WASHINGTON – NAFCU unveiled its new policy on creditunion-to-bank charter conversions with three policy suggestionswhich, it said, would introduce transparency and accountabilityinto the process. Speaking at a press conference held in accordancewith NAFCU's Congressional Caucus in Washington on September 19,NAFCU President Fred Becker laid out the policy's objectives:“Transparency and full disclosure are paramount,” said Becker.“NAFCU has always felt strongly that credit union members deserveto be fully informed about how a conversion will affect them.Credit union members need to know – before they cast their vote –that if a credit union converts to a mutual savings bank, theirfuture voting rights will be affected, senior executives anddirectors could potentially reap large financial awards if the bankconverts to a stock-owned institution, and they might pay higherfees and rates.” NAFCU formed a Conversion Task Force chaired byBrian McDonnnell, CEO of the $25 billion Navy Federal Credit Unionand a NAFCU director, to draft a policy and prepare a white paperon conversion which was also released on September 19. The policyrecommendations cover three areas: First, by a series of regulatorymeasures, the association said NCUA could require a credit unionseeking to convert to hold a meeting of its membership before theballots are mailed to announce and explain the credit union'sintention to become a bank. It could also require a credit unionprovide an opportunity for members to express their opinions aboutthe conversion to other members and the agency could adopt a clear,plain language standard that could be required to inform membersabout the conversion. Second, through a change in statute, creditunions could push for a ban on the directors or senior managementof a credit union from benefiting from the transaction for at least10 years afterward. This would resurrect an idea which had beenfloated during the congressional debate over HR 1151, NAFCUexecutives explain. “Some of you may remember that in the course ofthe debate over HR1151, representatives [Jim] Leach (R-Iowa) and[John] LaFalce (D-New York – now retired) discussed a couple ofmeasures addressing this issue,” Becker explained. Leach had wanteda five year moratorium on leadership benefiting from CU conversionsand LaFalce had wanted a 50% voting threshold in conversionballoting. Leach, as the continuing member, has been open to the10-year ban idea, Becker said, adding that the association wasapproaching a wide variety of legislators about its proposals,including Representative Patrick McHenry (R- N.C.), a lawmaker withlegislation pending which would restrict the NCUA's ability toregulate credit union-to-bank conversions. “We have met withRepresentative McHenry,” Becker said, “and he seemed especiallyopen when we pointed out that under current rules there really isno way that members opposed to a conversion can meet and sharetheir opinions,” Becker said. Finally, the association endorsedagain CURIA's requirement that a successful charter vote must win amajority of at least 20% of the credit union's membership. Like asmaller version of the report introduced last week by the AmericanAssociation of Credit Union Leagues, the NAFCU white paper onconversions sought to bring a higher degree of research to thequestion than has generally been available in the past. As part ofits research, the association said that it found that all 29 of thecredit unions that have either converted or begun the conversionprocess were well capitalized at the time they began the conversionprocess, thus suggesting that capital concerns may not have beentruly driving those institutions' actions. It also found that 19 ofthe 27 credit unions that completed the conversion process had onlydabbled in member business lending and were nowhere nearapproaching the 12% statutory cap on member business loanssuggesting that, at the time of conversion at least, the memberbusiness lending cap was not really an issue for most of theconverts. Becker said that it was increasingly more difficult tosee how any average credit union member could really benefit from aconversion of his or her credit union to a mutual bank. Maybe if acredit union member had been turned down for a business loanbecause the credit union was bumping up against the businesslending cap, Becker said, that might be the “burning issue” forthat member. Or maybe if a credit union member wanted a closerbranch that could not be built because of capital issues, whichmight become their main concern he said. But absent those issues,Becker added, it's becoming more clear that credit unionconversions primarily benefit the very few at the expense of themany and while NAFCU does not oppose a credit union's ability toconvert the association beliefs credit union members deserve toknow and understand what they is at stake in conversion balloting.-

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