ARLINGTON, Va. — As might have been expected, credit unions dropping their charters to become mutual savings banks remained every bit as controversial in 2007 as it had been in 2006, but with significant changes to the issues’ parameters.

First, the bare numbers: Overall in 2007, only 2 credit unions changed their charters outright to mutual banks, though two that completed their conversion votes in 2006 finalized the process in 2007.

The $1.3 billion Think Federal Credit Union, headquartered in Rochester, Minn., completed its conversion process with a very narrow vote in March. The closeness of the balloting surprised some observers because there had not really been any formal member opposition to the move. The closest previous vote had been at Lafayette Federal Credit Union where opposing members appeared to have defeated the proposal.

The Office of Thrift Supervision finally approved the application after granting Think an extension to finish completing details, though the agency never clearly indicated what the problems were.

Sunshine State Credit Union was the second CU to convert outright in 2007, proving perhaps the value of persistence. Sunshine State made an attempt to change its charter in 2003 but withdrew its application after it became clear that the OTS was never going to approve it without significant changes.

OTS never identified what the problems were but the credit union let its then-CEO go and questions arose over whether the CU’s loan portfolio contained too many loans that would be considered subprime under bank regulations for the FDIC to feel comfortable. Over 24% of the CU’s membership participated in the balloting the second time, which saw almost 60% of the voting Sunshine members cast ballots in favor of the conversion in January of 2007.

The two credit unions that finalized their charter conversion processes in 2007 were the $586 million Nationwide Federal Credit Union, headquartered in Columbus, Ohio and the now $289 million Lafayette Federal Credit Union headquartered in Kensington, Md. Nationwide completed its somewhat unique charter shift while Lafayette’s attempt failed amidst controversy and acrimony.

What made the Nationwide charter change unique was that it was the first time in recent history that a credit union was purchased by a bank. Nationwide Insurance, the credit union’s sponsor, started Nationwide Bank which put forward the deal. Under the terms of the transaction, the Nationwide Financial Group agreed to pay the members of the CU, on a pro-rata basis, $79 million for their collective $65 million in retained earnings in the CU, a 17% premium.

But by far the ongoing saga of Lafayette FCU’s conversion attempt won the award for the most dominant credit union charter conversion story in 2007. After initially appearing to have won the vote by the narrowest margin in a charter change vote to date, the CU was forced to withdraw its application after the independent inspector of elections withdrew its own certification of the ballots.

In statements the CU’s leadership blamed the inspector, the RSM McGladrey firm, for the errors. But documents later revealed that McGladrey had urged the CU’s leadership to allow a full recount and determined that the CU would have lost the initiative by six votes.

By itself this outcome would have likely been damaging enough, but not crippling. Other credit unions, in particular, Columbia Credit Union in Vancouver, Wash. and DFCU in Dearborn, Mich., have gone on to thrive as CUs after having withdrawn charter change applications.

A lawsuit that pitted Lafayette’s leadership against the William Brooks Sr., a well known and widely liked credit union leader who had been Lafayette’s CEO, and his son William Brooks Jr., a former CU employee, exacerbated the ongoing conflict and kept the CU from moving on. Members also point out the CU’s leadership has not, to date, sought to reconcile with members or set out an agenda for the CU going forward, leaving the institution in a state of turmoil which has seen it slide in terms of assets every quarter this year.

It is unclear how the legal fight at Lafayette will finish out. The Maryland court which is hearing the case has scheduled a trial in March of next year, but no matter the outcome it seems clear that the conversion issue will continue moving on.

As of this deadline four credit unions are currently moving though the charter changes process. The $96 million Northeast Community Credit Union, headquartered in Haverhill, Mass., is in the process of merging with a state chartered mutual bank in the same town. The $186 million Beehive Credit Union, headquartered in Salt Lake City, the $113 million First Basin Credit Union, headquartered in Odessa, Texas and the $104 million First Priority Federal Credit Union, headquartered in Boston, all have applications pending with the OTS to change their charters to mutual banks.

With the exception of Northeast Community, the credit unions straddle the changing regulatory environment for charter changes between the NCUA’s previous charter change disclosure regulations and the current regulations. Perhaps the biggest change from the agency’s older regulatory model and the contemporary one is the delay in putting ballots into the hands of credit union members.

Previously, a credit union considering a charter change could send ballots with the first of the three mandatory notices it has to share with its members. Critics charged that this benefited the CU because members would sometimes make their ballot decision immediately and without a chance to hear both sides of the conversion question. But under the agency’s most recent regulations, ballots can only be sent with the last notice, giving both the CU and the charter change opponent’s time to make their cases about the decision.

In effect, sources familiar with the process have said that the regulatory change will introduce campaigning to the process and goes a long way toward leveling the playing field between the credit union leadership, which generally has a lot of resources from the institution, and members who oppose the move with only their own resources and anything they can glean from sympathetic groups in the industry at large.

But the biggest question mark hovering over this development and the conversion question going forward may be a legal challenge to the agency’s regulations which has been brought by the Coalition for Credit Union Charter Options, a banker led group which promotes credit unions making the charter change. Their attempt to overturn the agency’s regulations is currently before the U.S. District Court for Eastern Virginia and there is no indication of when the court might rule. If the coalition succeeds it may, in effect, have wiped the slate clean and forced the agency to start its regulatory process anew.