The Texas fights had turned on just this sort of development, with NCUA insisting that the credit unions had violated agreements that the credit union's lawyers had made verbally.

Johnson and Polakoff were the first witnesses, but had not even begun to make their statements before subcommittee Chairman, Spencer Bachus (R-Ala) recessed the hearing for the first of (as of press time) three times during which members went to the floor to vote.

Significantly, Bachus noted before he recessed that while the subcommittee would take testimony specifically for the McHenry bill, the discussion would include the broad question of credit union-to-bank charter conversion.

In his statement, Bachus came out strongly in favor of transparency and disclosure in the process and said that he considered the rule that 20% of credit union members should be required to vote on a conversion decision sounded "reasonable on its face."

"I understand that it might have been bargained away as part of a process but I would like to see the history of how that rule was done away with," he said, speaking of the 20% rule which was in existence prior to the 1998 revision to the Federal Credit Union Act.

After the recess the hearing tone got a little testy for Johnson as the microphone was soon passed to McHenry and he grilled the agency on one part of its boxed statement disclosures that the agency has mandated go into a credit union conversion disclosure packet.

McHenry charged that the third part of the disclosure appeared "materially false."

The point reads: "SUBSEQUENT CONVERSION TO STOCK INSTITUTION. Conversion to a mutual savings bank is often the first step in a two-step process to convert to a stock-issuing bank or holding company. In a typical conversion to the stock form of ownership, the EXECUTIVES OF THE INSTITUTION PROFIT BY OBTAINING STOCK FAR IN EXCESS OF THAT AVAILABLE TO THE INSTITUTION'S MEMBERS."

McHenry contended that management does not have those opportunities even though NCUA maintained management does have access to employee stock option plans and stock sharing plans that average members or depositors in a stock issuing institution would not have.

Johnson met with more success parrying questions from Representative Jeb Hensarling (R-Texas) before the hearing was recessed for the second time, and she made a strong point in a line of questions offered by Tom Price (R-NC) who served as chair after the recess.

Responding to Price's questions about the differences between voting in a mutual savings bank and a CU, Johnson noted that while a mutual savings bank would allow a depositor with $100,000 to have 1,000 votes and a working mother with $100 on deposit to have one, in a credit union both would have one vote.

"In a mutual savings back I could round up 10 of my friends with $100,000 on deposit and we have 10,000 votes," she said, "but I would need to round up 10,000 of my friends with $100 on deposit to have 10,000 votes," she said.

In a line of questioning from Representative Paul Kanjorski, (D-Penn) she also strongly defended NCUA's handling of the DFCU attempted conversion, pointing out that contrary to the credit union's statements, the NCUA had never told the CU that it could not have discussed the conversion with its members, noting that the CU had admitted it had considered the conversion long before it made the application to convert. At any point, Johnson pointed out, DFCU could have consulted with its members about changing its charter. Outside of any line of questioning, one of the hearing's strongest emotional points came when Kanjorski sought to correct testimony from the bankers which suggested that Congress had consulted long and hard about allowing CUs to convert to banks. Referring to the dropping of the requirement that converting CUs have at least 50% of their membership take part in the vote in the 1998 Credit Union Membership Access Act, Kanjorski called it a "quirk" and "product of an 11:30 at night compromise where we who supported the credit union movement thought it more important that 1151 go forward to allow the credit union industry to exist and hoped we could come back and change this dangerous change later." In balance, it seems clear that McHenry will expect NCUA to change the third part of its boxed statements and to remove the language that he and the banking interests at the hearing called speculative. Indeed, at several points the Congressman appeared to demand that change. One way out of the impasse may be to insert language at the point in the boxed statement that will merely report the number of credit unions which have converted to banks and then gone on to issue stock.

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