There's A Dangerous Pest Lurking About The Grassroots

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There's a problem lurking unseen for credit unions: chinch bugs.

This week when thousands of credit unions descend upon Washington for CUNA's annual Governmental Affairs Conference, you won't be able to go five minutes without hearing one of two things: congressmen fawning over credit unions as if they were combination TV cameras/hair spray dispensers, and mention of the word "grassroots" every 36 seconds or so.

Back in the old days, say the 1980s, people didn't live in red or blue states. They lived in various green states. You could tell which state you lived in by the status of your lawnmower: did it remain someplace where you could get to it each week, or did it get shoved to the back of the garage for the winter. In both states, come springtime and summer, you share the thrill of discovering whether you've got a little surprise taking root. Chinch bugs, which lay their eggs near the grass roots. As the bugs start eating, the grass starts dying. For America's CUs, it's springtime.

Grassroots support. Grassroots strength. Grassroots advocacy. Credit union meetings have started to sound more like turf co-ops than financial co-ops. The grassroots will be rallied to Hike the Hill to beseech Congress. The grassroots will be applauded for fighting the payday lenders. The grassroots will be focused on external threats, just as real men baby their lawns and watch the weather and the neighbor's weeds. And then those chinch bugs sneak up from underneath.

Here's what's lurking beneath the credit union grassroots. Chinch bugs with names like capital adequacy. And the baggage that comes with growth. And fears that it's merge or be merged. And that other bug-aboo: charter conversions to mutual savings banks.

Washington (from the Latin for place near river to gab much and do little) is all about talk, and credit unions have a lot of things they need to talk about this week. Too bad they won't. Because there are some big issues facing credit unions that for now are more important than bankruptcy reform and, dare it be said, the tax exemption. Someone needs to cancel some congressman's ultimately forgettable canned remarks and put them back in the can.

In his place maybe Dr. Phil. He seems to have a hankering for dysfunctional families, and as new CUNA Mutual CEO Jeff Post notes elsewhere in this issue, his wife noticed immediately that credit unions have a strong family aspect to them. (Note to the Posts: you might as well know sooner rather than later that there are more than a few crazy aunts in the family closet.)

When he's not trying to get you to buy his book or video or audiotapes, Dr. Phil likes to challenge families to confront those crazy aunts they've been avoiding. Think of all the books and videos and audiotapes he could get out of the offspring of Ed Filene.

There's nothing crazy about capital adequacy. Who would have imagined back in 1997, when credit unions really turned to their grassroots for support to defeat the bank-backed lawsuit over field of membership, that such irony would stem from the victory. Credit unions got the expanded FOMs they wanted and consumers responded. In some cases, too strongly. Member growth has been fast but building capital at credit unions is slow business. That's a complex point for the grassroots to explain to a member of Congress (or his or her aide), especially when they're sent to the Hill with a KISS.

But there's another chinch bug related to capital that isn't slow business: draining it. That's what happens when a credit union converts to a mutual savings bank charter. That slow-grown equity flows quickly into the wallets of senior managers and board members at credit unions that "demutualize" and eventually go public. And if you don't think that's a driving motivator, why isn't the excess equity divided equally (or pro rated according to some formula) among all the members?

The grassroots this week need a lot of sunshine, but here lies yet another rub: the trade groups that need to take the lead on the conversion issue are surrounded by clouds of their own members' making. Most CEOs believe strongly in the CU charter, but they want the option to convert if all else fails. That's the message they've sent to their trade associations.

There's another chinch bug even deeper in the grassroots. One person I talked to who's had long dialogues with many long-time credit union CEOs said they are deeply bothered that they've worked their careers building their credit unions to the size and scope they are today. They fear that when they retire all their dedication to philosophy and the credit union ideal and charter will be wasted when some new CEO, perhaps an ex-banker, convinces the board that the not-for-profit model is so old school (and personally nonprofit, as well) and pursues a charter conversion. Suddenly, all the sweat equity poured in by the former CEO is cash equity in the new CEO's pocket.

I don't know why, but with credit unions in Washington this week fertilizer comes to mind. The grassroots always need fertilizer, but they also need insecticide; in this case, a good, frank discussion about what's right about the credit union charter and how it can be made better.

In this issue Howard Headlee of the Utah Bankers Association says of the dispute in that state, "We're the tortoise, (credit unions) are the hare."

He could be right. You know what happens to the grassroots if the rabbits aren't kept in check.

Frank J. Diekmann is Editor of The Credit Union Journal.

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