state and what its state credit union charter presently provides. McPharlin: In Michigan a few years ago we updated the state laws and even after the passage of CURIA and reg relief the state charter has more favorable powers, especially in the area of field of membership. As an aside, I have been in credit unions for over 30 years and for 30 years we have been talking about regulation relief or deregulation, but have we ever had a year in which the regulations have actually decreased? CU Times: Do you think at this time that one charter type, because of provisions in the Federal Credit Union Act or individual state credit union acts, has an advantage over the other? West: That again depends upon the state and what its charter provides in comparison to the federal charter. For example, in our state, the state charter provides some options that are better than the federal charter provides as far defining field of membership. In other states that may not be the case. In some states there are advantages to being a state charter for field of membership and other factors. In other states, the federal charter may be the better option. The key is that credit unions have the ability to decide which type of charter best meets the needs of their members. McPharlin: Same as the above, the Michigan charter has far more flexibility than the federal charter. The main advantage that federally chartered credit unions have in Michigan is the exemption from state sales taxes. CU Times: In 1998 during the push for passage of H.R. 1151, the Credit Union Membership Access Act, both federal and state-chartered credit unions got behind the grassroots effort that was characterized as something all credit unions, regardless of their charter type, had a vested interest in. Do you think there is that same concerted effort behind CURIA, or is it perceived more as being a federal credit union-related piece of legislation? West: It is clearly an issue for both state and federally chartered credit unions. CURIA is a harder issue to inform people about and get them interested in than H.R. 1151 was. I don't think we as an industry have done a good job of explaining the need for CURIA to our Boards, our members and our legislators. Also, with H.R. 1151, we were in a defensive posture and members rallied to protect their credit unions. That is not the case with CURIA. We are asking for change to help credit unions grow and compete but members may not necessarily feel threatened if CURIA does not pass. Some might not agree with CURIA once they hear about it. It is somewhat complicated to explain all aspects of CURIA to members and legislators, thus it requires more discussion and more focus to get people interested in supporting it. McPharlin: I do not think that CURIA has the same wide reaching central impact on credit unions as the passage of H.R. 1151 had and thus the credit unions have not been as dedicated or involved with obtaining the passage. CU Times: There has been a lot of discussion recently about the importance of having at least one member on the NCUA Board who has credit union experience. What are your thoughts about that? What about having a representative from a federally-insured state-chartered CU sit on the board? West: I personally think there is value in having someone be a member of the NCUA Board who has experience either operating a credit union or serving on a credit union Board. Direct credit union experience brings that unique perspective and adds value toward helping the NCUA Board make as informed decisions as possible for the credit union industry. As a federally insured, state-chartered credit union, I think it would be great to have someone from a federally insured, state-chartered credit union on the Board. However, I don't think that has to be a requirement. It does not matter whether the representative is from a state or federally chartered credit union, simply having someone with direct credit union experience is the great value. We have two Board members who retired as former members of management of the credit union, and later ran for the Board. They have been of great value to our Board and to Management. They have somewhat unique perspectives from having been in both roles, and are a great complement to both the Board and Management as we strive to make the best decisions possible for our members. McPharlin: I think it would be of great value to have someone on the NCUA Board who has a credit union background and understands the issues that are of importance to the credit unions. A public member of the NCUA Board can have the best of intentions, but they can not understand the issues of managing a credit union in the very competitive financial marketplace. An example of this is the recent comments by board members about which of the current regulations is a burden for the credit unions. They do not understand that it is not one single regulation that is the problem; the problem is the layers and layers of regulations. I do not agree that there should be a special board seat for state chartered credit unions. I think a person with a credit union background can represent all credit unions. CU Times: The Credit Union Regulatory Improvements Act affects FCUs only, however given it is the first bill that has the CU lobby truly playing "offense", should state charters also get behind the bill? Why?" West: I think state chartered credit unions should get behind it. While it affects only federally chartered credit unions, this is an effort to benefit the credit union movement and we should work together to benefit the movement. McPharlin: I think state chartered credit unions should support CURIA because it creates a more positive alternative for many state chartered credit unions. In Michigan I served on the committee to improve and update the State of Michigan credit unions laws because it was for the good of the credit union movement in the state. If credit unions are to continue to be a viable alternative we must work together to gain whatever improvements we can in the rules and regulations that affect us.