How Should Credit Unions Respond To Banks? Like Gandhi, O'Reilly or Somewhere In between?

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Have credit unions run out of cheeks to turn?

The constant bank attacks, especially in the states, have kept credit unions on the defensive, but some credit unionists are saying it's time for a more confrontational, offensive approach and take on the banks on their own turf for a change.

"Credit unions tend to compromise their lives away," bemoaned one frustrated credit union CEO in a state that has seen taxation proposals. "We don't ever go on the attack at all, we always back up and defend our position. We need to be more aggressive."

But with limited resources at hand and seeking to keep the legendary "white hat" reputation pristine, credit union trade associations are loathe to take up the call in any sort of "in your face" attack on banks.

"Traditionally, we have felt that various groups within the financial services business should go ahead and do what they want to do and leave each other alone," said CUNA's Gary Kohn. "At least at the federal level, this game the bankers are playing is wearing thin. They've been complaining so long that they're losing respect. They have been scolded by various members of Congress. They're their own worst enemy. It has been to our benefit to demonstrate that our greatest concern is our members, not stamping out competition. I know there's a certain amount of frustration out there, but we have to take a measured approach."

CUNA's Mary Dunn agreed. "If and when it is appropriate for us to make a case against the banks where they have gone overboard, and where it has a definite impact on credit unions, then yes, we'll do that," she advised. "But taking the higher road has really served us well. When banks are asking for something, we may need to weigh in, but you have to weigh carefully the tactics you use."

State-By-State Approach

But both Dunn and Kohn conceded that while that formula works well at the federal level, it could be a very different story in the states, where the relationships among credit unions, banks, regulators and legislators are more varied.

"I can relate to the frustration that's out there," said Doug Duerr, executive director of NASCUS. "Too often we haven't played an adequate role in assessing the legislation that is coming from the banking community. As credit unions mature more and become more invested in a wider array of financial services, they will have to evaluate how the rest of the financial marketplace handles the issues and how that effects them. But we also have to recognize that it doesn't play well to go after banks just to go after banks."

Still, in some of the state legislatures, where initiatives don't always end up in giant omnibus bills as they typically do in Washington, credit unions can have a greater opportunity to influence the outcome, Duerr suggested. And a perfect example of how credit unions are doing just that at the state level, he observed, is the California Credit Union League.

"Well, we're not bashful," laughed David Chatfield, CEO of the California and Nevada leagues. "We don't go overboard. We measure our response. But we have gotten tired of being on the defensive."

When the bankers "shopped around" for a California lawmaker who would put forward a bill to create a study of credit union taxation, they found a freshman legislator "who fell for it," Chatfield said, and CUs in the state didn't take it lying down-within a day and a half of the lawmaker's introduction of the bill, the credit union lobby persuaded her to pull it. But CUs didn't stop there.

"We knew that one week later, the banks would be in town for their rally at the capital," he related. "So we had a study done that showed the explosive growth in tax-free banks, and the day before the banks arrived, we made sure every lawmaker had seen that study, so that when banks started asking about a tax on credit unions, lawmakers had some questions of their own."

The study also showed that banks had record earnings at the same time they were withdrawing from certain neighborhoods and were becoming "non-local", with 70% of deposits in California being controlled by out-of-state banks

"If they had never taken out their knives and attacked us, we wouldn't, either," he continued. "We will always look for opportunities to comment on regulations or changes in law that they might seek. Right now the realtors are fighting the banks because they want to get into the real estate business, and frankly we're not thrilled about the idea of BofA owning Caldwell Banker. As far as we're concerned, we have a dog in that fight, and we have formed a coalition with the realtors."

But Chatfield was careful to point out that California's more aggressive approach might not be for every state. "I think they have to judge their own atmosphere," he said. "But we probably aren't the exception anymore. Instead of being on the defensive, we'll go on the offensive."

Just coming off of a heated tax fight in the Utah Legislature, Utah League of Credit Unions CEO Scott Earl's first reaction was to agree that it's time for credit unions to "go after banks," but his second, more measured response was the importance of maintaining an unbesmirched white hat.

"I'm not sure it's the right approach for us," he said. "We have a history of working on our own issues, and when the movement takes the high road, that has resonated with the legislature. Our legislative agenda is credit union issues, not someone else's issues. Where we make our mark is working with people who support credit unions. We have to continue to educate credit union staff, volunteers and members about the political process and involve ourselves more in the election process."

Indeed, Utah has been among the most proactive leagues in the nation when it comes to recruiting CU people to run for elected office and getting involved in political races. The ULCU will continue those efforts-and step up its efforts to oppose candidates who support the bankers' cause.

"There may be an opportunity for us to oppose those folks awho aren't credit union-friendly," Earl suggested. "But there are legislators this time around who didn't vote with us, and I don't think we need to go against them, they just didn't have all the facts. Once they have all thea facts before them, we believe they will vote with us. The biggest problem to the bankers' approach is that it's not what's good for them but what's bad for us. What we ought to be doing is sheding a light on the dark side of banking."

Showing The Dark Side Of Banking

And that's exactly what the South Carolina Credit Union League has tried to do. "We're not going to be anti-bank and go after banks out in the open, but we will go after predatory lenders, for example, and that's been a great issue for us because it puts banks in a very uncomfortable position," said SCCUL CEO John Franklin. "Banks didn't want to support the bill because they have so many affiliations with the finance companies, but they don't want to openly oppose it, either, because then it looks like they support predatory lending. We're keeping them busy, and it keeps us constantly in the face of our state legislators, but we don't have to go attacking banks out of vindication, because that won't get us anywhere."

Be it a more "stealthy" approach like championing a bill that banks don't like but can't afford to oppose, as was done in South Carolina, or a more "in your face" approach like the perfectly timed release of a bank study in California, credit unions are looking to capitalize on the political machine they built up during the HR 1151 campaign and keep the CU story in the lights.

"I am not sure the issue is offense versus defense, but one of being proactive," counseled NAFCU's Brad Thaler. "I think credit unions at all levels are becoming more proactive.but events like a Supreme Court Decision or a GAO recommendation or a bill coming out of a state legislature can put credit unions in a defensive posture."

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