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DALLAS – Without a doubt when it came to credit unions exchanging their charters for those of mutual banks, 2005 was the year this controversial issue most came into focus – and it did so primarily with the $1.4 billion Community Credit Union in Plano, Texas. The credit union launched its effort at the end of December 2004, the largest credit union to date to have made the charter change, announcing its intention to open its doors as a bank in January 2006. From the very beginning the effort was controversial but few could have predicted that the effort would wind up in court before the year was out. From early on, the disclosures Community and the $1.2 billion OmniAmerican Credit Union, another Dallas-based institution which also sought and won charter change, made to their members about their proposed charter changes became the focus of a fight. At its January 2005 meeting, roughly three weeks after Community announced its charter change and just over a month before Omni announced its attempt, the NCUA Board passed a significant new policy that mandated a series of disclosures and tried to ensure that credit union members were told boldly and unambiguously the rights they were being asked to give up with the CU charter. The regulatory changes had been in the works for a while, in part as a reaction to some of the things the agency discovered when they investigated the charter change disclosures and balloting from the failed attempt by the then roughly $640 million Columbia Credit Union, headquartered in Vancouver, Washington. But there was little doubt the agency had Community on its mind as well, since it made sure the new disclosure regulation came into force as soon as the agency published it in the Federal Register, thus foregoing the customary 30-day period between when the a regulation is published and when it goes into effect. The new regulation had a significant impact on Community’s effort since the credit union had already submitted one set of disclosure documents for agency review and had to resubmit them under the new regulation. Little did the credit union or agency know then, the negotiations between the agency and the law firm which was handling the conversion, Washington-based Silver, Freedman and Taff, over those new regulations would come to play a large role in the credit union’s charter change litigation later in the year. Up until the first of the disclosures had been mailed out, the trajectory of Community’s application appeared relatively fixed. A small group of members, consisting of some affiliated with the credit union industry and others who had been long-term Community members, had organized itself into the Coalition for Member Trust to oppose the charter change, but they had met with little success getting the local media to pay attention to the story. Likewise, in a somewhat controversial move, the Texas Credit Union League only developed a policy on conversions slowly and, when it finally did so, declined to take out advertising challenging the charter change aimed at Community members. The situation changed in June when the NCUA ruled that Community’s disclosures to its members violated the agency’s regulations and told the credit union that it would invalidate any balloting that took place based on the disclosures. The agency alleged that Community had agreed that the very first document that Community members would see in the disclosure packet, after a cover letter from the CU board, would be the agency’s statement mandated by the regulation change in January. Instead, the agency charged, the first thing members saw after the cover letter had been a statement from the credit union attacking NCUA’s mandated statement. The agency raised similar objections to Omni’s disclosures, which had been prepared in the same way and were almost word for word identical to those Community sent its members. The credit unions countered that what was at stake was the way they had folded the page in question and that NCUA was acting capriciously and in violation of their rights. The matter eventually wound up in a federal district court where a magistrate judge sided with the credit union, forcing the agency to eventually settle its case with both Community and OmniAmerican. Community will become a bank as of January 2006. OmniAmerican has yet to make an announcement. While the credit unions eventually won their fight to become banks, their victory may be pyrrhic for at least some time. Over the course of 2005, a number of credit union leagues around the country have begun to enact policies aimed at enforcing full disclosure and instructing their staffs to prepare policies which, in effect, will encourage members to get involved with, and presumably oppose conversions. The fight left the agency with a political headache as well since it generated one bill, sponsored chiefly by freshman Republican house member Patrick McHenry, that would strip NCUA of much of its authority to regulate charter change disclosures and would roll back the agency’s current regulatory regime governing charter change. [email protected]

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