ALEXANDRIA, Va. – The ongoing struggle over the procedures and requirements that credit unions deciding whether to become mutual banks should have to follow and fulfill has trickled down even to the basic bylaws that NCUA provides federal credit unions. The Federal Credit Union Act mandates that the NCUA prepare standard bylaws which “shall be used” by federal credit unions, and the agency last revised the current version of the so-called “standard bylaws” for federal credit unions in 1999. In general, such revisions are fairly routine, but the currently unsettled regulatory, legal and political atmosphere surrounding the charter change debate has left many interested parties scrambling for every regulatory and legal advantage that they can. Overall 13 credit unions and credit union associations along with pro-conversion consultants and a pro-conversion law firm weighed in with comments on the proposed bylaws which the agency will encourage, but not require, that federal credit unions use to update their own bylaws once they are finalized. Although the bylaws cover much of a federal credit union’s foundation, most commentators concerned with the charter change touched upon three areas: how many members should be needed to call a special meeting, whether members should be allowed at an annual meeting to make motions for the credit union leadership to consider, and what procedures credit unions must follow if they want the agency to approve their own individual bylaws. Silver, Freedman and Taff, a Washington, D.C. law firm which has handled most credit union-to-bank charter conversions, commented on eight of the bylaw changes, including specifically the proposed changes to the number of members which would need to sign petitions to call a special meeting, the way credit union member motions at annual meetings are handled, and questions surrounding which members are considered eligible to vote – all topics with significant importance to issues which might arise in a prospective credit union charter change. “Nowhere do the bylaws address the issue of who is a member eligible to vote, as opposed to who is a member, other than the age requirement in Article V, Section 7,” the firm wrote. “A member without a minimum share balance or a member who has caused a loss to the credit union, as two examples, are not addressed. We believe it would be helpful to address these issues in the bylaws to provide better certainty and consistency among federal credit unions in determining who is a member eligible to vote at an annual or special meeting.” The question of who, exactly, is eligible to vote in charter change elections has been an issue in several of the credit union-to-bank charter conversions, including the failed attempt by Columbia Community Credit Union in 2003 and the more recent successful conversion attempts at the $1.4 billion Community Credit Union and $1.2 billion OmniAmerican Credit Union, both headquartered in the Dallas area. Silver, Freedman and Taff came down against NCUA’s proposal that members’ motions should have to be heard at an annual meeting, arguing that “motions at a special meeting that do not pertain to the business of the meeting, under Roberts Rules of Order, are not allowed to be heard, except as new business, and are precatory in nature,” the law firm argued, adding that it was important to stress the difference between special meeting and an annual meeting. The issue of what member input is or is not allowed at annual meetings and special meetings on credit union conversions has been an issue in many of the failed and successful conversion attempts. Sandy Jelinski, the CEO of the $1.2 billion Lake Michigan Credit Union, a CU which tried and failed to convert its charter in 2004, agreed with Silver, Freedman and Taff. “The focal point of the Annual Meeting is to bring the membership up-to-date on the financial condition of the credit union and how it has operated over the previous year,” she said. “If members were given an opportunity to make a motion from the floor, the entire focus of the meeting could change. It would be an inappropriate time for disgruntled members, who are delinquent or have been turned down for a loan, to cause a major disruption at a meeting that would normally run very smoothly.” This echoed credit union consultant Marvin Umholtz’s concern about fallout from the proposal. “Every disgruntled FCU member, crackpot, leftist or right wing political extremist or antagonistic agitator will be empowered to waste the FCU’s other members’ time and resources, discouraging future attendance,” said Umholtz. “Control of the membership meeting agenda, procedures and timetable should be only subject to the board of director’s good judgment as duly elected representatives of the membership.” But Charles Dawes, a director for the $1.4 billion Travis Credit Union, argued that credit union member involvement is needed in precisely a charter conversion situation and that the agency should not make it “more difficult for members to exert influence to correct undesirable activities whenever Volunteer Professionals or Management are not fulfilling their fiduciary and/or regulatory responsibilities, or whenever they are not responsive to member’s needs,” he wrote, adding: “One possible example of a need for members to get involved is if they do not agree on a proposed conversion of their credit union to a bank.” Significantly CUNA remained silent on the question of what members should be allowed to do at meetings and instead limited its comments to suggesting that NCUA allow credit unions themselves to decide whether a flat number or a percentage of the membership should be required to call an annual meeting. But CUNA recommended the agency streamline the process for enabling credit unions to add bylaws. Currently, federal credit unions must apply to the agency to have any additional bylaws approved and must do so even if the agency has already approved the bylaw for another credit union. Instead, the association urged the agency to not only make the list of bylaws it has approved available on its Web site but to also allow other credit unions to adopt them freely. “Rather than requiring all federal credit unions to seek approval of bylaw amendments, we encourage the agency to make available on its website a list of the bylaw amendments it approves for credit unions and allow other credit unions to adopt amendments from that list without NCUA approval,” CUNA said. Recently a number of credit unions have indicated they are interested in drafting their own bylaw amendments to make sure their memberships are fully involved in any potential charter conversion decision they might face. For its part, NAFCU supported NCUA adopting a “process” which would allow the number of members whose support would be needed for a special meeting to rise as the credit union grows. It also supported NCUA’s proposal to mandate that members’ be allowed to raise motions at annual and special meetings. -

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