WASHINGTON — Just as two members of Congress wrote the CEO and board of the $331 million Lafayette Federal Credit Union to ask that its members have more time to contemplate the CU's proposed conversion to a mutual bank, the NCUA approved the credit union's disclosure documents and ballots for the conversion vote.

The credit union applied to convert its charter to that of a mutual bank in June of this year and had already been through at least one round of disclosure document negotiations.

In an announcement released on the heels of the letter, the credit union's CEO Mike Hearne said the board believed a bank charter to be the best one to allow the organization to keep offering affordable financial services.

“The federal mutual savings bank charter will allow us to serve more members throughout the Washington D.C. metropolitan area,” Hearne said, “including those in low and moderate income areas, increase our member business lending capacity, including for small business owners and have access to new sources of capital to support more loan, services and branches as rapidly as demanded by our members.”

In a move that will take some sting out of the proposed conversion, Hearne also said that as a mutual bank Lafayette will continue to have board members serve “without receiving board fees,” will keep the credit union standard of one-member, one-vote and will not institute any stock-based compensation plans for directors or officers. The CU said it still might put an employee stock option plan into place should it issue stock in the future.

The CU's announcement also implied that, for the interim at least, it will remain a mutual bank and not adopt a Mutual Holding Company Structure and issue stock.

The credit union said the first mailing of the disclosure materials will take place “within the next few weeks,” appearing to allow the CU some flexibility to meet a request from two U.S. Representatives that it hold off on the balloting to let members consider the proposal.

The Aug. 21 letter from Representatives Eleanor Holmes Norton (D-D.C.) and Chris Van Hollen (D-Md.) asked Lafayette to grant more time so that members could contemplate and discuss the proposed charter change and gave voice to what the legislators called their “significant concern” about the proposal.

“Based on the experience of other credit union to bank conversions,” they wrote, “We are very concerned about the potential for unjust insider enrichment in the conversion of Lafayette FCU to a bank, and of these conversions in general, as well.”

The letter asks Lafayette's board to give members advance notice of the contemplated conversion, allow for at least 60 days of feedback from members about it, allow members opposed to the conversion to communicate their concerns to other members and to deliver ballots to members only after the 60-day comment period.

Many of Lafayette's members are employees of the U.S. Agency for International Development and other federal agencies and likely District of Columbia residents and hence among Holmes Norton's constituents. Lafayette, which is headquartered in Kensington, Maryland, is in Van Hollen's congressional district.

“We strongly believe,” the letter continued, “that member/owners deserve transparency and need full disclosure and accounting of ALL POSSIBLE FINANCIAL BENEFITS made available to insiders.” [Text changes present in the original].

While the credit union has not commented on the letter for the record, a source close to Lafayette noted that it seemed obvious that someone put the lawmakers up to sending the letter, adding that the letter contained “inaccuracies” and adding that it seemed primed to serve the agendas of people who either opposed conversions or who wanted to see NCUA's most recent proposed regulations rushed into effect.

For its part, the Maryland and District of Columbia Credit Union Association denied telling either legislator what to do, but Mike Beall, CEO of the association, noted that the association staff had been mandated by the association board to educate members and the public at large, including Congress, about the issues raised by conversions.

Paul Hazen, CEO of the National Cooperative Business Association, hailed the letter and noted that his organization had gone on the record as opposing the privatization of any cooperative organization and thus would oppose Lafayette's conversion.

“We don't believe a conversion is in the best interest of a credit union's members,” Hazen said. “So we applaud legislators willing to draw attention to the issue.”

One likely impact of the letter may be a sharp increase in the amount of heat the issue will generate for the CU's board members, some of whom hold positions of significant reputation in their communities.

Board member John Farmakides works for a significant venture capital firm, Havenwood Capital Markets; Norman Cohen, chairman emeritus, is a commissioner with the Housing Opportunity Commission of Montgomery County, Maryland, and Drew Luten, board member, is acting assistant administrator for Europe and Eurasia for USAID.

As of press time, Hearne was not available for comment.

Instant Insights /

NCUA Approves Lafayette's Disclosures; Two U.S. Representatives Ask CU to Give Members More Time

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