[Congressional Record Volume 144, Number 111 (Friday, August 7, 1998)]
[Extensions of Remarks]
[Page E1629]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  PROTECTING THE CREDIT UNION MOVEMENT

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, August 6, 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--can wind up owing much 
or all the former credit union's capital in the form of stock. Thus, in 
order to prevent insiders 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 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 uncertainty 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 individuals 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 very 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 
either 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 outside consultants 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 enhance 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 out several ways in 
which NCUA can continue to exercise vigilant 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 out 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. It allows 
disapproval for example, if there is less than a majority of members 
voting, as that would put a cloud over the efficacy of the 
notifications.
  Mr. Speaker, as I said earlier, I do not want to oppose such an 
important piece of legislation that I had worked so hard to craft. 
However, I did feel obligated to note my concerns with the conversion 
provision and strongly encourage NCUA to enforce this provision very 
strictly.

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