DISCLOSURE: I am a member and employee of a credit union which I have been assured is not interested in converting to a bank.
Wisconsin's Republican-controlled legislature is in the final stages of shaping the state's next budget, and they're using the budget process to implement a number of radical right-wing policies with little or no debate.
One of the surprise items slipped into the budget was a change in the way state-chartered credit unions can convert to banks. Currently, a credit union would have to return member-owned equity to the membership before the conversion, or first convert to a federal credit union charter and then convert to a bank. Under the new rules, a state-chartered credit union would not be required to distribute the equity to members before converting to a bank.
The Credit Union National Association (CUNA), sums it up this way:
The Wisconsin Legislature's Joint Finance Committee Thursday voted to include language in the state budget bill that would make it easier for Wisconsin's 2.2 million credit union members to be stripped of their equity in the cooperative financial institutions they own--by permitting direct conversion from a credit union to a bank charter, according to the Wisconsin Credit Union League.
The vote on the budget amendment came after the provision was inserted into the bill without any public hearings, without any notice to credit unions, and without seeking any input from credit unions or their members, the Wisconsin league said.
A credit union is a financial institution that offers many or all of the same services as a bank, but the credit union is owned by its customers, or members. Membership is limited in some way, though many credit unions offer membership to anyone who lives or works near one of their branches, or within a county or municipality. Stricter charter restrictions might include affiliation with an organization or employer, for example.
Credit unions do not have stockholders, and they return dividends to members, usually by offering banking services with lower fees and loans at lower rates than banks. Although they are not-for-profit organizations, they are required to maintain adequate reserves and are required to follow strict financial regulations.
Credit union deposits are insured by the National Credit Union Administration (NCUA), similar to the FDIC that insures bank deposits.
Banks have had a long-standing resentment of credit unions. Although banks have well over 90% of the banking business, they claim credit unions have an unfair advantage because they are not required to pay income taxes. (Interestingly, banks have not rushed to convert their charters to become credit unions to take advantage of the alleged tax advantages.)
It's more likely the banks don't like having the competition because it forces them to hold down their own fees. In communities without a significant credit union presence, fees at ATMs and for other banking services are often higher than in communities served by credit unions.
Credit unions spend a lot of time and money trying to fend off bank-sponsored lobbying efforts aimed at harming credit unions. Many people were surprised earlier this year when The Wisconsin Credit Union League (WCUL), a trade group for Wisconsin Credit Unions, turned up on lists of Scott Walker's highest donors. The WCUL is officially non-partisan, and they follow the unfortunate example of many other trade groups of donating money to just about everyone. The hope is that the donations at least get them a foot in the door of influential elected officials.
Indeed, the WCUL is encouraging Governor Walker to veto the new language from the budget when it eventually reaches his desk. The league issued a scathing press release shortly after the language was adopted by the Joint Finance Committee:
"It’s no surprise that this anti-consumer provision was included at the request of the Wisconsin Bankers Association," said Brett Thompson, President & CEO of The Wisconsin Credit Union League, the state trade association for more than 220 of the state’s credit unions. "They have made clear their intent to harm or eliminate not-for-profit credit unions and have no business determining public policy on behalf of Wisconsin credit union members." ...
Wisconsin’s credit unions call on Governor Walker to commit to vetoing the conversion provision when the budget bill gets to his desk. It’s the only fair thing to do for Wisconsin’s 2.2 million credit union owners.
So, who wants this change? As Thompson said, the Wisconsin Bankers Association is behind it. Their hope is that a few credit union executives and board members will take advantage of the opportunity to convert their institutions to banks and pocket hundreds of thousands of dollars in the process.
One consulting firm, CU Financial Services, specializes in these conversions, and markets their services with promises of millions of dollars in stock opportunities for credit union executives. This windfall is gained by raiding the member equity during the conversion, member equity that under current law would have to be returned to the membership before conversion.
CU Financial Services has a link on its website to a Washington DC lobbying firm called The Coalition for Credit Union Charter Options (CCUCO), which appears to be a one-man operation. Its mailing address, 1425 K. Street N.W. Suite 350, is a mail drop shared by lobbying groups of all stripes, dubious medical service providers, and other businesses including Gingrich Communications. Yes, that Gingrich. Gingrich Communications operates theamericano.com, a bi-lingual propaganda site.
The lone employee of CCUCO, Executive Director Lee Bettis, is a former employee of CU Financial Services and was the CEO of a Georgia credit union that converted to a bank 10 years ago. Bettis was criticized at the time for misleading the credit union's members about the nature and consequences of the conversion to a mutual savings bank.
Are there any greedy credit union CEO's or board members in Wisconsin who would welcome the relaxed conversion rules? Certainly none of them have said so, but I heard this interesting exchange last week on a local Madison radio station between the host and Democratic Wisconsin Assembly Representative Mark Pocan:
Host: Now they want to make it easier for credit unions to convert into banks? Have you heard that one?
Rep. Pocan: Well, it’s, it’s a long story on that one but it’s a little more complicated on that issue, just so you know. It’s, it’s the, the super-large credit unions that they’re trying to…it’s a conversion process that actually brings in some revenue but, umm, unfortunately, as much as I, I like the credit unions that we have, the credit unions have, umm, uhh, a, a bit of a sloppy, uhh, legislative, umm, (laughs)…advisor. Let’s just put it that way. I don’t know if they’re going to be real…I don’t know where that’s going to wind up but it’s not quite as black and white as I think it’s being portrayed.
It seems to me that CU Financial Services must have at least one client already lined up in Wisconsin. They, through their puppet lobbying group CCUCO, were very quick to praise the news about the new rules. CU Financial stands to gain some hefty "consulting fees" if they can tempt some credit union officers to convert their institutions to banks.
The Wisconsin Credit Union League was just as quick to try to dampen the glee of CCUCO. League President Thompson again:
“Public policy should protect credit union members’ right to determine the future of the financial institutions they own. Passing legislation—secretly, without public notice, debate or hearing—that makes it easier to turn the equity of Wisconsin’s 2.2 million credit union members into additional riches for a few bank shareholders cannot in any way be considered in the public interest.”
I'm still scratching my head, though. I'm not sure who Pocan is referring to when he mentions a "sloppy legislative advisor." Is it someone from the Wisconsin Credit Union League? The league has a strong lobbying presence in Madison, including a Vice President of Government Affairs and a Government Affairs Assistant. Or is it Lee Bettis from CCUCO, misrepresenting himself as a lobbyist for credit unions?
Either way, I would not be surprised if the Wisconsin Credit Union League loses a few members in the next couple years if the new conversion rules are left in the budget.
Some good background on the conversion controversy here.