Three Keys to a Principled Conversion

Planning season can present an opportunity for management to re-examine their charter. Here are some guidelines to make a conversation on conversion fairer for members.


Conversion. To some, it is a blasphemous word. To others, it represents freedom of choice. No matter what your view, it is undeniable that credit union conversion has become an increasingly controversial topic.

In 1998, Congress passed the Credit Union Membership Access Act granting federal credit unions the right to convert to mutual savings banks. Since then 22 credit unions have converted to mutual banks, and six credit unions have merged with mutual banks.

Viewpoint Bank, formerly Community Credit Union ($1.4 billion in Dallas, TX), was one of the largest credit unions to successfully convert. They became a mutual savings bank in January 2006. From there they converted into a bank and began publicly trading stock last week. During the first day of trading, the stock price rose nearly 50%, increasing the personal wealth of senior management by more than $900,000. This example shows that the conversion phenomenon is not going away and that conversion can be profitable for credit union executives.

In a recent webinar on charter conversion Richard Schaberg, a lawyer with expertise in credit union conversions, listed several of his keys to a principled conversion. If your credit union wants to start a discussion about charter alternatives, these keys can help.

1. Understand Your Mission

Different types of charters implicitly have different goals. In the case of the credit union charter, the mission is to return as much value to the member as possible. This is always central to every action the credit union takes. Therefore, the decision to change charters must be approached with the following question: will changing charters return more benefit to members?

2. Weigh the Pros and Cons Thoroughly

There are many angles to the conversion issue. As with any major decision it is important to examine the pluses and minuses. Some potential benefits of conversion include:

  • Increased field of membership due to open charter
  • Ability to offer existing and new products and services with fewer restrictions

There are also some potential downsides to conversion, including:

  • Loss of non-profit tax-exempt status
  • Conflict of interest due to potential for senior management to profit from conversion
  • Loss of one-member, one-vote democracy

3. Involve Members

This may seem like common sense, but keeping members involved in the conversion debate is crucial. Keys to making the process democratic and transparent for members include:

  • Holding open member meetings so opinions are heard and questions discussed
  • Encouraging members to fill out surveys via mail or online regarding products and services they would like to see at the credit union to help management determine if charter change is needed
  • Keeping any closed meetings documented and available to members
  • Informing members of what could change in day-to-day operations as well as any changes to fees or rates on accounts
  • Publishing information on what immediate and long-term gains for staff and current members would be if a conversion occurs

No matter what the outcome of your conversation regarding conversion, it is important to consider alternatives in this competitive marketplace. Ultimately, your members should be able to get the most benefit from your charter whether it continues to strengthen as a credit union or evolves into a bank.




Oct. 9, 2006


  • Most of the CU-to-bank conversions to-date have provided no financial benefit to the original CU members. Of Viewpoint Bank's original CU membership, 1.5% purchased shares in the IPO. It's unclear precisely how the other 98.5% of the converted CUs members benefited. The CU-to-bank conversion phenomenon is likely to become more widespread, since very few CUs have an open goverance model. When was the last time your CU held a quarterly "Owner's Forum" meeting where members-at-large could ask questions to the Board or to the CEO? When was the last time your CU published minutes of the Board meeting on your CU's web site? When was the last time you notified members-at-large about proposed bylaw changes, and invited them to submit written comments or testimony before the Board voted? Credit union boards may not be required to adhere to "Public Open Meetings Act" requirements applicable to "democratically elected" public agencies such as your local sewer district, water district, or city council. However, most CUs have gone to the extreme opposite in that the only permissible "member participation", other than making deposits or borrowing, is to attend the once-a-year annual meeting....or to run for an elected Board or Supervisory seat. In this environment where the members-at-large are totally "shut out" of the information and feedback loop, it is easy for CU execs and directors to gradually become more comfortable with the idea of switching to a for-profit business model. I don't think the issue of CU-to-bank conversions is going to disappear unless there is more sunlight and transparency in CU governance. That includes more chances for members-at-large to become informed on issues, and for members-at-large to express their concerns and opinions to Boards.
    Ron Bensley, Jr.