NAFCU's newly announced and public stance against private share insurance has the largest provider of that insurance flabbergasted at the position and questioning the trade group's motives.
In January, the NAFCU board adopted a policy calling for all credit unions regardless of charter to have deposits insured by the National Credit Union Share Insurance Fund (NCUSIF). Its announcement came just prior to a position statement adopted by the Consumer Federation of America (CFA), which calls for federal insurance for all depository institutions. NAFCU CEO Fred Becker and Navy FCU CEO Brian McDonnell both sit on the CFA board.
NAFCU's position is not shared by CUNA, which disagreed on the topic during a recent meeting of the joint CUNA/NAFCU group, the Coordinating Council. CUNA reiterated its support for the private insurance option.
The issue, according to NAFCU, is that consumers don't understand the difference between federal and private deposit insurance, and that credit unions that are privately insured are doing a very poor job of informing their members of that fact.
That suggestion brought a sharp rebuke from Dennis Adams, president of the Dublin, Ohio-based American Share Insurance (ASI), the largest provider of private share insurance, providing primary coverage to 207 credit unions in seven states and providing excess share insurance to 326 credit unions in 31 states.
"It's amazing the people who say the most know the least about it," said Adams, who has not had any discussions with NAFCU regarding its position.
Adams said that while there may be room for improvement, the law requires extensive disclosure to members regarding their deposit insurance, especially when converting from the NCUSIF to ASI.
Adams also questioned why a trade association for federal credit unions, which are prohibited from offering private insurance, would take a position on an issue that doesn't affect them.
NAFCU's Fred Becker said the reason is because it does.
"The NAFCU board gave a lot of thought and consideration to this issue," said Becker. "It boils down to what is best for consumers and members from a safety and soundness standpoint. There has been a tremendous flow of funds into depository institutions because that is where you get your money back. When it comes to deposit insurance, for consumers the types of insurance become co-mingled in their minds. The issue is (private insurance) is not backed by the U.S. government."
Potential "Public Relations Disaster"
The biggest issue for NAFCU, according to Becker, is the effect the failure of a private insurer would have on all credit unions, a development he called a potential "public relations disaster."
"To my knowledge, no private share insurance system has ever succeeded," said Becker, pointing to the 1991 collapse of the Rhode Island Share Deposit Indemnity Corp. (RISDIC). Becker further quoted Federal Reserve Chairman Alan Greenspan's testimony that for a private insurer to cover its potential risk it would have to charge exorbitant rates.
ASI's Adams takes umbrage at NAFCU questioning the solvency of the private share insurer and the business acumen of its member credit unions."We examine 60% of our primary business on-site every year," said Adams. 'I've read testimony where NCUA says it gets on-site to 10%-15% of state charters every year."
Moreover, Adams disputes allegations members of privately-insured credit unions are unaware of the status of coverage. Adams said that since 1988, ASI's home state of Ohio-which saw the private Ohio Deposit Insurance Corp. fail in the mid-1980s-has required extensive notification, and that the federal FDIC Improvement Act (FDICIA) also requires substantial disclosure. He said ASI provides all its insured CUs with signage, forms, etc. for distribution, although it doesn't "police" its usage. "If a credit union is not in compliance, we want them to be," said Adams. "The innuendo that we don't care is wrong."
NAFCU said the timing of its announcement was the result of a decision by the Consumer Federation of America (CFA) to adopt a policy on private insurance. Becker said he and McDonnell looked to the NAFCU board for direction prior to the CFA vote.
But Adams believes another factor is in play-the departure of some CUs from the NCUSIF for ASI, specifically that of the $2.8-billion Patelco CU, San Francisco. Since 1994, 27 CUs have exited the NCUSIF for ASI. "I think there are factions of individuals who are determined to revive and expand the federal charter," said Adams.
He added that comments by NCUA board member Deborah Matz that Patelco's members didn't know what they were approving are groundless.
"Sixty-seven thousand members voted, and 61% of them said yes," said Adams. "Every credit union is required to notify members and provide them with a ballot with specific language. It's a yes or no vote. At Patelco, not only did they get to vote, but members also had to be notified of the vote two more times after it occurred. That process is governed by NCUA, not ASI. She's not reading her own regulations."
NAFCU's Becker, however, counters that FDICIA is currently not enforced, and that there is no way of knowing whether members are signing their new deposit cards. And the bigger issue, he reiterated, is perception.
"RISDIC affected both banks and credit unions," said Becker. "Today it's only credit unions that are privately insured. This time if there is a failure it will be only credit unions that are impacted, and it will be detrimental to the entire credit union movement."
Stressing NAFCU is a supporter of states' rights, Becker said deposit insurance must be offered under a federal umbrella in order for interstate commerce to succeed.
"The bottom line is that in this instance you need the support of the federal government for a deposit insurance system to work," Becker said.
'A Crack In The Dike'
For his part, Adams said he's hopeful NAFCU will reconsider its position.
"My only conclusion is that this is economic," said Adams. "They want to get rid of private insurance and move the funds over to the NCUSIF. If there's no choice in insurance, then why do you need a state charter?" he asked, noting that half of the credit unions offering excess share insurance are federally chartered. "The concept here is choice- doesn't NAFCU offer a balance to CUNA? And credit unions don't need this divisive issue right now. This is a small issue, and banks are looking for a crack in the dike. I hope they rethink this."