Trick Or A Treat? That One's Up To CUs To Decide
It's nearly Halloween, so it seems a fitting time to mention a ghoulish story from the Golden State: the plan by Technology Credit Union to convert to a bank.
As always, it isn't the plan to convert that's so frightening as the way it's being sold to members. In a statement from the board that's available on the San Jose-based CU's Web site, it states that is it "considering" asking its members to approve a charter change to a mutual savings bank. It makes sure to then quickly follow up that little piece of news by reassuringly noting that, "A mutual savings bank is owned by and operated for the benefit of its members in a manner similar to that of a credit union."
Ah, "similar." One innocuous-sounding little word that is a real scary Halloween mask for some big differences. As has been noted here many times before when other CUs have attempted to sell this trick as a treat. Yes, you'll still be a "member-owner," just much less of one, as that philosophy of one-member, one-vote gets kicked to the curb in favor of one-dollar, one vote. Yes, member, technically this will still be "your" financial institution, but mostly it will be "theirs," i.e., those with the dollars to literally buy the votes.
The Big Disconnect
It's amazing, isn't it, that at the very same time there is a "National Bank Transfer Day" being organized for Nov. 5, at a time when banks are being skewered for all the new fees and charges, and at a time when credit unions are getting the kind of press Mother Teresa would have envied, one credit union's board and management says, "Nope, the world is wrong; being a bank is what's best for everyone." Anybody see a disconnect?
The $1.5-billion Technology CU is a large credit union (but it will be a small bank) that reported $2.7 million in net income at mid-year and net worth of 10.35%. So the argument that it lacks the ability to be profitable or grow or serve members is as empty as a politician's promise.
In its announcement to members, Technology CU says becoming a mutual savings bank will allow it to serve anyone and, most importantly, make more commercial loans. It also slides in this admission:
"Tech CU currently is not subject to any federal, state or local taxes. The charter change would end Tech CU's tax exemption. Based upon our analysis and meetings with consultants, the Board of Directors believes that the (i) tax impact should be more than offset by the enhanced earnings capacity under the federal mutual savings bank charter and the ability to more effectively serve Tech CU's current and future members, and (ii) charter change will improve Tech CU's ability to sustain a competitive pricing philosophy while continuing to increase its convenience and service to members."
Wow, someone just claimed dibs on the fibs, as those claims are right out of the conversion consultant's playbook. The board has sought out the expert opinion of the same "consultants" who are charging (never-disclosed-to-the-members) fees and who stand to profit even further in the years ahead should the conversion be approved-and those consultants have recommended in favor of the move!?! I know I join many of you in just being stunned. Stunned!!!
And how about that other Misinformation Hall of Fame claim, that the tax impact should be "more than offset by...enhanced earnings capacity" and that the CU as a bank intends to "sustain a competitive pricing philosophy"? Oxymoron, meet thy definition. Wonder if any members have figured out yet just who's going to be putting the "enhanced" in "earnings capacity?"
This week credit unions from all over California will gather in San Diego for the league's annual meeting. There will no doubt be much crowing over all the good press CUs have gotten and are getting, plenty of mutual back-patting about how the white hat couldn't be any brighter if it were stored in Clorox, and standing ovations every time a speaker notes how credit unions benefit the American consumer.
And yet when one very small group of CU members (the board and management) seeks to reject the very charter the faithful have been singing about in favor of becoming a bank, what do we hear? Crickets.
When Technology CU made its plans public CUNA issued a statement on behalf of CEO Bill Cheney in which he said, "It is difficult to imagine how converting from a credit union to a bank could really benefit consumers...Ultimately, of course, the decision to convert has to be made by members of the credit union who own the institution. They can only make that decision based on all of the facts, provided with complete transparency."
Speak Up Or Sit Down
The credit union, which no doubt already is planning to seek a commercial bank charter and issue stock as soon as it gets this pesky first step of converting to a mutual savings bank out of the way, has already shown how "transparent" it feels it needs to be.
Credit unions often say they don't want to get mixed up in the affairs of other CUs. It's not our business, they say. If it's not your business, whose is it? Do you believe in what you're saying? What others are saying about you?
It's put up or shut up time. Let's hope when California's CUs meet this week it's the former. Otherwise, shut up.
Frank J. Diekmann can be reached at email@example.com.