Members of a Plano, Tex., credit union have overwhelmingly approved its plan to convert to a mutual savings bank, setting the stage for a confrontation with the National Credit Union Administration, which has promised to reject the results.
More than 71% of the Community Credit Union members who voted on the conversion supported it, according to Alan Theriault, a Portland, Maine, consultant who is advising it. The $1.4 billion-asset credit union announced the results Tuesday evening at a special meeting in Richardson, Tex.
Chief executive officer Gerald R. Base said it plans to submit the vote - conducted almost entirely by mail over several weeks - to the NCUA, as required by law, even though the agency announced last month that it would invalidate the vote because of how a double-sided disclosure document mailed to members along with their ballot was folded.
In an interview Wednesday, Mr. Base said he is hopeful that the NCUA will reconsider its decision. "We're going to expend every effort to reach a positive solution, one in which they feel comfortable in approving the vote," he said.
But he did not rule out a court challenge if the NCUA refused to bend. In that case, Mr. Base said, Community would "explore other options."
Roughly two-dozen credit unions have converted to thrifts since 1996, but critics say the NCUA is trying to make the process more difficult.
In the last two years the regulator has adopted two regulations that require converting institutions to send toughly worded disclosure statements to their members warning them that conversions could cost them their voting rights and enrich insiders if the newly minted mutual thrift sold stock.
Community would be the largest credit union to ever convert. The NCUA's decision to reject the balloting has triggered a wave of criticism from banking groups, other regulatory agencies, and members of Congress, who have criticized what Rep. Barney M. Frank characterized as a "hypertechnical" interpretation of the agency's conversion rules.
The Massachusetts congressman, the ranking Democrat on the House Financial Services Committee, said last week in a letter to NCUA Chairman JoAnn M. Johnson that the fold of a double-sided document was not a substantial enough violation to disallow a conversion.
Rep. Frank, who has been a reliable supporter of credit unions, said he supports the regulator's goal of "preventing a credit union from being captured by a small group of insiders and converted to a mutual charter."
But he added that "if the only basis for invalidating the votes … is a single, two-sided disclosure sheet that was folded improperly in mailings to credit union members, I am troubled."
The NCUA is not the only agency whose approval Community needs to convert conversion attempt. Approval for the balloting process is also needed from Texas Credit Union Department and the Office of Thrift Supervision, which would regulate the savings bank. But those agencies found no problems with the balloting; indeed, both made it clear that they were skeptical of the NCUA's findings.
At a congressional hearing this month, Richard Riccobono, the OTS' acting director, said the NCUA's decision was "terrible." And Harold E. Feeney, the commissioner of Texas' Credit Union Department, wrote in a letter to a lawyer representing some Community members who opposed the conversion that the NCUA had never issued any instructions to credit unions on how the disclosure statement should be folded.
"Based on the samples reviewed, it certainly appears to this office that the document containing the disclosure was folded in the standard manner," he wrote.
The disclosure statements and Community's response were printed on opposite sides of one piece of paper. To read the disclosures, members had to unfold the page and then turn it over.
NCUA officials maintain that Community violated an agreement to have the disclosures appear first. The agency also cited a second converting credit union, the $1.1 billion-asset OmniAmerican Credit Union in Fort Worth, on the same issue. Balloting at that institution is still going on, though the NCUA has said it would refuse to certify that vote as well.
Both Community and OmniAmerican are represented by the Washington law firm of Silver, Freedman & Taff, which oversaw the mailings. In a letter to the NCUA last month, Robert Freedman, one of the firm's partners, wrote, "We do not believe the NCUA's position to invalidate the credit union's vote simply because the way a single piece of paper with print on two sides is folded is supportable, legally or factually."
In an e-mail to American Banker, the NCUA's main spokesman, Nicholas Owen, said Wednesday that it "has not wavered on the fact that the credit union did not honor an agreement … to comply with the disclosure regulation."
Ms. Johnson is also maintaining a hard line. The NCUA chairman told The Credit Union Journal on Tuesday that Community would have to hold another vote.
Mr. Base has said that a re-vote would cost the credit union roughly $500,000 in printing, postage, and processing.
