As upsetting as it surely is to many state-chartered credit union advocates, the massive banker-driven flight of credit unions in Utah from the state charter to federal is tangible proof of the value of a viable dual-chartering system.
For the formerly state-chartered credit unions in Utah that have sought to escape an anti-credit union legislature, the ability to quickly convert to a federal charter has meant the ability to survive and thrive. Like most choices, the ability to choose between a state and federal CU charter is appreciated most in just such a critical situation. Utah has unintentionally become the poster child for the credit union dual-chartering cause.
The interplay between the federal and each of the state systems has historically provided credit unions with many benefits resulting from the competition between charters to provide the best systems of examination, supervision and regulation. The dual-chartering system has nourished a greater diversity among credit unions and enabled them to better respond to the specific needs of their unique memberships. Historically, these many different operating environments have also encouraged product and service innovations. And as illustrated in Utah, the dual chartering system provides credit unions with valuable "catastrophic protection" in the event of a renegade legislature, unfavorable court decision, or obstructionist regulator.
Many credit union leaders will point to the Utah debacle and insist that it cannot happen in their state. They will say that the Utah political environment is unique or somehow an aberration. Others will accuse Utah's credit union leaders and state association of dropping the ball. These counter-productive denials and finger pointing are off the mark. The bankers from other states are well aware of what happened in Utah and will be actively working with state legislators during their respective 2005 legislative sessions to disrupt credit unions' tranquility. The credit union mass conversions in Utah have also incensed bankers nationwide to redouble their efforts to make the federal credit union act as undesirable as Utah's credit union act has become.
The preservation of the choice inherent in the dual chartering system is fundamental to the long-term success of the entire credit union community and each credit union within that community. Ideally, every credit union should be able to choose between an excellent state act and an excellent federal act under which to operate. In the real world, this mutually beneficial choice does not always exist. And where it does exist, it is no accident.
Everyone in the credit union community has the responsibility to enhance and protect the dual chartering system and must be personally vigilant in its defense. Credit union leaders must overlook no opportunity to ensure bulletproof support for credit unions in Congress and in each state legislature. They must assure the passage of positive laws for credit unions and guard against ill-advised laws that negatively impact on credit union operations. Credit unions and their associations must also be prepared to invest significant time and resources in lobbying, public relations, and courtroom legal campaigns when threats to the dual-chartering system surface as they have in Utah.
Preserving the dual-chartering system is a key component in the overall defense against bankers' escalating attacks on credit union taxation and member service authorities. Standing first and foremost among the dual-chartering systems' defenders is the National Association of State Credit Union Supervisors (NASCUS). Although many other credit union organizations recognize the value of the choice of charters, NASCUS is the only organization dedicated exclusively to the promotion of the dual-chartering system and the advancement of the autonomy and expertise of state credit union regulatory agencies. NASCUS represents all 48 state and territorial credit union supervisors (South Dakota and Wyoming do not have state credit union acts.) The NASCUS Credit Union Council, the NASCUS Foundation for the Preservation of Dual Chartering, and the National Institute for State Credit Union Examination are sister organizations.
In a recent communication to members, NASCUS President/CEO Mary Martha Fortney writes, "...[In 2004] we are witnessing substantial opposition to the credit union system. But there is particular antagonism to the state charter. That pressure comes at a crucial time. Here's why: Emboldened by credit union critics, cash-starved state legislatures have introduced taxation legislation designed to encumber the growth and prosperity of credit unions. Service to members may be curtailed and weakened as a result. NASCUS believes we cannot allow that outcome to be seen and accepted as inevitable." Amen, Ms. Fortney.
The threat to the dual-chartering system comes from both directions. Remember in 1997-98 when the U.S. Court of Appeals imposed a moratorium that restricted federal credit unions from adding new select employee groups (SEGs)? Almost immediately there was a rush by credit unions to convert from federal to state charter. The federal credit union charter is currently experiencing its own attacks and may potentially be ruined by the bankers' persistence. What will Utah's credit unions do then? They will surely face Hobson's choice-taking what is available or nothing at all.
The vigilant protection of the dual chartering system is as warranted in today's politically charged banker initiated turmoil as it has ever been. Any credit union that fails to come to its defense will inevitably join its Utah brethren as that proverbial poster child for dual chartering.
A 29-year credit union community veteran, Marvin Umholtz is CEO of Umholtz Consulting Services, Castle Rock, Colo. He can be reached at mumholtz
