Utah League of Credit Unions Issues Statement on Conversions

SALT LAKE CITY – The Utah League of Credit Unions has adopted the following position on credit union to bank conversions:The Utah League of Credit Unions strongly believes that the member-owned, not-for-profit credit union charter is the charter of choice for providing the public with consumer-friendly financial products and services.We also strongly believe that the issue of credit union charter conversions should be approached from the point of view of the members of the credit union, since they are the owners of the institution. We understand that under current laws and regulations, credit unions face more restrictions on their operations than do mutual savings banks or commercial banks. In particular, credit unions lack access to alternate sources of capital, face higher net worth requirements, are more restricted in business lending, and can serve only a defined field of membership. We are dedicated to lessening or removing these restrictions on credit union operations through legislative or regulatory means.However, research has confirmed that even with these greater restrictions, the credit union charter provides by far the best deal for credit union members. The primary driver of this greater benefit is the not-for-profit cooperative structure upon which is based the credit union tax exemption. Credit unions are able to offer a far better economic return to their members than would be possible for a stock owned bank or a mutual thrift. In addition, substantial case law suggests that depositor ownership of a mutual thrift is merely a technicality, so that the fiduciary responsibility of a thrift board of directors is to serve the institution. As the US Treasury Department has pointed out, credit unions are owned by their members. Therefore, the fiduciary responsibility of a credit union’s board of directors is to the owners – the members. There are indeed real differences between a mutual thrift and a credit union. Credit union members benefit from the specifics of these differences.In other words, we cannot conceive of any circumstance under current law and regulation that members would be better off after a conversion to either form of bank charter. Although there may be operational advantages to the management of a credit union to have a bank charter, because the credit union exists for the benefit of the members, it is the responsibility of credit union leadership to preserve that benefit for the members. However, we fully appreciate that in the future the relative member benefit of a credit union compared to a bank charter could change. It is possible that the restrictions on credit unions’ capital, lending or fields of membership could become so onerous that the balance would tip in favor of a bank charter. Or, it is conceivable that the tax exemption could be lost without an immediate relaxation of legal/regulatory charter disadvantages. The mere possibility of such changes in the future requires the continued existence of the alternative of a charter conversion for credit unions. We believe that credit union members have the full right to decide the future of their credit union. We believe this right is properly exercised by a membership that is fully informed about all aspects of a potential conversion, including but not limited to the potential for the enrichment of credit union leadership, loss of meaningful member control of the organization, and the potential shift in interest rates and fees