In a tense hearing that channeled the troubled competitive waters between the nation’s for-profit banks and not-for-profit credit unions into a single turbulent strait, the House Financial Services Committee quizzed counterpart regulators and industry opponents alike Thursday on a bill that would ease restrictions on credit union-to-mutual savings bank conversions.
The Credit Union Charter Choice Act — introduced in July by Reps. Patrick McHenry, R-N.C., and Edolphus Towns, D-N.Y., after high-profile conversion disputes raised questions about the federal credit union regulator’s impartiality — would strip the National Credit Union Administration of some of its current powers to supervise conversion votes for its insured, member-owned credit unions.
Opposed by the credit union trade associations and supported by the bank trades, the bill sparked opening statements and specialized testimony from committee members, two federal regulators and four vying industry witnesses that ultimately resolved into two competing themes: consumer “choice” vs. consumer protection.
Proponents of the bill say they believe NCUA is suppressing charter conversion choice through rules it believes are “onerous,” speculative of future charter moves, and in violation of a 1998 law governing this and other credit union matters. Opponents assert that because 21 of 24 recently converted federally insured credit unions went on to become stock-held banks, the possibility of insider “raiding” of credit union member equity compels rigorous disclosure requirements.
There is currently no quorum requirement for a conversion vote to the for-profit mutual organization, so NCUA had insisted on member disclosure notices addressing possible adverse consequences of a later conversion to a stock organization.
Bank witnesses, Office of Thrift Supervision Deputy Director Scott Polakoff, and McHenry said they believed the required notices transgressed on OTS’ territory and overstepped the 1998 law.
“[The] current conversion process is totally out of balance,” said American Bankers Association President Edward Yingling.
Credit union witnesses as well as NCUA Chairman Joann Johnson and Rep. Paul Kanjorski, D-Pa., insisted the rule was prudent and consistent with the 1998 law.
“I think the [bankers’] strategy is [one of] ‘containment and conversion,’ ” said Tom Dorety, president of Tampa, Fla.’s Suncoast Schools federal credit union. Dorety contended the bankers’ campaign against credit union growth is designed to force conversions.
Committee Chairman Spencer Bachus, R-Ala., indicated that no action would be taken on the bill until 2007.
