We Hold These Truths To Be Self-Evident. Sort Of
The scene: A remote room deep beneath the U.S. capital dome, so secret even Dick Cheney doesn't know about it. On the walls: photos of Spiro Agnew, Elbridge Gerry and an automated hairspray spritzer.
The characters: Several senior members of Congress and their assorted toadies, and the CEO and board chair of a former CU whose members voted one year earlier to convert to a thrift charter and which is now preparing to go public.
Rep. Smuthe: This is where we conduct a lot of backroom dealing, out of the annoying glare of the prying public and press. We felt this was a place you'd feel welcome.
CEO: Thanks. We do feel right at home. But I'm afraid we don't really need anything from Congress right now. You've already taken care of us.
Rep. Oile: Actually, Rep. Smuthe and I invited you here because we need something from you-advice.
This week, thousands of credit unions will descend on Washington for CUNA's annual GAC. This year's theme is "50 Stars. One Future." A better theme would be "Salute to Irony." The reason: America's only democratically run financial institutions are meeting in the seat of democracy but apparently are reluctant to come to the defense of one thing: democracy. In other words, why are credit unions and their trade groups so unwilling to defend democracy and stand up in protest to an ongoing abuse of the democratic process, namely, these charter conversions to thrifts and banks?
Rep. Smuthe: What my esteemed fellow from across the aisle wants to know is how did you do it? How did you get your members-the owners of the place, for crying out loud-to not only give up their ownership and equity, but to give it to you?
Ex-CU Chairman: Ahhh. We took advantage of the members' trust.
Rep: Oilee: Trust, eh? Hmmm, we in Congress may need to leverage something else.
The biggest lie related to the conversion-to-bank process is that the process represents democracy in action. And Leonid Brezhnev won on the strength of his platform. Proponents of conversions (see pages 1 and 71 to see how much they profit) and neutral observers argue that conversion votes are the will of the members. Does anyone really believe that? Does anyone really believe that the members knew what they were voting for? Their credit union had always been trustworthy, looked out for their best interests. And now here's a letter from the board saying this is something that will be good for members. They just don't say which members.
In this issue The Credit Union Journal examines in greater detail charter conversions, and some may be shocked just how much can be made by insiders. But what is most telling is what has happened in the two instances where small groups of members have fought against all odds to stop the conversions. Suddenly, members given another point of view on what is really happening have voted to remain a CU (see story, page 67).
Rep. Smuthe: Perhaps you could suggest another tactic?
CEO: We disclosed everything we were precisely required to by law. Using the same print and lawyers we use on credit card disclosures.
Rep. Oilee (tearing up): You, sir, may have a place here in Congress.
The key here is that the devil is in the details-that is converting credit unions have complied with the letter of the disclosure law and provided so much detail members have a devil of a time figuring out what's happening. The new rules need to require a one-page, plain-English cover letter explaining what members are losing and who stands to gain.
Another devilish issue is that credit unions have put the trade groups in a tough position by quietly telling them they want the conversion option left available in the event tax exemption is ever revoked. This is the second reason "Salute to Irony" would be a better theme. It is the democratic structure combined with the not-for-profit status that is the basis for the tax exemption.
Rep. Smuthe: (admiringly) Anything else you could teach us?
CEO: Yes. Try to keep this out of the press.
The latest to announce its plans to convert is Lake Michigan Credit Union. And as part of its announcement it says it will not speak to the trade press. After all, the trade press has seen this snake oil passed off as medicine in other towns; no need to have them telling the townfolk here.
If you've been following this story, many of the reasons cited by convert-seekers are questionable at best. In Washington, Columbia Credit Union said it needed to be able to serve more people (it's open to everyone in the state and parts of Northern Oregon) and that it needed relief on business lending (the state's DFI had already granted it). Lake Michigan CU initially suggested it was being forced to convert by the state regulator, a charge the regulator vehmently objected to.
There's a reason credit unions were formed. As one CU stated, "If you have a banking issue or need financial advice, we listen and respond as only a locally owned credit union can do." Who said that? Columbia CU.
As some citizens of other countries have learned painfully, if you don't stand up and defend democracy when you're living in one, how will you ever do so when you are not?
Frank J. Diekmann is editor of The Credit Union Journal.