|TO:||Senate Banking Committee Members|
|FROM:||Dan Mica, President and CEO, Credit Union National Association|
|DATE:||June 10, 2005|
We are concerned that you may be receiving incomplete or misleading information about credit union conversions to mutual savings bank charters.
Just as every bank has the right to convert to a credit union, every credit union has the right to convert to a bank. The Credit Union National Association supports that legal right but believes strongly that the unique ownership interests of credit union members must be protected, and credit union members must be fully informed of what is at stake.
Recent experiences show that informed members may reject a conversion, as seen recently in the states of Michigan and Washington, in which credit union boards' decisions to convert were reversed.
As evidenced during yesterday's hearing in the House Financial Institutions Subcommittee, misconceptions have arisen regarding the process for, and regulation of, credit union conversions to savings bank charters. In an effort to facilitate understanding of the issues regarding such conversions, I wanted to share with you the following information.
- Conversion decisions are significant because they diminish and ultimately may extinguish credit union members' ownership rights in their institution. Mutual thrifts are not just credit unions by another name. Credit unions are not-for-profit cooperatives, which are operated for the benefit of their member-owners. Mutual thrifts are for-profit businesses and when a credit union converts to a bank, the character of the institution materially changes.
- Congress has assigned to the National Credit Union Administration Board several key duties regarding credit union conversions. NCUA has been directed to write and implement regulations governing conversions. NCUA administers the membership vote and sets standards for membership disclosures that must be met by converting credit unions.
- NCUA ensures the interests of the member-owners are protected in the conversion process. The Office of Thrift Supervision's conversion rules do not protect the fiduciary interests of credit union members in the ownership of their institutions and their capital.
- Issues have been raised about the roles of NCUA and OTS as both regulators of institutions and supervisors of the conversion process. Importantly, as of year-end 2004, OTS regulated 886 institutions, down from about 4,000 in 1980, and it is fair to note that converted credit unions help support the need for a separate thrift regulator.
- NCUA's requirement of three notices to members, with specific information prominently featured, is designed to make disclosure meaningful, not burdensome-without key facts being buried in the fine print. It is well established that information one sees first when opening an envelope is a critical factor in whether the rest of the information is even read.
- Today, the American Banker newspaper is reporting on a study conducted by Forrester Research, Inc. in which 5,000 consumers were asked to agree or disagree with the following: "My financial provider does what is best for me, not just its own bottom line." Credit unions received almost the highest rating of all financial institutions while a number of banks were rated unfavorably, and no mutual savings bank appears to have made the list. There is indeed a difference between credit unions and these other institutions that members recognize and appreciate.
- Congress has acted time and time again to ensure full and fair disclosure to consumers. Because ownership interests of the members of a credit union differ from the interests of savings bank depositors, it is critical that consumer-members of a credit union understand what they are giving up, should a conversion occur. As directed by Congress, NCUA must ensure that happens.
I trust this information will help to clarify the critical issue of conversions and welcome the opportunity to respond to any questions you might have.