January 5, 2007, by Kevin Shay, Gazette.Net (Maryland)

http://www.gazette.net/stories/010507/businew174611_31993.shtml

The National Credit Union Administration is questioning officials with a Kensington credit union about its recent election to convert to a for-profit federal mutual savings bank.

The delay means the agency probably will not decide whether to certify the election this week, an agency spokesman said.

Members of Lafayette Federal Credit Union approved the conversion last month by a margin of just 18 votes out of 5,092 cast, according to an agency document. The $320 million-asset credit union, one of the nation’s oldest, has about 16,400 members, meaning that more than 11,000 members, or 69 percent, did not vote.

Such conversions are rare, with about 30 across the nation in the past decade, according to reports by credit union organizations and researchers. Some proposals have been withdrawn, including one last year by the $1.7 billion-asset DFCU Financial Credit Union in Dearborn, Mich., after opposition from members.

There are about 9,000 credit unions in the nation.

Some Lafayette members opposed to the conversion have gathered more than 600 of the 750 signatures needed on a petition authorizing a members’ vote to oust board members. Some members filed complaints with the National Credit Union Administration alleging improprieties, including ballots not received in a timely fashion and procedures that did not comply with Lafayette bylaws. Some questioned whether their ballots were counted because of changing procedures.

Executives with Lafayette, which formed in 1935 soon after Congress passed the Federal Credit Union Act, filed for the conversion in June with the Office of Thrift Supervision. Officials cited reasons such as competition and regulatory concerns, as well as being better able to increase lending capacity for members.

‘‘We basically outgrew our regulatory environment,” Michael Hearne, president and CEO of Lafayette, said in a previous interview with The Gazette. He did not return several recent calls.

Lafayette officials said in a statement on the credit union’s Internet site that materials mailed to members ‘‘were a thorough explanation of our rationale for proposing this course of action,” and there was ‘‘no lack of access to viewpoints that were in favor of or against the proposal.”

Regarding the low voter turnout, Lafayette officials said the ‘‘overwhelming majority of members either favors a conversion or remain indifferent to what charter Lafayette operates under.” Members want a financial institution that ‘‘provides them with convenient and affordable products and services,” and being a bank was the ‘‘more efficacious structure for achieving those goals,” officials said.

Lafayette member Tom Carter of Gaithersburg, who works for the U.S. Agency for International Development, said the process ‘‘shocks the conscience.”

‘‘We would not tolerate this in the developing world or on Wall Street, so why is it OK for the board to hijack a tax-exempt, member-owned credit union with the support of only 15 percent or so of their own member-owners?” Carter asked.

Lafayette officials had expected the credit union agency, which must certify the election before the conversion is approved, to do so by Tuesday, but that did not occur. John McKechnie, an agency spokesman, said Lafayette officials had asked for more time to respond to questions and the agency was reviewing the complaints and materials submitted by Lafayette.