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Feb. 6, 2006
The resolution lies in regulation. To be allowed to convert out of the Credit Union charter, banks should either be back-taxed upto 5 years OR be required to completely liquidate reserves by returning special dividends to members. I prefer the latter. Lets not focus on the wrong being done at DFCU, but WHY. The success of the credit union movement lies in closing such loopholes, or atleast making them prohibitively expensive.
Article well written. However, it looks like the commentor of 2/6 insists on more of the same whinning rather than working on the benefits of the CU charter.
The real rat is a "person". The greed, avarice, selfishness of those whose only real agenda is to line their own pockets, not work for the benefit of their members and hold to the true ideals of the credit union movement. These are the true rats. How big does a credit union need to be anyways to meet the basic needs of its core membership? Ask out membership who they want us to be. A bank or a credit union. They should be the ones who make an "informed, educated" decision in this matter. Lip service to the core values of the movement will take us nowhere.
If we are doing our job; and part of that job is member education then the situation becomes minimalized. We must stress the credit union difference to every member.
It's business - it's not personal. As long as the membership has full disclosure and information about the conversion, we are all autonomous organizations and should all have the right to make the best decision for ourselves. Remember that closing "loopholes" too tight may be like putting burglar bars on your doors and windows. It's a great idea until the businees landscape changes and there is a fire in the future.
The issue is about choice. If your CU is doing well and serving the members needs then the interest in converting is probably not on anyone's radar. There are , however, many compelling reasons to convert for those organizations who are subject to outside economic pressures. This isn't just about converting to a bank charter. It should encompass all pontential conversions, be it within the credit union sphere (federal, state, community, TIP, SEG, etc.)or outside (thrift, mutual, savings,etc.) In my opinion, those who promote restricting the ability to convert are self-serving (like they accuse those who would convert) and ignoring the business enviornment in which these decisions should be made.
If a credit union can better serve it's mambers by becoming a bank it should do so. However, retained earnings are owned by all the members and should not enrich the few.
I agree this should not be personal, but I do tire of this talk about this being about the member. The only member's this issue swirls around is one set of members. The senior employees and the boards of credit unions. Members are thrown up on to the cross to bear the cost of the goals of the management and senior leadership (including the board) who wish to drive the credit union to a set of standards more about professional and career achievement than what is best for the member on a day to day basis. The equity of credit unions has been collected and left to provide a future that ensures a non-profit and cooperative alternative for financial services. By the member for the member gauranteess that when a membership faces tough times the credit union buffers those times and rides the economic wave with the members - something Dearborn should think about. If thier market is challenged it is the members that are challenged. ROA, growth, careers, balance sheets and income statements that compete with the banks are not the standards that members think about. So lets not make this about the member, lets talk about this like it is. Put some heart back into this issue and do not let a few confiscate the inheritance of future members to keep thier careers on track.
And if you've had 40 years of membership coming and going, how would you handle an equitable distribution of the equity?
It would be interesting to see what would happen if the owner/members of a CU considering conversion had the option of liquidating and dividing the equity among themselves rather than turning it over to the board and management of the new Bank.
There are three groups that support credit union conversions. CU directors who want to get paid directors fees, ceos, who want bigger compensation packages and laywers who promote the benefits of conversions so that they can earn huge fees for handling the conversion. NCUA is also to blame because it has not issued strong rules on convesions, If a credit union wants to convert, it should be required to liquidate, return shares to members, sell all assets, including loans and then start all over witha bank charter. The rats are the converters and they should be made to eat conversion rat poison.
"Next to Impossible" that is the quote a lot of people would use in responding to starting a credit union. And that should make the entire industry mad as hell. Because it is only a small jump to saying "Continue to run a credit union is becoming next to impossible". We must change things now. Why not start with finding the way to verbalize how it is possible to start credit unions, offer them to communities where their is no local alternatives, and remind people that choices need to be deeper than the differences between bank marketing departments. We can do this if we shift our focus to building our industry instead of trying to simply keep the players on the reservation.
When credit unions, small or large, convert into Banks, the Banks WIN! Everybody will lose. Who then will the Banks have left to pick on?
I agree that the posturing that is going on is not helping to solve the problem. It is time to stop taking sides for and against and begin improving the environment for credit unions. In most cases no one has taken the time to investigate the 25 - 30 conversions that have taken place and the subsequent effects on the membership. One thing is certain and that is if PCA remains an issue for quickly growing credit unions we will see more attempted conversions. The conversions will have an effect on us as NCUSIF funding is reduced and the earnings on the fund decline. HR1151 allows for the conversions as the drafters understood that this day might come. Now is not the time to demonize the Boards and CEO's who make such choices it is a wake up call to the trades and NCUA that we can no longer ignore the thing that has been with us for 9 years. As to the question "start a credit union today" I can only say that in my state the requirements for such an action would make it next to impossible.
All the talk of ‘market conditions’ that warrant conversion to a bank are misdirected at best. The reason those in power at DFCU and others have chosen this path it because they stand to gain windfall profits from the conversion. Ask yourself this question, “If the market conditions that pressure these CU’s to convert to banks did not financially benefit the CEO or directors, would they still be taking the action?” The answer is a resounding ‘No.’ Taking this easy way out of a problem becomes much easier when you are going to get rich by doing it. The money has blinded those in the conversion process to the real issues facing their membership. This is the Enron scandal of the CU industry, and we need to do something to self-regulate the problem before we have a Sarbanes-Oxley Act to further regulate our financial sector, or worse yet, to disband it altogether.
Interesting viewpoint. It seems to me that the whole conversion and who benefits most question can be answered by simply requiring that 100% of the financial gain from a conversion be paid only to the members and that Board Members and Senior Executives be prohibited from participating in any way from any such gains. Just coming into the credit union world, I certainly don't know all there is about conversions. Being a die-hard capitalist, I am all about making money, however, fair is fair. If the lion's share of conversion benefits go to the people making the determination to convert, there is really nothing other than their own conscience to guide them. Would I start a new credit union today? No. It would be easier to fix a broken one than start a new one.
What an outstanding perspective! It really puts someone like me, sitting on the sidelines (aka the real rate), face-to-face with what my responsbilities are in this disagreement. Thanks for the wake-up call!!
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