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NCUA DROPS OBJECTIONS TO CU CONVERSIONS

The National Credit Union Administration agreed to drop its objections to two Texas credit unions — Community Credit Union, Plano, and OmniAmerican Credit Union, Fort Worth — converting to mutual savings bank charters, agency Chairman JoAnn Johnson said yesterday. The members of both credit unions had voted to switch charters, but NCUA refused to certify the elections based on the improper folding of the two-sided disclosure documents in ballots mailed to members. The refusal prompted the credit unions to sue the agency in federal court.

Under the settlement agreement, NCUA will, among other things, issue a letter approving the member elections as having been conducted fairly, and will cooperate in completing the conversions to mutual savings bank charters. Sources told the Credit Union Journal that NCUA made the agreement "to avoid further embarrassment in the case by having a US court ... strike down its whole rule on conversions" and to "help [it] minimize any further tensions with members of Congress, who have criticized the agency on its handling of the ... conversions." Read the settlement.

Continue reading below for events leading up to the lawsuit.

Judge: Overturn NCUA on CU Conversion
US Magistrate Judge Donald Bush yesterday recommended that the US District Court for the Eastern District of Texas grant Community Credit Union, Plano, an injunction overturning the National Credit Union Administration's refusal to certify Community's member vote to convert to a mutual savings bank.

After receiving the recommended decision, the parties have 10 days to appeal to US District Court Judge Robert Schell. NCUA had based its refusal to certify the election on the improper folding of the two-sided disclosure documents in ballots mailed to members, prompting Community Credit Union to sue the agency on July 15.

"The NCUA acted arbitrarily and capriciously in failing to certify the member vote," Judge Bush said. "CCU ... demonstrated a risk of irreparable harm due to the fact that, without the NCUA's certification, CCU cannot fairly promote itself or compete in an extremely competitive market as either a credit union or a mutual savings bank."

Court Reverses NCUA on CU Conversion
US Magistrate Judge Donald Bush ruled yesterday that the National Credit Union Administration's refusal to certify the member vote of Plano, Texas-based Community Credit Union to convert to a mutual savings bank charter was arbitrary and capricious, and contrary to law The judge added that the credit union complied with all of the applicable regulations in drafting and mailing three separate ballots to its members.

Bush said he will recommend that the US Circuit Court for Eastern Texas grant Community Credit Union's request for a preliminary injunction overturning NCUA's action. NCUA based its refusal to certify the election on the improper folding of the two-sided disclosure documents in ballots mailed to members, prompting Community Credit Union to sue the agency on July 15. Judge Bush is likely to issue his final recommended decision next week to US District Court Judge Robert Schell, and the parties then have 10 days to appeal to Schell. For more information, contact TBA’s Tim Amos.

8-18-05 > ... But OmniAmerican Must Wait
Yesterday's ruling by US Magistrate Judge Donald Bush in the Community Credit Union case will not apply to OmniAmerican Credit Union in Fort Worth, Texas — at least not right away.

On July 28, OmniAmerican Credit Union joined Community Credit Union in its lawsuit challenging the National Credit Union Administration's powers over conversions to mutual savings bank charters. It did so because the agency indicated it also would invalidate OmniAmerican's conversion vote based on the improper folding of the two-sided disclosure documents. But the NCUA has not made a final decision and reportedly is waiting for more information on how the credit union crafted its disclosures. Judge Bush said he will not issue a ruling until the NCUA has rendered its decision on the OmniAmerican Credit Union ballot.

7-18-05 > Texas CU Sues NCUA
Community Credit Union, Plano, Texas, said Friday it has filed a lawsuit against the National Credit Union Administration for the agency's refusal to certify last month's member vote to convert the $1.4 billion credit union to a mutual savings bank charter. The lawsuit, filed in the U.S. District Court for the Eastern District of Texas, asks for an immediate ruling overturning NCUA's action and for the return of the credit union's $10 million National Credit Union Share Insurance Fund deposit.

"It's amazing that despite approvals from three government agencies and growing concern expressed by members of Congress, NCUA continues to stand alone in its refusal to accept the overwhelming decision by our members based on a hypertechnical interpretation of their regulation," said Mark Hord, the credit union's general counsel.

NCUA based its refusal on the improper folding of the two-sided disclosure documents in ballots mailed to members.

The lawsuit charges that the agency's rules governing conversions are illegal because they violate federal law restricting the scope of NCUA's rulemaking authority. It also claims that NCUA's action violates congressional intent because Congress has specifically forbidden NCUA from issuing regulations that are more restrictive than those issued by the Office of Thrift Supervision. Read more.

The legislation would, among other things, prevent the NCUA from requiring converting credit unions to disclose future plans that have yet to be formalized. Reps. Ed Towns (D-NY), Sam Johnson (R-Texas), Paul Gilmore (R-Ohio) and Peter King (R-NY) are original co-sponsors of the bill.

“The legislation ... provides some needed direction to the [NCUA], an agency that appears intent on setting up roadblocks for credit unions daring to change their charters,” said Floyd Stoner, ABA executive director for congressional relations and public policy. “By introducing [HR 3206], Reps. McHenry and Towns are clearly trying to offer converting credit unions some certainty in the process by which conversions will be judged.” Read more. Read ABA’s statement.
Read ICBA’s statement.

7-13-05 > NCUA Formally Invalidates CU Conversion Vote
The National Credit Union Administration this week formally denied the request of Community Credit Union, Plano, Texas, to certify last month's vote to convert to a mutual savings bank charter.

NCUA based its denial on the improper folding of the two-sided disclosure documents in two of the first three ballots mailed to members. The credit union can either appeal the ruling to the NCUA Board or conduct the balloting over, NCUA Region 5 Director Jane Walters said. The Office of Thrift Supervision certified the conversion vote of Community Credit Union members on June 29, and concluded that the credit union had followed all proper procedures.

... And It Will Be 'Ditto' for OmniAmerican
In related news, OmniAmerican Credit Union, Fort Worth, Texas, announced this week that 76 percent of its voting members approved its conversion to a mutual savings bank. The plurality reportedly was the largest ever for a conversion vote. But the NCUA has indicated that it also will invalidate that election based on the way disclosure documents were folded in mailings to members. For more information about either of these cases, contact ABA's Keith Leggett.

7-12-05 > OTS Approves CU’S Charter Conversion Application
For the second time in two weeks, the Office of Thrift Supervision has approved the application of a Texas credit union to convert from a state-chartered credit union to a federally chartered mutual savings bank over the objections of the National Credit Union Administration. Last week, the OTS approved the application of the OmniAmerican Credit Union, Fort Worth, Texas, to convert. On June 29, the OTS had certified a similar vote by members of Community Credit Union, Plano, Texas.

The National Credit Union Administration, however, has indicated that it will invalidate the OmniAmerican’s vote to switch charters because it objected to the way the mandatory disclosure papers were folded in mailings to the credit union’s members. Read the OTS application approval.

OTS also implicitly called the National Credit Union Administration to task for indicating that it would invalidate the Community Credit Union vote because it objected to the way the mandatory disclosure papers were folded in mailings to the credit union's members.

"OTS has reviewed the foregoing materials and …concluded that the credit union followed appropriate methods and procedures with respect to ... the distribution of notices regarding the members' vote, and the disclosures set forth in the materials it distributed; ... the conduct of the June 21, 2005, special meeting; and ... the counting of the ballots," OTS Acting Director Richard Riccobino said in the certification order. Read the order. For more information, contact ABA's Keith Leggett.