Some of the following quotations are taken from speeches and from written statements made by executives who represent organizations which oppose the conversions of credit unions to banks. Although, the quotes acknowledge charter deficiencies, readers should not conclude that the executives are in favor of conversions.
From a March 3, 2011 Study on "Reforming Credit Union Capital Requirement", Professor James Wilcox writes:
"Because credit unions currently do not have access to supplemental capital, they may be required to endure long periods in which they charge high loan rates, pay low rates on deposits, cut costs (and thus services to members), and are far less attractive to their members in order to preserve their regulatory capital ratios. These credit unions are faced with the unpalatable choice of strengthening their capital position quickly or providing good service to their members. A sufficiently large reduction in its capital ratio, then, might entail services and deposit and loan rates so unattractive to its members that the credit union would be unlikely to recover from otherwise survivable challenges."
A Credit Union funded "Think Tank" debunks "member ownership".
From The Filene Research Institute's former executive director Bob Hoel's study entitled, “Power and Governance: Who Really Owns Credit Unions?”:
“It is also popular for credit union CEOs, board members, trade associations, and regulators to proudly proclaim that credit union members own their credit union. Again, rhetoric fails to tell the complete story. Determining who controls capital is a key step in identifying the organization’s authentic owner. Credit union CEOs and boards, like their corporate counterparts, play key roles in capital decision making. In addition, government regulators exert extraordinary influence on capital levels and capital deployment. Members have almost no control over capital in most credit unions today. Regulators tend to act as though they own a credit union’s capital…The extraordinary power of credit union regulators raises the distinct possibility that they are the true owners of the credit union. As noted previously, if the regulator or any other party controls the credit union’s capital, it is, for all practical purposes, the credit union’s owner.”
Hoel also wrote, “Given the power of boards, CEOs, and regulators over capital, it is not possible to view members as the credit union’s owners in the classic sense. Member ownership rights are modest; some might even argue that they are trivial. Members cannot sell or otherwise transfer their theoretical share of ownership to others. They cannot withdraw their share of the credit union’s capital when they move or when they terminate their membership. Their heirs do not have an equity claim upon their death. The only times that credit union members receive capital distributions are when the credit union is liquidated or when regulators conclude that the credit union is grossly overcapitalized and permit the credit union to make a special capital distribution. In most non-credit-union cooperatives, member owners have far greater power to transfer and redeem their ownership shares…Four actors – CEOs, boards, regulators, and members – all have some power to control and deploy capital. One conclusion from this multipower arrangement is that the four are joint owners. An alternative view is that the true ownership is so vague and convoluted that no one owns the credit union. The credit union, in essence, owns itself, and it is a self perpetuating entity.”
From CU Times - June 8, 2011 - Excerpt from Letter to the Editor by Henry Wirz, CEO of $1.8 billion SAFE CU, on the topic of director term limits:
"The most significant problems that impact credit union governance are rooted in the member-owner concept. Credit union members do not serve the same role as owners who own shares in a company. Members have an undivided ownership interest that can only be realized in a liquidation. They have no ownership stake. Members leave the credit union with nothing other than their share deposits. Members don't usually vote; they don't attend annual meetings; they don't read the annual report; and members do not petition to run for the board so that most board member are in fact not elected by member votes but by acclamation at the annual meeting attended mainly by staff. Therefore, the key governance issue is that the owners are absent from the process of governance. Members have abandoned their role. The connection between the credit union and its members is a customer relationship, not an owner relationship."
From February 2011 Credit Union Magazine Article on Canadian and Austrialian Credit Unions:
Canadian Credit Unions:
"Unlike the U.S., Canadian credit unions do not expend a lot of lobbying effort on the taxation issue, because they already pay business income taxes, although at a lower rate than large banks.
Canadian credit unions have paid federal income taxes since 1971, when negotiations led to an agreement that they'd pay the lower rate small businesses pay, not the corporate rate paid by major banks.
Since then, income taxes have been viewed as another line item in operating expenses, not as a major hinderance."
Australian Credit Unions:
"Unlike U.S. credit unions, Australian credit unions do not have tax-free status - they're taxed the same as banks, having lost their tax-exempt status in 1992. Many in the industry have been able to see the silver lining in the loss of their tax-exempt status, saying it focused the industry on becoming more efficient."
The growth of credit unions is "impressive and encouraging," Debbie Matz, chair of the National Credit Union Administration, told the paper. "The 'flight to safety' that landed new deposits at credit unions during the conomic downturn continues," she added. However, despite the credit union renewal, many people still don't know that much about credit unions, Mike Wishnow, executive vice president of communications and public relations for the Pennsylvania Credit Union Association, told the publication. "The No. 1 reason people don't join a credit union is eligibility; they simply don't know they can belong," Wishnow added. (Philadelphia Tribune, March 15, 2010)
There is a big "if" when it comes to CUs in 2109 — alternative capital according to Bucky Sebastian, CEO of the $2-billion GTE FCU. "If we don't morph into something slightly different than what we are — not by what we do but by how we are allowed to do it — I don't think we will be around," Sebastian said. "The real impediment to growth and prosperity in our charter is the limitation that the only way to obtain capital is through retained earnings. Without the ability to raise capital, it becomes problematic to grow. And I think there will be a major behind-the-scenes effort by banks to see that we are kept in the box we are in." (CU Journal)
We have a huge bill facing us for the corporate losses, past and future. We have a real possibility of substantial natural person credit union losses in the coming years (Chairman Matz said as much before Congress last week). Who will pay for all of this? You can bet it won't just be the largest credit unions — it's going to be all of us. If we don't come up with a better option for growing capital, the credit union community will be digging out of this massive hole for many years to come. Forget about growth, we risk becoming irrelevant! Tom Dorety, CEO, Suncoast Schools FCU, Tampa, Fla. (CU Journal Letter to the Editor 10-26-2009)
Scott Hunt, director of the Office of Corporate Credit Unions, told attendees that the NCUA is monitoring some large credit unions on the brink of failure. “The credit unions that have failed so far have been relatively small," Hunt said, “but that will change in 2010." (CU Times 10-14-09)
NCUA’s Bob Fenner’s response when asked if NCUA could “create a wall” between natural person credit unions and corporate credit unions: Fenner said that’s impossible given the credit union’s system cooperative nature. (CU Times 10-7-09)
NCUA’s Larry Fazio explained that if U.S. Central and WesCorp were allowed to fail it would have sucked $33 billion (best case) out of credit unions. Likely 3,000 credit unions would have failed over night, and most of those left would have been “mortally wounded,” Fazio said. They would die too from shrapnel called reputation risk. (CU Times 10-7-09)
“Members do not control the operation of the credit union. They rarely vote to elect Board members—most of the Board is appointed and runs without opposition. Members have no financial ownership of the credit union. They frequently perceive themselves to have the same relationship as customers have with a bank. Members most often vote with their feet. If the credit union is not meeting their needs, they move their account someplace else”, wrote Henry Wirz, President/CEO, $1.3 Billion, Safe Credit Union in a commentary letter posted on “Credit Unions.Com”
“Outsiders should not interfere and meddle in individual credit union business decisions. Period, ” said David Adams, the president and CEO of the Michigan Credit Union League in a Letter to the CU Times complaining about its reporting related to the Wings / Continental Merger Proposal.
But, just weeks earlier the American Banker reported that he said his group made a donation to the National Center for Members Trust (NCMT) in early 2006 through CUcorp, the league's for-profit subsidiary. He would not say how much it donated. NCMT has interfered and meddled in the DFCU Financial FCU, Lafayette FCU, Beehive CU and First Basin CU conversion votes spending hundreds of thousands in credit union member money on the effort.
In 2004, the MCUL ran full page anti-conversion ads targeting the members of Lake Michigan CU.
The Credit Union National Association (CUNA) will underscore the "staggering regulatory burden" on credit unions at the second national forum on regulatory fairness sponsored by the Small Business Administration (SBA) Wednesday March 11, 2008. Mary Dunn, CUNA senior vice president and deputy general counsel, said she will note in oral and written testimony the following arguments:
Credit unions are subject to the same consumer protection laws and regulations as other financial institutions, similar safety and soundness requirements, and are subject to the increasing requirements of the Bank Secrecy Act.
In addition, credit unions are subject to more restrictive capital requirements than those that apply to other types of financial institutions, field-of-membership and member-business-lending restrictions, as well as a usury ceiling, limitations on loan maturities, and stringent limitations on their investment options.
The following are excerpts from written remarks by Tom Dorerty, President and Chief Executive Officer, Suncoast Schools Federal Credit Union on behalf of the Credit Union National Association, during testimony to the March 6, 2008 House Financial Services Committee Hearing regarding CURIA
On Credit Union Limitations
Professor William Jackson, then of the University of North Carolina and now at the University of Alabama, noted in a 2003 study that “CUMAA imposed more limitations on credit union operations than it lifted.” Further, he states that the wave of deregulation of depository institutions of the last two decades was not applied to credit unions. It is also noteworthy that the Treasury Department found in a 2001 study that “In general, federal credit unions have more limited powers than national banks and federal savings associations.” These new restrictions on credit unions have not been revisited by Congress since enactment, ten years ago.
On Business Lending
Quite frankly, for many credit unions, the current 12.25% MBL limit effectively bars entry into the business lending arena. Startup costs and requirements, including the need to hire experienced lenders, exceed the ability many credit unions with small portfolios to cover these costs.
By law – not regulation, as for other insured depositories – credit unions must maintain a 7% net worth or leverage ratio in order to be considered “well capitalized.” In comparison, the current leverage ratio for banks to be well capitalized is only 5%. [over 40% less] This capital requirement for credit unions is inefficient in that it unnecessarily retards member service and growth, and it does not appropriately account for risk of a credit union’s assets.
From Credit Union Journal Brochure promoting “The Grow Show” 2008 Conference
“Growth has become a critical issue for credit unions, Growth in ROA. Growth in revenue. Growth in service offerings. Growth in membership.”
From “The Big Story” – A March 3, 2008 report by The Credit Union Journal
“The (1998) Credit Union Membership Access Act was a landmark bill for credit unions. But the membership growth has not kept pace with expectations.”
“Most credit union auto loan growth is taking place through indirect lending”
“Auto lending is no longer first in the lending portfolio. Real estate now has that honor.”
“A case can be made that if one holds the new members brought in by indirect car loans constant, membership growth has been treading water, or declining, in recent years.”
The simple fact is that many members choose to do most of their business with banks, according to Bob Hoel, a Fellow with the Filene Research Institute in Madison, WI. “44% of our members do more business with banks than at their credit union,” said Hoel. “Filene research shows that members perceive credit unions as friendly, but not as sophisticated as banks,” he told CU Journal.
From an “Opinion” Article in the March 3, 2008 Credit Union Journal
Mary Martha Fortney, President of The National Association of State Credit Union Supervisors, wrote: “The capital structure for credit unions [compared to banks] potentially restricts credit union membership, services and growth.
“Successful member service potentially leads to asset growth; rapid asset growth can result in diminished capital ratios and the end result is a challenge to Prompt Corrective Action (PCA). PCA restrictions affect growth and may curtail member service,” she added.
(Editor’s note: PCA outlines minimum capital requirements that a credit union must maintain to avoid regulatory penalties.)
CUNA Mutual Group CEO Jeff Post to CU Journal:
"Credit unions have given up their tax advantage to cost inefficiencies. Even if you look at the billion-dollar credit unions only, they are losing the expense game," he said. "Banks are winning this game, and it's a game we can't afford to lose. The expense game is crucial, and right now, expenses are eating up the credit union tax advantage."
Dick Ensweiler, president of the Texas Credit Union League to CU Journal:
"As credit union leaders, here we are believing in service to members and in the credit union difference," he said. "But, 70% of Americans don't belong. Why are we so passionate and they're not? Where are we missing the boat? There seems to be this huge disconnect."
Ensweiler noted credit unions talk about being not-for-profit cooperatives, yet in focus groups consumers say those things don't really matter. (CU Journal 6-11-2007)
Dan Mica on GAO Report which cites Weak Credit Union Growth:
"The GAO report includes data showing net income has increased at banks an average of 7% for the last 10 years, when adjusted for inflation. During the same period, and using the same parameters, the study showed credit union net income increased only 3% annually." (CUNA News Now 6/6/2007)
From CUNA News Now
Quoting Letter to California Newspaper
3/29/2007 - The letter, signed by Bill Cheney, president/CEO of the California Credit Union League said:
"Bankers often make the claim that credit unions have an unfair competitive advantage. The truth is, credit unions today operate under many outdated and burdensome regulatory constraints that do not apply to banks," Cheney wrote.
"For many credit unions, the 12.25 percent ceiling effectively bars their entry into the business lending arena at a time when one in 10 adult credit union members owns a small business," Cheney wrote.
From CU Times
NCUA on Board of Director's Authority
3/13/2007 - According to John McKechnie, NCUA director of public and congressional affairs, "A credit union’s elected board is the responsible authority on determining whether a proposal is in the interest of the credit union’s membership."
McKechnie's remarks were made in response to questions about credit union mergers.
From CUNA News Now:
"Young people don't know or care about how credit unions differ from banks"
SAN DIEGO (12/8/06)--Ramit Sethi, keynote speaker for the YES (Your Essential Strategies) Summit, can identify with credit unions for two reasons.
First, he wants to change young adults' money management behaviors. Second, he's not in the business to make money.
Unfortunately for credit unions, Sethi said, young people don't know or care about how credit unions differ from banks, he told the audience at the Credit Union National Association (CUNA) program in San Diego Wednesday.
What they do care about is service, convenience, advice and products that meet their needs.
Paul Gentile, CU Times Editor-in-Chief
"Most [consumers] Don't Understand Credit Unions"
In his weekly article Paul Gentile, Editor-in-Chief of the Credit Union Times wrote: " I always ask people I meet if they know what a credit union is. I must be running into people other than the 80 million credit union members out there, because most of them don't understand credit unions."
"I still hear about credit unions being labor unions or places where you can have a savings account, but nothing else," he said.
CUNA's 2006 - 2007 Environmental Scan
Critical Consumer Awareness Gap
More than 80% of consumers eligible to join credit unions have yet to do so, according to CUNA's 2006-2007 Credit Union Environmental Scan.
CUNA's 2006-2007 Survey of Potential Members indicates that about 75% of nonmembers who are eligible to join a credit union are less than "very familiar" with what credit unions are and the types of services they offer. This includes 40% of eligible nonmembers who are either "not very familiar" or "not at all familiar" with credit unions. (CUNA News Now)
WCUL White Paper
Credit Unions must limit growth
Because of the risk-averse nature of credit unions and the lack of access to capital markets, PCA rules induce credit unions to maintain capital levels higher than those necessary to protect the share insurance fund. Credit union response to these pressures is to limit growth, which requires limiting service to members. This, in turn, reduces the amount of funds that credit unions can devote to member loans that support the economy. (Washington Credit Union Association - White Paper - "Defining the Credit Union Difference".)
CUNA's Dan Sagar
No New Reg Relief for 5 to 6 Years
"The stakes on the bill [2006 Reg Relief] are high because if Congress passes regulatory relief this year it is not likely to pass another bill for years to come, that includes CURIA." Saga, a long-time veteran of regulatory relief lobbying while working on Capitol Hill, said he could see the House following up with another bill as soon as next Congress, but doesn't expect the Senate to do so for some time. "The Senate will take five or six years to revisit the issue," he said. (CU Journal - June 5, 2006)
Boards Told Don't Unilaterally Oppose Conversions
Speaking to nearly 70 directors from the nation's largest credit unions at the Credit Union National Association's (CUNA) third National CU Roundtable for Board Leadership meeting in San Antonio, Texas, Hyland told directors that they should not unilaterally oppose conversion from a credit union to a bank charter.
"The board and senior management team should recommend a conversion only if it is in the members' best interest," Hyland said. "And the membership should decide the issue based on full and fair disclosure of all the facts surrounding a conversion.
"Your board can't automatically be against conversion because you always need to be doing what is best for members, even if that means protecting the members' right to make a choice," Hyland said. (CUNA News Now 4/4/06)
From CUNA News Now 10/25/2005
"We continue our efforts to try at a minimum to have incorporated in the reg relief bill PCA reform provisions," CUNA Vice President and Senior Legislative Counsel Gary Kohn said. "We haven’t given up on member business loans either though that is more of a long shot than PCA is, which is a long-shot in and of itself." [Emphasis added]
The House Financial Services Committee leadership has expressed a strong desire to keep the bill "clean," which could significantly impede credit unions’ success in getting PCA reform adopted.
From CUNA News Now 6/24/2005
WASHINGTON (6/24/05)--In a letter Thursday, Credit Union National Association (CUNA) President/CEO Dan Mica blasted the vice chairman of the Federal Deposit Insurance Corp. (FDIC) for anti-credit union comments made during a recent Senate Banking Committee hearing on regulatory relief.
Mica's letter to FDIC Vice Chairman John M. Reich took "strong issue" with portions of Reich's testimony at the Tuesday hearing that called upon Congress to tax and impose new regulatory restrictions on the nation's credit unions.
Reich's "leveling the playing field" rationale ignored "the fact, attested to by the U.S. Treasury Department, that credit unions are already the most heavily regulated of the nation's depository institutions," Mica said. "While not covered by CRA--a law passed to address illegal redlining by banks--credit unions have more restrictive regulations in the areas of investments, capital, membership requirements, and member business lending..." Mica suggested that "if the so-called playing field is tilted at all, it tips heavily in favor of the banking industry."
Mica cited FDIC's own statistics on banks' quarterly earnings, noting that "with each successive quarter, bank profitability climbs to new heights" and that they "posted record profits in 13 of the last 14 years." Community banks "are making bumper profits and growing quickly."
"If your aim truly is to level the playing field, you might consider eliminating some of the advantages that banks enjoy over credit unions, which include no restrictions whatsoever on membership or customers, unfettered access to capital markets, lower capital standards, far less restrictive business lending, and the election of Subchapter S status as means of avoiding taxation at the corporate level," the letter said.
From CU Times 3/15/2005
Mica Fears NCUA PCA Proposal may lead to NCUSIF write-down
Mica said that CUNA is concerned about the proposal addressing credit unions’ 1% NCUSIF deposit at all, but it may be too late now, so steps should be taken to avoid a ‘slippery slope’ that could lead to a ‘write-down’ of the funds.
Former US Congressman and NCUA Chairman Blasts Credit Union Trade Associations
During an October 2004 speech, Norman D'Amours, who headed NCUA from 1993 to 2000, blasted the credit union industry as "controlled by well-paid insiders of a few trade groups" and said that the "large credit unions are running the show because the trade groups are controlling federal and state legislative agendas, regulatory lobbying and everything else that is credit union related". He named the Credit Union National Association (CUNA) as the "largest and most dominant credit union trade group" and said trade groups are motivated by dues and service fee income. (Northwestern Financial Review Oct. 15).
NASCUS Chairman and Michigan Credit Union Regulator Roger Little told the Credit Union Times as reported in its September 22, 2004 edition, "credit unions continue to be punished for their success because they are restricted in their access to capital". Little added, " alternative capital for many state chartered credit unions is imperative if they are to continue to meet the financial needs of their members such as financing home ownership, financial education, and credit counseling. The combination of PCA requirements established by Congress for credit unions in 1998 and significant deposit growth has created a financial and regulatory dilemma for many state-chartered credit unions."
Editors note: The 1998 law establishing credit union PCA requirements also contained a streamlined path to the mutual savings bank charter and its capital raising alternatives. Congress recognized the law - HR 1151 - was putting handcuffs on credit unions and appropriately it provided a path to the capital markets should it become necessary. Converting to the mutual bank charter is the Congressional solution to the credit union capital problem not a hasty revision of HR-1151 or regulatory tinkering with PCA provisions.
In an August 27, 2004 editorial to the American Banker, CUNA's Chief Economist Bill Hampel defends the credit union tax subsidy and uses quotes from Federal Reserve studies to support CUNA's position that "it's not just the credit union lobby who find strength and vitality in the small-bank industry".
Hampel concludes, " ... to suggest that credit unions are less regulated than banks is ridiculous. Granted, credit unions are not subject to the Community Reinvestment Act, a law passed to address bank redlining. But in virtually every other regard they are more regulatorily constrained than banks: Credit unions still face binding - although somewhat reduced - field-of-membership restrictions; have no access to net worth other than retained earnings; are subject to higher capital requirements than banks; are much more limited in business lending; and face more restrictive investment regulations.
As the Treasury Department said in 2001, federal credit unions "have more limited powers than national banks." Small banks are doing just fine, thank you - and the numbers show credit unions are among the least of the challenges they truly face, Hampel added. (Editors note: Converted credit unions are reaching the same conclusion.)
Aug 25, 2004 CU Times quoted a CUNA Mutual Executive talking about how members are harmed without access to capital:
"Current law mandates that credit unions, unlike other financial institutions, must rely on retained earnings alone to build capital to satisfy regulatory Prompt Corrective Action (PCA) requirements," said Tom Merfeld, senior vice president of CUNA Mutual’s Credit Union Financial Solutions Group. "This puts most credit unions and ultimately their members at a competitive disadvantage because it dampens the credit union’s growth potential."
An April 7, 2004 CU Times News Brief entitled: "CUNA Tries to Pump Life Into Senate Reg Relief Bill" reported that CUNA President and CEO Dan Mica wrote a letter to Senate Banking Committee Chairman Richard Shelby (R-Ala.) encouraging the committee to get a bill passed this congressional session. The Times said Mica reminded Sen. Shelby, "Credit unions remain the most highly regulated and restricted of all insured financial institutions." He noted the "severe restrictions" credit unions have faced following the passage of HR-1151 solved some problems but raised others. "As a result, CUNA supports efforts to reduce regulatory red tape that prevents credit unions from serving their membership and reaching out to underserved and unbanked communities." Mica also said the regulation would help "relieve America's credit unions of unneeded and burdensome regulations."
A February 13, 2004 editorial in the American Banker written by Mica defended NCUA's assault on the HR -1151 streamlined conversion provisions and the charge that NCUA is a captive of credit union trade associations. Although writing in a positive and supportive tone about the credit union charter, the letter said, "Credit unions are indeed burdened by an inappropriate system of prompt corrective action, which requires them to hold even more capital than a bank despite their typically lower risk profile." and "Indeed, although the credit union charter has some disadvantages compared to banking charters, it continues to provide enormous benefits to credit union members" He later said that he was "heartened" by legislation proposed to reform PCA.
Commenting on Mica's admission in the editorial that, "I will be the first to admit that the wholesale conversion of credit unions to some other form of corporate governance would be detrimental to the association," one editorial reader noted that CUNA, with $50 million in revenues, receives "enormous benefits" from credit unions and that conversions must be a big threat to receive this level of attention from such a high powered Washington lobbyist.
[Editors note: The legislation regarding PCA is viewed by some as an accounting gimmick which fails to provide a safe and solid solution for fast growing credit unions. The legislation generates serious concerns for 8,000 smaller credit unions. The bill, designed to fuel the rapid growth of large credit unions, increases systemic risks and the liability of directors who utilize its provisions. The growth would force NCUSIF to charge insurance premiums, thus hurting the earnings of the smaller credit unions already pressured by plunging investment yields and rapid member defections to larger credit unions. Its passage is unlikely. Efforts to enact laws to allow secondary capital, stalled since 1999 and opposed by many credit unions large and small, are also likely to fail.]
John Annaloro, president of the Washington CU League, said in a recent CU Times editorial, “... a string of conversions by credit unions in the state with the most progressive charter may point to the need for revolutionary, not evolutionary, changes.” He also said in a press release that recent conversions are representative of the “fundamental weaknesses in the overall national credit union charter that needlessly restricts capital accumulation and business lending.”
Dick Ensweiler, Chairman, Credit Union National Association, in a letter to the editor of the American Banker newspaper defending the credit union tax subsidy, implies that it would be foolish for banks to convert to credit unions because, "the bank turned credit union would have to operate under much more stringent rules - for example limiting commercial loans to 12.25% of total assets - and more onerous capital regulations."
Rick Craig, President / CEO of $4.5 billion America First CU (UT) said before a Las Vegas audience of credit union executives and reported by the Credit Union Journal, "Credit union taxation is a topic that is not going away any time soon ... we are going to have to worry about it for many years ... I expect more state-level attacks before a national level attack," he predicted.
The retiring CEO of a large west coast credit union recently told the CU Journal that credit unions will eventually be taxed and, "there's not much difference between them (community chartered credit unions) and a community bank in reality."