Dismayed by the lack of "intellectual depth" in recent discussions surrounding conversion issues, the American Association of Credit Unions Leagues released a report that it hopes will help leagues deal with the issue more effectively.
"Given our concerns over how the debate was going, we felt it was necessary to attack it with a depth that we had not seen at the time," said Paul Mercer, AACUL chairman and president of the Ohio league. "It quickly became a top priority of our board."
Specific focus, he said, was on member-ownership, member rights, and member interests properly positioned as the paramount consideration of any debate.
While the 65-page report written by a task force of nine state league officials does not take a position on conversions, Mercer said, its introduction set the tone: "One thing is clear...a conversion ends the existence of a credit union and all the benefits it affords to its members. That being the case, credit union-to-thrift/bank conversions have significant implications for the entire credit union system."
The preamble further stated: "no evidence has been presented that can demonstrate that any conversion has advanced the ownership rights or economic interests of members. To the contrary, substantial evidence exists that both have been substantially reduced."
It also pointed out that "members are highly disadvantaged in understanding their options and poorly represented (by conflicted directors) in the deliberations that precede a vote to convert the credit union to a mutual thrift or a commercial bank.
Mercer said the goal of the report was to give league officials enough information to formalize their own positions on the topic, as the Ohio Credit Union System was planning to do this month. Several other state leagues, including Pennsylvania and California/Nevada, have also recently issued similar positions.
"In general, we are interested in provoking deeper thought on the subject-good thought," he said. "A number of leagues have already established positions on conversions. For those that haven't, we are hoping they will use this (report) as one of several input sources."
The task force of "very bright people"-Mike Mercer (Georgia) chairman; Dave Chatfield (California), vice chairman; Dave Adams (Michigan); John Annaloro (Washington); Guy Hood (Florida); Dennis Tanimoto (Hawaii); Scott Sullivan (Nebraska); Ken Watts (West Virginia), and Gary Wolter (Alabama), spent nine months gathering information and compiling the report, released Sept. 7, Mercer said. It focuses heavily on how members are affected by such changes. "In our minds members should be at the center of this question."
Specifically, it addresses:
* Development of strategies that will expose the dilution of members' influence, rights and economic interests in their credit union.
* Identification and prioritization of charter enhancement critical to the long-term viability of the credit union charter.
* Identification of a range of options for leagues to implement during all stages of a conversion process.
* Development of a library of information and tools for leagues to use in addressing all aspects of conversions.
Using research from CUNA's Economics and Research area, the task force reported that credit union members received benefits of more than $6 billion in 2002, or about $75 per member per year. Unlike capital for other institutions, it points out, the net worth of a credit union truly belongs to its members.
It also highlighted the potential by directors and management to abuse the process for personal enrichment, suggesting that it is critical that members have the opportunity to have their equity distributed to them prior to a conversion.
The report offered actions that could be taken to benefit members in the midst of a conversion proposal.
"I think the task force did an outstanding job," Mercer said. "This is a tremendous tool to help leagues carefully and thoughtfully address a pretty complex subject."
