Evaluating Conversions: Insert 'American Democracy' Here
If you want to put into perspective the extraordinary, important issue now before NCUA-and before every reader of this publication-follow this simple exercise and exchange the words "credit union" with "American democracy."
Formally, what's underway are revisions to Proposed Rule 12 C.F.R. Part 708a-Conversion of Insured Credit Unions to Mutual Savings Banks. Informally, what's going on is NCUA has asked for comment and suggestions as it seeks to create amended rules for credit unions (boards and management) that want to become banks. Unfortunately, such rules are too often seen as some type of narrow, technical, regulatory update, when in fact they are really about much broader consumer (which should appeal to all those blue states) and owner (red state) protections.
What you'll get in the process of reading comment letters on this issue are insights into those who see the bigger picture and who have a selfless view of how credit unions fit into the U.S. and global economy, and those whose picture is a little more wallet-sized and who see only how credit unions can fit into their personal economy.
What is being missed when the analysis is limited and narrow is that this whole debate is about much more than a regulation. Credit unions in the U.S. are nearly a century old, and from the earliest yellowed documents at America's Credit Union Museum to the newest Flash-enabled e-presentations just a click away on CU websites, the one constant has been the word "democracy." You can likely recite the lines in your sleep, "A member-owned, democratically run financial institution...."
As reported extensively in The Credit Union Journal both on an ongoing basis at www.cujournal.com and in our print issue Sept. 4, the agency has no shortage of comment from which to choose (if you want to read all the letters, go to www.ncua.gov). Within those comment letters what you will really find are revelations on how this very core issue of democracy is viewed within the context of credit unions.
Dennis Dollar, the former NCUA chairman and Mississippi politician who now has his own firm, was often fond of saying that "sunlight" tends to have a cleansing effect. Anyone who has even a cursory exposure to credit unions that have converted or attempted to convert, and to the conversion profiteers behind them, knows they prefer to operate at night with the shades pulled low.
The writer Art Spander once observed that "the great thing about democracy is that it gives every voter a chance to do something stupid," which pretty much sums up members who have voted in favor of giving up their ownership and equity in exchange for, get this, absolutely nothing. Frustrating as it may be, in a democracy there is little we can do about someone doing something stupid with their vote, but there is much we can do to at least ensure they have as much unbiased information as possible before casting that vote. And many of the comment letters NCUA received spoke to what's known as "disclosure," with some commentaries urging NCUA to make sure members get to see all internal correspondence, including e-mail, related to a conversion bid, and that board meetings at which conversions are to be discussed be clearly and publicly disclosed. Some have even called for town hall meetings to be held.
I've written it here before and shall do so again-if conversion to a bank charter is such a blessing (More products! More services! More access!) to the members-turned-customers, why all the secrecy by those seeking to make the move? Good news is typically trumpeted, not hidden. If what the conversion proponents claim to be true is indeed so, they should be demanding NCUA require more disclosures, shouldn't they?
But, alas, their position gives them away. Marvin Umholtz, who represents the Coalition for Credit Union Charter Options (a pro-conversion "group"), called the whole thing "none of NCUA's business." Robert Freedman, an attorney who has been involved in numerous conversions, threatened legal action against the agency should it pass rules that require credit unions to, essentially, do a better job of spreading the supposedly good news. And the Independent Community Bankers of America, which criticized what it called "anti-conversion zealots," called the proposal to require the board of a converting credit union to notify its members prior to a meeting a "costly and burdensome requirement" that is "inconsistent with the rules of other financial regulators."
Well, as Patrick Henry once exclaimed, "No duh!" NCUA's rules are different from other regulators because credit unions are different from other financial institutions. Bank customers don't have a stake in the game. They don't have a vote; the only voters who really count are those holding large blocks of shares, and if you think those wealthy institutional investors are giving much thought to how to keep fees reasonable on a checking account or how to reach out to underserved markets, then you are out to prove Mr. Spander's observation as omniscient.
So visit NCUA's website and read some of the letters. Every time you see a reference to "credit union" mentally insert "American democracy" in its place. When critics say "members" don't need more information, think in terms of "citizens" and the information all of us should receive. When critics write that there is no need for the board to be more forthcoming, ask yourself what happened the last time your local government kept secrets and met behind closed doors. Whatever their supposed reason, ask yourself if you and your fellow taxpayers benefited? I think we know the answer.
Frank J. Diekmann is Publisher of The Credit Union Journal and can be reached at fdiekmann