Dual Chartering, Conversions and the Race to the Top
The dual chartering system today seems in fairly good balance judging by the recent pattern of credit union conversions from state-to-federal and federal-to-state charter. While there will always be some back and forth, the pattern has been relatively stable of late. Only 24 conversions took place in 2004 (four from federal to state; 20 from state to federal); 25 in 2003 (eight from federal to state; 17 from state to federal). This is in contrast to some rather extreme pendulum swings we have seen in the past. In 1997, for example, 65 federals converted to state charter and only six switched from state to federal. Such dramatic shifts in favor of one charter over another, when they occur, are of particular concern to CUNA as the nation's largest credit union trade group and the one representing state- and federally chartered credit unions. When it comes to the dual chartering system, the analogy we like to draw, coined by CUNA's Dual Chartering Task Force, is that of a "race to the top." In other words, CUNA believes in seeking positive advancements in state and federal charters, making each category continually more attractive and better able to stay in sync with the needs of credit union members. Credit unions and their members are better off when, consistent with safety and soundness, they can choose between equally viable state and federal credit union charter options and the inherent variations in powers, authorities, rules and regulations in order to find the set that works best for their circumstances. That is the essence of a strong, vibrant dual chartering system, one that CUNA will continue to work to protect and advance; hence, the "race to the top." By contrast, those who would seek to advance one charter at the expense of another are following a recipe for imbalance, divisiveness and a plunge to the bottom. The goal of enhancing the credit union charter, state and federal, is particularly timely in the context of current controversies over conversions of another type-credit union to bank. It has been gratifying to see the positive response we have received after the CUNA Board in June issued a set of new principles that will guide CUNA policy on credit union-to-bank conversions. Many have commended the principles' emphasis on full and clear disclosures, opposition to unjust enrichment for insiders, and support of the idea that conversion decisions should be driven by the members based on what is in the best interest of the members. Our board felt taking a firm stance was in order as part of CUNA's responsibility to defend and advocate for the cooperative structure of the U.S. credit union movement, particularly in light of the way the banking industry has seized on the conversion issue to promote its anti-credit union agenda. "Friendly" appeals to credit union CEOs from the likes of Diane Casey-Landry, CEO of America's Community Bankers, belie the industry's true objective, recently articulated by Jeff Plagge, president and CEO of First Waverly Bank of Waverly, Iowa and co-chairman of the American Bankers Association's anti-credit union committee. Their long-run objective, he said, "is to force credit unions that have aggressively expanded their territory, their memberships and their products and services to convert to a mutual bank." There you have the unvarnished truth: the banking industry wants forced conversions and the complete absence of choice. The elements of CUNA's conversion principles in favor of full disclosure, members' rights, and against unjust insider enrichment have engendered the most discussion. Less so, but vitally important in our estimation, are what the principles say about enhancing the credit union charter. The principles state that the credit union charter is the best vehicle for serving the needs of consumers and call on CUNA to "support and advocate the strongest possible federal and state charter enhancements for credit unions." To those who cite bank authorities on business lending, capital and the like as reasons to abandon the credit union charter, we believe the better solution for their members is instead to attain enhanced credit union charters that give credit unions more flexibility in serving their members. Major charter enhancements in the form of new risk-based capital standards and greater flexibility in member business lending are embodied in the Credit Union Regulatory Improvements Act, H.R. 2317. It is important to note that the legislation was developed to advance the credit union charter, state and federal, and to do so in a way that preserves balance in our dual chartering system. Credit unions, whatever their charter type, size or membership, will in CURIA find "something for everyone," which is the reason we chose this title for a new CUNA brochure (available on www.cuna.org) educating credit unions about the specifics of the legislation. For example, state and federal credit unions alike will benefit from CURIA's member business lending and substantial prompt corrective action reforms as well as such regulatory improvements as allowing more of the type of exemptions banks and thrifts have for broker-dealer and investment advisor requirements, permitting leases on land of federal facilities, and exempting member business loans to nonprofit religious organizations from current MBL limits. Some of the federal credit union provisions in CURIA will also apply to state credit unions if they have "wild card" or parity provisions in their states, and if not, CURIA once passed will provide greater leverage to seek improvements in state credit union laws. By steadily improving the charter in this way, we believe the "limited authority" argument for converting to a bank becomes even harder to make; indeed, it becomes invalid. CUNA and the leagues will continue to build congressional support for CURIA as well as state-level legislation that allows credit unions to keep pace with their members' financial needs. And we will do so taking great care to keep the dual chartering system, which is never static, from tipping off balance in either direction. The race to the top is never really over. What's most important, especially in times such as these, is to keep climbing higher. Dan Mica is President and CEO of CUNA. He can be reached at (202) 638-5777.