''We're in the heat of the battle'', NCUA's Dennis
Dollar recently told CUNA's News Now about the threat of taxation.
If credit unions lost the war, ''the structure of how credit
unions do business would dramatically change'', he warned. Dollar
said credit union conversions to banks could become the end result
if banks win the tax war, reported the CUNA publication.
Dollar, along with CUNA and NAFCU lobbyists are perhaps in the
best position to measure the likelihood of taxation and the number
of credit unions planning a bank charter conversion. Because of
this inside information, they are hitting the ''panic button''
and crafting measures to ''freeze'' credit unions in a credit
union charter before the tax bill arrives, say some observers.
One such measure, the proposed NCUA rulemaking targeting credit
unions converting to banks, in part, generates the presumption that
some are converting for personal gain rather than to benefit the
membership and the community by eliminating credit union restrictions.
By spreading this presumption among members of Congress, Dollar
and the trades may hope to, at a minimum, enact a return to the
pre-1998 rule providing that a conversion must be approved by a
majority of all of the members of the credit union (not just
those interested enough to vote), prohibit director compensation,
plus add other punitive & costly requirements, hence making
it challenging to complete larger credit union conversions. A second
measure involves raising fears among members of Congress about the
safety and soundness of the NCUSIF & ASI should defections increase.
A flood of conversions would create budget shortfalls at the CU
trade associations and NCUA; and, the reserve ratios of NCUSIF and
FDIC could be affected. Just 1,100 credit unions over $100 million
in assets (those most likely to be taxed) control almost 80% of
the fund deposits. In the 1990's, Congress stopped S&Ls from
leaving the Savings Association Insurance Fund (SAIF) because of
comparable solvency fears.
If credit unions are taxed, converting to a bank could become much
more difficult because a flood of applications might clog the system.
During deficit times, at what could be brief Congressional and State
Legislature taxation debates, those that argue publicly to preserve
the flexibility to convert to a bank might face the charge that
their defense of the conversion option is rooted in a desire for
personal gain and they will be compared to the executives of Enron,
MCI, and Tyco. In the end, CU lobbyists could claim a compromise
victory for saving the credit union movement by halting conversions
and argue that taxation, as many would agree today, is unstoppable.
Some communities, institutions, and members, however, could suffer
because credit unions will continue to face the many constraints
CU leaders are complaining about today. Poor consumer awareness,
for example, will continue to plague community credit unions since
recent studies have shown that only one in two people can name a
local credit union and only one in five know what a credit union
is. In addition, capital restraints, corporate structure and governance
limitations, product and market limitations, and other political
risks generate wasteful inefficiencies. Correcting these costly
perceptions and limitations will take years and cost millions; meanwhile
market share and scale are being forfeited to others. Credit union
leaders moving to the bank charter are proactive by selecting a
charter that (for their institutions) best supports the modern day
mission; it's not about personal gain.
In conclusion, NCUA's Dollar often uses a barnyard analogy about
NCUA wanting to use ''carrots'' rather than just ''sticks''
to control credit union executive choices. The recent attack on
conversions to the bank charter is an admission that NCUA's ''carrots''
are used up and now the ''stick'' must be used to keep credit
unions in the movement / system ... or in the view of some CU leaders
... the ''barnyard''.
Should you want to preserve the option to convert to a bank charter,
please contact, me at 800-649-2741. It's unlikely the CU trade associations,
NCUA, or the bank trades will defend conversion flexibility when
taxation compromise discussions surface. Clearly converting to a
bank should remain an option for credit unions. During my visits
and discussions with Congressional staffs as I argue in favor of
''charter choice'', your confidential letter of concurrence
and ongoing support to keep the bank conversion option open is sound
Finally, if you think a bank charter is in your future, please
contact me for help with the feasibility and implementation. As
advisor to the vast majority of those converting, our firm has developed
many helpful tools for both evaluating and executing a conversion.
These cost effective tools, tested during multiple conversions,
are available when you decide to work with the bank charter Conversion