ARLINGTON, Va. – NCUA's proposed rule on conversion disclosuresis unlikely to stop many interested credit unions from trying tochange their charters, but it might make getting their members'approvals more difficult, according to various sources familiarwith the current conversion process. At its July 22 meeting, thetwo-person NCUA Board put the proposed changes in the agency'sconversion regulations out for comment from the industry. The newregulations mandate the agency take a stronger, more active roll inthe process a credit union must follow if it decides to change itscharter to that of a mutual bank. The changed regulation wouldmandate additional disclosures which credit unions would have todisplay prominently on communications with their members abouttheir conversions. It would also require converting credit unionsto contract with an independent third-party to count members'secret ballots. The regulations would also require a convertingcredit union submit to NCUA language it intends to include on itsWeb site about the conversion and state-chartered credit unions aswell would also be required to submit a legal citation of theirauthority under their state's credit union act to convert, if theyhave that authority. The mandatory disclosure statement (seesidebar) is shaping up to the most important aspect of the newdisclosure regulations, both because of its blunter language andprominent placement. “Most converting credit unions choose toprovide a great deal more information [than they have to],” NCUAwrote in an explanation why the new disclosures must be prominent,“while NCUA recognizes this is a way to educate members, NCUA isconcerned that members may be overwhelmed by the volume ofinformation and choose to ignore some or all of the informationrather than reading through all of it.” But not everyone saw theproposed changes in the same light. “The regulation is another toolto preserve the NCUA and CUNA empire,” said Alan Theriault, CEO ofCU Financial Services, a leading consultant for credit unionsseeking to change to mutual bank charters. “It is not aboutdisclosure or fairness. It is self-serving and out of step with theinterests of the vast majority of credit unions. In fact NCUA'sFebruary disclosure regulation garnered very little credit unionsupport and a fair amount of opposition,” Theriault added. He alsoadded that most of the other proposed changes, for example theindependent third-party counting votes, are already being put intoplace. Richard Garabedian, a partner with the Washington D.C. lawfirm of Luse Gorman Pomerenk & Schick who also works withcredit unions seeking to change charters, adopted milder languagethan Theriault's but nonetheless thought it would have been betterhad the disclosure statement not been as specific or mandated.“Yes, it would probably have been better not to have had suchspecifically mandated disclosure language,” Garabedian said, “but Idon't believe any credit union which is seriously consideringconversion would change its plan because of this regulation.” Earlyreactions from some, most notably America's Community Bankers,suggested that the new regulations would prevent credit unions fromconverting charters. Garabedian also suggested that many parts ofthe proposed regulations arose from the agency's frustration withthe failed Columbia Community Credit Union controversy late lastyear. The Columbia controversy arose after the $619 millionColumbia Community Credit Union, headquartered in Vancouver,Washington, tried to change its charter and had members challengeits voting and meeting procedures in the effort. In the end NCUAwound up invalidating the conversion ballot after a lengthyinvestigation. “In many ways it seems clear that that the agency isreacting to what it found in its investigation of the Columbiasituation,” Garabedian said. “If Columbia hadn't happened, we mighthave still had the regulation, but it would have likely looked verydifferent.” Tony Ward Smith, a credit union consultantheadquartered in the Vancouver, Washington area and an organizer ofthe Save CCU member group which fought Columbia's conversion,agreed that the regulations might find their roots in the Columbiafight and that they would have helped had they been in place.“Sure, the regulations would have helped,” said Ward-Smith. “Thespecific `changes' listed regarding CU conversions camespecifically and directly from the CCU experience.” But he alsosaid he marked the new regulations as a sad day for the creditunion industry. “Isn't it totally ironic that NCUA is willing toaccept the fact that full and fair disclosure will not be the baseintention of the credit union or its directors, and therefore seesthe need to require the additional disclosures,” Ward-Smith added.“Apparently we've reached the point wherein the official assumptionis that- with regard to conversion attempts – credit uniondirectors are likely to be devious and deceptive as a matter ofcourse, and therefore the agency must itself directly intervene intheir actions. Ain't that a sorry state of affairs!” Where theseproposed regulations are headed is not clear. Credit unions willhave 60 days from the date the proposed regulation is published inthe Federal Register in which to comment upon it. Last time theagency put out any conversion regulations for comments, it receiveda high percentage of comments from credit unions which argued NCUAhad no place taking up the issue. Theriault predicted that theregulations might draw Congressional attention. “The repeatedattack on the HR-1151 conversion provision is also likely tocapture some Congressional attention, supporting the belief by somethat NCUA has taken its regulatory privilege too far and is incontempt of Congress on it application of HR-1151,” he speculated.“Remember, Congress reversed punitive NCUA conversion regulationsand instructed NCUA to facilitate conversions not impede them.” ButGarabedian doubted that the matter would go that far. “This isdefinitely not a calamity,” he said. “I don't think NCUA has doneanything really radical here.” [email protected]