[Congressional Record Volume 144, Number 80 (Thursday, June 18, 1998)]
[Extensions of Remarks]
[Page E1161]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


             H.R. 1151 AND CREDIT UNION CHARTER CONVERSIONS

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                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, June 18, 1998

  Mr. LaFALCE. Mr. Speaker, this body acted swiftly and decisively to 
assure the availability of financial services for all Americans when it 
passed, by an 411-8 vote, H.R. 1151, the Credit Union Membership Access 
Act. This legislation preserves the right of millions of Americans to 
retain their membership in credit unions and to continue to benefit 
from credit union services. I am pleased to have been one of the 
authors of this important legislation.
  In developing this bill, the Banking Committee went to great lengths 
to achieve consensus legislation that would protect consumers' choice 
of financial services, ensure proper regulatory supervision of credit 
unions and strengthen credit unions' long-standing commitment to 
serving all segments in their communities. As passed by the House, H.R. 
1151 accomplishes all of these goals. However, the bill was recently 
amended during consideration by the Senate Banking Committee and now 
includes new provisions that are of great concern to me and demand the 
careful scrutiny of the House.
  As passed by the House, Section 202 of H.R. 1151 requires the 
National Credit Union Administration (NCUA) to review its rules and 
regulations that govern the conversion of federal credit unions to 
mutual thrift institution charters. The intent is to assure that these 
rules do not permit unfair conversions and require objective disclosure 
of all relevant facts about any possible conversion to credit union 
members. However, the Senate Banking version of H.R. 1151 would 
arbitrarily and drastically revise NCUA's conversion rules. If enacted, 
the Senate bill changes would permit credit union conversions under 
rules that are far less stringent than the conversion regulations for 
any other type of financial institution. That would be absolutely 
unacceptable.
  Under current NCUA regulations, if a credit union--as a member-owned 
financial cooperative--wishes to convert to a thrift charter, it must 
first obtain the approval of a majority of the credit union's members. 
This majority vote requirement is necessary to protect the interests of 
credit union members, but it is not so difficult as to pose a barrier 
to conversions. It is noteworthy that practically every credit union 
that has sought to convert to a mutual thrift charter--with one 
exception--has met this majority vote requirement and has successfully 
converted. The regulations now in place have worked well.
  However, the Senate Banking Committee version of Section 202 would 
significantly rewrite these conversion regulations, making the process 
substantially easier and greatly scaling back necessary regulatory 
oversight. If enacted into law this provision would authorize the 
conversion of insured credit unions to mutual savings institutions 
without the prior approval of any regulator, either the National Credit 
Union Administration or the Office of Thrift Supervision.
  In addition, the Senate proposal would permit conversions with only 
an affirmative vote of a simple majority of the members of the credit 
union who are voting in an election. Let me emphasize that this is not 
a majority of the people or families who use and depend upon the credit 
union, only a simple majority of those who actually vote. This could 
permit a small minority of credit union officers and members to change 
the charter of a credit union with minimal knowledge and participation 
of the majority of members whose financial security would be 
drastically affected. This may or may not be likely. But under these 
eased conversion standards, it certainly is very possible, and wrong.
  An example of how stronger conversion criteria can work both to 
protect the interests of members while permitting change to meet market 
conditions can be found right outside my Congressional district in 
Western New York. Eastman Savings and Loan Association of Rochester, 
New York, was a New York chartered mutual savings and loan association 
that desired to convert to a credit union. ESL's own by-laws and the 
New York State banking laws impose a number of strict conversion 
requirements, both in terms of the number of eligible votes that had to 
be cast and the size of the majority required for approval. As a 
result, ESL had to meet one of two possible tests for conversion: 66.7% 
of the total possible votes had to be favorable or 75% of all votes 
cast had to be favorable. ESL successfully made the conversion with an 
affirmative vote of 98.7% of votes cast. ESL's directors attribute the 
huge success of this conversion vote to the added preparation and 
articulation of the purpose and plan for conversion that was required 
to meet this higher approval standard.
  If the House concurs in the Senate proposals to ease current 
conversion requirements for credit unions I believe we will be inviting 
abuse. Credit unions are non-profit institutions that are chartered to 
serve a public purpose. This purpose and ownership structures should 
not be changed without significant involvement of both federal 
regulators and the majority of affected members. Any standard for a 
credit union's conversion to another type of financial institution must 
continue to require, at a minimum, that a majority of the credit 
union's membership participate in a conversion vote and a majority of 
those voting approve the conversion and that the credit union 
regulator, NCUA, must continue to have authority over the conversion 
process. The public's interest and the interests of members and their 
families necessitate this minimal level of involvement by both 
regulators and credit union members.

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