Perhaps no issue in recent years has galvanized the credit unioncommunity as much as the recent debate over credit unionconversions. The well-publicized court battle between CommunityCredit Union of Plano, Texas, and NCUA has brought that debatefront-and-center. Given that backdrop, I think it is appropriatethat I write about where NAFCU stands on this important subject. Ashas been widely reported, NAFCU was intimately involved in theCommunity CU lawsuit. We filed a friend-of-the-court briefsupporting the agency's disclosure requirements because we'vealways felt strongly that credit union members deserve to be fullyinformed about how a conversion will affect them. Transparency isparamount, and credit union members need to know–before they casttheir vote–that if a credit union converts to a mutual savingsbank: * they will lose control and say over their financialinstitution; * senior executives and directors could potentiallyreap large financial rewards if the bank subsequently converts to astock-owned institution, which often happens; * their credit unionwill forfeit its tax-exempt status, which will likely lead to lowerrates on savings and higher rates on loans as well as higher priceson other services and products; and * the conversion process itselfcan be costly and lengthy. Simply stated, the member-owners of acredit union need to be fully informed that when they vote for aconversion they may literally be casting their last vote in a trulydemocratic process at their financial institution. Once theconversion takes place, they may never again have an equal say-orstake-in their institution. The potential for self-dealing andinsider gains that conversion advocates are so quick to dismiss arevery real when a mutual savings bank converts to a stock-held form.Such abuses led Congress to impose a moratorium on allmutual-to-stock conversions from 1963 to 1976. When they resumed,they were under a new set of regulations; and when they againbecame popular in the 1990s, the Office of Thrift Supervisionplaced further restrictions on conversions. Though current OTSrules place some restrictions on self-dealing, they still allow forsignificant personal gains on the part of the institution'sinsiders. Having said this, I would like to point out that NAFCU isnot opposed to choice or to conversions in principle. If a majorityof credit union members feels that a mutual savings bank would be amore suitable model to conduct business, NAFCU would not object–provided there is transparency in the process so that members arefully informed. However, there remains considerable confusion abouthow the process works, and so NAFCU has prepared a policy paper onthe subject, outlining its recommendations. The paper-which we planto release during our Congressional Caucus in Washington-provides ahistorical and legal perspective on conversions and notes howlegislative actions have shaped the debate. NAFCU's recommendationswere created after carefully considering how credit union membersmay best be served. Our recommendations are as follows: *Transparency must be at the core of the conversion process. Newrules should be instituted that require a credit union to hold ameeting of its membership, prior to the ballot mailing, to announceits intent to convert. This will give all parties an open forum fordiscussion and provide a means for members to ask questions, gatheradditional information and participate in discussions. * Resourcesshould be allocated, and an opportunity should be provided, formembers who are opposed to the conversion to express theiropinions. This creates an equitable situation among credit unionmembers and furthers the “every member has a voice” concept thathas become synonymous with the credit union community. *Transparency must also be extended to the voting ballot itselfthrough the use of clear and plain language disclosures. Ballotsmust allow those opposed to the conversion an equal voice. * Inorder for the conversion vote to be valid, at least 20% of a creditunion's members eligible to vote must cast a ballot, and a majorityof those must vote in favor of conversion. This requirement, whichis already contained in the Credit Union Regulatory ImprovementsAct, would ensure that such an important decision is not determinedby a small minority of members. * Directors and senior executivesin a position to financially benefit from a conversion should notbe allowed to do so until 10 years after the initial conversiontakes place. Further, a converting credit union must provide fulldisclosure of the potential maximum benefit a director or seniormanager could receive if the institution were to become stock-ownedafter the 10-year period has passed. This would include anapproximate amount in dollars that directors or management couldpotentially receive based on the size of the institution. While theFederal Credit Union Act prevents directors from receiving abenefit from the conversion to a mutual savings bank, there are noregulations in place for a subsequent conversion to a stock-ownedinstitution. In addition to receiving a salary that is set by theboard of directors, the CEO oftentimes is eligible to receivepayment in the form of stock-related bonuses. NAFCU feels thatmembers' assets should not be used for the excessive personal gainof those in senior management positions. Credit unions have alwaysbeen defined by their service-based philosophy–an approach made allthe more apparent with board of directors who serve as volunteers.Indeed, this unique philosophy has allowed credit unions to meetthe financial needs of numerous communities in underserved areasand has been a constant reminder of the significant differencebetween credit unions and for-profit institutions. NAFCU stronglybelieves that all credit union members have something very preciousat stake when an institution votes to convert and that transparencyis mandatory to the process. NAFCU will continue to be an advocateof choice, full disclosure and member participation. Anything lesswould be a grave disservice to our members and the member-ownersthey serve.