Credit unions are for-profit businesses undeserving of their tax-exempt status, they are rapidly losing the one thing that makes them unique-the cooperative ethic-and conversions to bank and thrift charters will gain momentum in order for management to cash in on retained earnings.
As if that sobering prediction weren't enough, the person behind them also claims that as credit unions become more bank-like in products, scope of operations, consolidations and field-of-memberships, they join other depository institutions on the road to convergence that will one day render them indistinguishable from one another.
Or so says Bert Ely, famed bank analyst and deposit insurance expert who predicted the failure of the savings and loan industry in the late 1980s. Hired by NASCUS to address the NCUA's overhead transfer of funds from the NCUSIF to cover its costs of overseeing state-chartered credit unions, Ely was on hand for the association's annual meeting, where he sat down for an exclusive interview with The Credit Union Journal, where he called credit unions a "sore point with a lot of banks."
"I look at a community credit union serving several towns or a county as essentially, substantively, no different than a mutually owned savings and loan or savings bank," Ely said. "And yet there is a clear tax differentiation that is getting increasingly difficult to justify."
While claiming that the financial playing field needs to be leveled by killing the tax status enjoyed by CUs, Ely predicted that the most dangerous issue threatening credit unions is not taxation, but the loss of the cooperative ethic as field-of-membership overlaps breed competition.
"It's kind of an erosion that is developing over time," Ely said. "I think it's going to cause some problems down the road. It makes it harder and harder for credit unions to advertise that they are different or distinct from banks and thrifts."
Ely also predicted that credit union conversion to bank and thrift charters will gain momentum, not that there is anything wrong with that.
"I don't think it should be discouraged," Ely said. "I think that's going to happen more and more. That's the way for the management and directors to cash in on retained earnings. Initially they convert over to a mutual then they go through the mutual stock conversion, next thing they're a stockholder-owned bank and directors and management have cashed in on their retained earnings."
Not surprisingly, Ely continued to challenge the movement's claim as not-for-profit, member-owned financial institutions by stating that even churches are for-profit organizations.
"Credit unions are for-profit organizations; they're cooperatively owned," Ely continued. "There really is no such thing as a not-for-profit organization. My church has to generate income over and above expenses to be able to pay for building additions and things like that. All organizations have to generate a surplus. It's called profit."