[Congressional Record Volume 144, Number 111 (Friday, August 7, 1998)]
[Extensions of Remarks]
[Pages E1604-E1605]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  PROTECTING THE CREDIT UNION MOVEMENT

                                 ______
                                 

                               speech of

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Tuesday, August 4, 1998

  Mr. LaFALCE. Mr. Speaker, I appreciated and supported the necessity 
to move quickly to pass H.R. 1151, the credit union field of membership 
bill, before the August recess. However, I remain troubled by one of 
the modifications the Senate Banking Committee made to the House 
version of the bill, which makes it easier for credit unions to become 
other types of financial institutions. I will continue to try to 
rectify this problem in other appropriate contexts. And I also 
encourage NCUA to use every means at its disposal to prevent credit 
union members from losing their ownership in a credit union at the 
hands of a very small minority.
  A brief history of the conversion issue will illustrate my concerns. 
Through its regulations, the NCUA has quite rightly kept a tight rein 
on the conversion process, requiring a majority vote of all members of 
the credit union before a credit union can convert to a mutual thrift. 
This is a difficult standard, and it is meant to be. A credit union's 
capital, unlike that of any other financial institution, belongs to its 
members. Once the conversion to a mutual thrift is accomplished, the 
institution can easily convert to a stock institution, with the result 
that a few officers and insiders of the former credit union--not to 
mention the attorneys who encouraged the deal--wind up owning all the 
former credit union's capital in the form of stock. Thus, in order to 
prevent insiders and lawyers from walking away with capital which 
belongs to the entire credit union membership, and depriving that 
membership of their credit union access, NCUA instituted the majority 
vote requirement. This requirement was subject to notice and comment 
rulemaking in

[[Page E1605]]

1995. The agency received no comments opposed to the majority vote 
requirement while fully half the comments on this section urged the 
agency to institute a supermajority requirement. 60 F.R. 12660 (March 
8, 1995). The NCUA Board then imposed the least burdensome voting 
requirement suggested by the commenters.
  Recently, credit unions have been under tremendous pressure to 
convert to other types of institutions. Legitimate uncertainly about 
the outcome of the AT&T case, encouraged by lawyers who specialize in 
conversions, produced a record number of conversion applications over 
the past several years. These same lawyers then complained that NCUA 
processed applications too slowly and that the conversion requirements 
were too rigorous. They persuaded some members of the Senate Banking 
Committee to override NCUA's regulation and to weaken conversion 
requirements by allowing conversions upon a majority vote only of those 
members voting. This means that a small fraction of credit union 
members could force a credit union to convert, even against the wishes 
of the overwhelming majority of members who are unaware or did not 
participate in a vote. This same faction can then profit by a further 
conversion to a stock institution.
  While H.R. 1151 will address the field of membership issue for most 
credit unions, other restrictions imposed by the Senate version of the 
bill, such as the limits on loans to members for business purposes, 
will cause some credit unions to consider converting to other types of 
institutions. You can be sure that some in the legal profession are 
already analyzing this legislation and preparing new arguments to 
credit unions as to why they should convert. This is why I urge NCUA to 
continue its close scrutiny of conversion applications. While it may 
seem as if NCUA has very little discretion in this area, the 
legislation does at least grant them authority to administer the member 
vote, and require that a credit union seeking to convert inform the 
agency of its intentions 90 days before the conversion. I would like to 
point our several ways in which NCUA can continue to exercise oversight 
over the conversion process within this 90-day period.
  First, I encourage NCUA to strictly supervise the notification of 
members regarding the impending conversion vote. The legislation 
requires that notice be sent 90, 60 and 30 days before the conversion 
vote. NCUA should require that these notices be separate and distinct 
from other mailings and statements. The notice must go beyond NCUA's 
current notice requirement and explain to members not only the facts of 
the conversion proposal, but also the fact that they will lose their 
ownership rights and that the member capital of the credit union could 
potentially be converted to private stock. Now that the members lack 
the protection of the majority vote requirement, they must be informed 
about any and all possible outcomes of the conversion.
  Further, NCUA must strictly supervise the process of taking the 
member vote. Where so much is at stake, both for the general membership 
and those seeking to convert, outside election monitors must be 
employed. NCUA should ensure that firms used for monitoring elections 
have no ties to the credit union, those seeking the conversion or the 
lawyers assisting in the conversion process. The monitoring firm should 
be required to submit a list of all its clients for the past five 
years. The monitoring firm and each member of the credit union board 
should then be required to sign a statement indicating that they have 
had no prior dealings, with falsification of these statements subject 
to criminal and civil penalties.
  I would like to point our that such requirements are not barred by 
the instruction to NCUA to develop regulations consistent with other 
regulators' conversion requirements, as other types of financial 
institutions do not have members threatened with losing their capital. 
While I agree that regulatory requirements should be comparable between 
agencies when possible, this is a case where strict parallels are 
impossible. Also, the law allows NCUA to require the conversion vote to 
be taken again if it ``disapproves of the methods by which the member 
vote was taken or procedures applicable to the member vote.'' This 
provision explicitly permits strict oversight by NCUA and I sincerely 
hope they will use it to protect credit union members.
  Mr. Speaker, as I said earlier, I do not want to hold up such an 
important piece of legislation. However, I did feel obligated to note 
my concerns with the conversion provision and strongly encourage NCUA 
to enforce this provision strictly.

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