Allowing banks to join CU groups is a mistake

Some banks, at least those that were once credit unions, are apparently more acceptable to some credit union organizations than are some credit unions, such as those that have chosen not to affiliate with a state credit union league. That's the inescapable conclusion that must be reached based on action taken by the Colorado Credit Union System (League) annual meeting attendees at their April 15 meeting. They approved a far-reaching, controversial, bylaw amendment that simply put, allows any current Colorado credit union that decides to convert to a mutual savings bank charter to retain membership in the Colorado Credit Union System. These new banks will be considered members in good standing "with all the rights and privileges related thereto." Since no Colorado credit unions have yet to apply for a thrift charter, this action has been dubbed a "just in case" move. Here's how system/league President Carroll Beach put it: "Our feeling was that if (sometime in the future) a credit union converts to a mutual savings bank, to serve their members better, then they should be able to continue membership in the (state credit union) organization." In other words, a non-league-affiliated, but honest-to-goodness credit union cannot participate in any system/league-sponsored activities such as conferences, cannot buy system/league products, or be involved in setting membership dues, or vote on system/league policy matters, or participate in government affairs committee activities, or even serve on task forces that deal with bank attacks, etc. But certain banks, those that were once credit unions, can do all of those things and more! In fairness, I'm not exactly comparing apples to apples here because non-affiliated credit unions are in fact eligible to join the system/league, and partake in all of the above cited activities. But doesn't it seem strange that credit unions that choose for whatever reasons not to belong, are considered the bad guys and in many states are treated like they posses some communicable dread disease? Yet, credit unions that become banks are welcomed with open arms. Colorado has set a bad precedent for credit union leagues. And ultimately for CUNA, since leagues as members of CUNA must also follow rather specific membership qualification guidelines, outlined in the CUNA bylaws, that do not include provisions for bank memberships. Beach talks about credit unions converting to serve their members better. He forgot a couple of important distinctions between credit unions and banks. Credit unions have members. Banks have customers. When a credit union becomes a bank, it no longer serves members. It caters to its customers. Also, banks are responsible to stockholders who may or may not be customers (members) as in a credit union where they are one and the same. And voting power in mutual savings banks is directly related to the amount of money on deposit. In a credit union, every member has an equal vote. The issue here is not whether or not credit unions should convert to thrift charters. If that's what fully-informed credit union members decide to do, so be it. It's their credit union. The real issue is a bank belonging to a credit union trade association. In case the good credit union folks in Colorado forgot, there is a huge difference between credit unions and banks, starting with their not-for-profit structure. Watch for similar scenarios with other groups dependent on credit unions. For example, one former credit union was a member of the Aerospace Group, a loosely knit organization of 34 large credit unions that has been around for years. Originally, as the name suggests, Aerospace was for those credit unions connected in some way to the aerospace industry. Membership is strictly by invitation and basically allows representatives of the 34 CUs to attend the group's annual conference for a fee. That credit union that is now a thrift said it would like to continue its active role in the Aerospace Group. They said no. Membership is only open to credit unions. What about other credit union organizations such as the CUNA Mutual Group? This particular credit union was told no problem and is still a customer. What about membership in its league? Nope. At least so far. An added irony to all this is that a converted credit union becomes eligible to join banking groups. So what's really the deciding factor in wanting to keep the new thrifts in the CU fold? Could it have to do with the almighty buck? Bingo! Carroll Beach of Colorado summed it up nicely when he said: "We want to keep them on the business side." And yet, in some states, the league even refuses to accept conference fees, publication subscriptions, or political action fund donations from credit unions that are not affiliated. Is there a better solution towards keeping the separation between church and state so to speak without bankrupting the association if conversions go wild? Yes! There is an arms-length way to deal with non-members that is standard operating procedure in not-for-profit associations. Simply create a non-member pricing structure. Credit unions that choose not to belong to a league (and thus CUNA) and former credit unions, and even credit union vendors, would be willing to pay a higher fee to participate in various credit union organizational functions such as their educational conferences. They would understand that they cannot have voting privileges or be able to hold office. That's exactly how it works in other trade groups. And it works very well! Doing it the Colorado way is eventually going to not only come back to haunt that group, but such moves help banking industry lobbyists in their ongoing efforts to blur the distinction between credit unions and banks. Furthermore, it sends the wrong signal to consumers including credit union members, politicians, regulators, the media, and the outside world. If it looks like a bank, walks like a bank, talks like a bank, it must be a bank. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail mwelch@cutimes.com.