Don't Know What You're Missing-Don't Know What You Had

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They say you don't know what you have until it's gone. Yet how many of your credit union's members would really know what they had lost if your credit union has converted to a mutual savings bank? I mean really know?

Don't forget information related to such a conversion is closely controlled by one group-the group that wants to convert. They can-and do-spin the reasons for "why" a conversion is being proposed in language that extols the conversion as a "win-win" for the member. Anytime you hear "win-win" you know someone's winning twice, and it usually ain't you. If you don't think controlling the message is a powerful card to hold, visit either the Republican or Democratic party websites and read their views on the same issue. Now imagine if one or the other didn't exist. That's precisely the kind of opposing viewpoint members don't get in conversions. And when such information is required to appear, it is printed in the same mind-numbing format that makes credit card disclosures such page-turners.

That's why those new rules proposed by NCUA requiring a great deal more disclosure before members vote on conversion to another type of charter are a darned good idea-and long overdue, too.

The requirements recognize a couple of facts few seem willing to acknowledge: most credit union members really don't understand what the heck a "cooperative" even is, and that ignorance leaves the door wide open for unscrupulous operators to sneak one past the membership-and for their own benefit.

No doubt some of those who have converted to mutual savings bank charters did so with what they believe to be the best of intentions, and that they had to leave the "family" because credit union regulations were too strict and limited their operations, etc.

Those peddling the message that it's better for the "institution" have totally missed the point, because with a credit union there is no "institution." There is simply a group of people, however large, who have banded together for their mutual self interest. A credit union isn't a headquarters building or a branch or impressive trade association offices any more than American democracy is the capitol building. Both are ideas, which by their nature are abstract and qualitative. You can't see the nature of the organization, but you can be the organization.

And therein lies what has always been a challenge to leaders of every credit union-to somehow consistently convey to members the value of something they can't see or feel or taste. For nearly every Journal reader, that challenge is now far more intense. In any credit union's formulative, early years there is a core group that understands the reasons for the CU's being. As time passes, the great Irony of Success manifests itself-more and more members (and employees) are attracted and join who have little understanding of and connection to the place many refer to as their "bank." All those name changes haven't helped, either, especially when the new name is so generic and ethereal it could just as easily be the moniker of a giant corporate holding company or a cold medicine.

A study conducted by Forrester Research (CU Journal, Sept.1) found that the price of growth is loyalty. The larger the institution, the more likely its customers/members are to believe it acts in its best interests, not theirs (7.7% of CU members agreed with that statement). Credit unions have long bragged about knowing their members; the fact is, for many CEOs it's a challenge to even know all their employees.

The factors listed above have made life easier for the consultants and lawyers who are shamelessly cashing in on conversions. NCUA and its chairman, Dennis Dollar, have recognized this, and while Dollar will most likely be remembered for his Reg-Flex and Access Across America initiatives, I'd suggest the real accomplishment of his tenure could be the proposal to battle what the chairman dubbed "undisclosed demutualization of member-owned credit unions." (See related story, page 10).

Charter conversions to a bank could be approved "unwittingly by members who are not fully informed that they could be losing their member-ownership status in just two years if the thrift were to become a stockholder-owned bank," said Dollar, adding he doesn't question the right to convert, but whether members are being given the right information. "NCUA has heard from countless former credit union member-owners who said they wish they had known earlier the possible ramifications of abandoning their credit union charter," said Dollar, who has asked NCUA's Office of General Counsel to prepare a stronger disclosure proposal to be sent out for public comment. "Losing ownership of a credit union to which a member has belonged for 50 years should not happen simply because the disclosure language was too small for the member to read without his bifocals or in too much legalese to be understood without contacting an attorney."

I'd suggest NCUA's proposal require converting CUs to make members aware of a website that could contain an objective, if not opposing view. Perhaps it could be hosted by CUNA or NAFCU or both.

Last week I spoke with someone who had a long career in credit unions and who is now involved in the banking industry, and who predicted credit unions are about to see a "flood of conversions." Credit unions-and especially their members-had better hope Dollar has come up with a solid dam plan.

Frank J. Diekmann is editor of The Credit Union Journal. He can be reached at fdiekmann

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