The good news to the industry is that there are apparently no Wisconsin credit unions ready now to convert to a bank following the startling enactment last week of a wide-open enabling law which could go into effect within days or a few short weeks.
The bad news is that Wisconsin CUs were dealt a come-from-behind body blow inflicted by the banking lobby which managed to bar Gov. Scott Walker from vetoing a line-item clause in a budget bill containing the controversial language.
“Our government relations committee will be meeting July 20 to discuss our next step,” said a spokeswoman for the Wisconsin Credit Union League, which fought unsuccessfully to remove the conversion proposal from the budget bill.
The new law, which the league called “radical”, permits direct conversion of a CU to a bank by bypassing the mutual structure and drastically streamlining the process on member voting and sharply reducing disclosure and communication rules.
The league charged the law permits insider transactions and self dealing by CU boards and includes a “symbolic conversion vote with no requirement that members be adequately informed so they know the impact of the charter changes.”
The law “permits insiders to profit personally starting the day after the conversion” and the law does not “require that directors disclose clearly, conspicuously and before a member vote any economic benefit directors and senior management” would receive from a conversion, the league said.
The law is so “radical” that “only one other state allows direct conversion to a stock bank while “49 states do not allow it because it is nearly impossible for credit union executives and directors to faithfully execute their fiduciary duty,” the league said.
In expressing “disappointment” in the Republican governor for not using his line-item power, the league charged that it was wrong for “complex financial institution chartering policy” to suddenly wind up in a bill related to state finances.
The Wisconsin Bankers Association, which for two years has attempted to pass a conversion law, hailed the passage contending the conversion provision simply gives CUs a structure choice and that it represented a healthy step for Wisconsin financial institutions.
Rose Oswald-Poels, the new president/CEO of the WBA, citing “interest over the years by several credit unions seeking to convert” noted that a proposed conversion bill had won bipartisan adoption a year ago until it was vetoed by Democratic Gov. James Doyle.
Brett Thompson, the president/CEO of the league, complained that Wisconsin CUs had “hoped Governor Walker would have heeded the recommendation of nearly 1,000 credit union advocates, dozens of cooperative businesses and the credit unions’ trade association, all of whom requested a veto.”
He added: “Governor Walker signed policy into law that can easily been abused by a small group of individuals at the expense of the majority of credit union member-owners” said the league. It’s discouraging the legislature and governor didn’t provide an opportunity for the consumers who own their credit unions to share their perspectives on the matters directly related to them.
“With this new law, the legislature has made it easier for a few individuals to latch onto the equity of credit union members and turn it into even bigger profits for a few bank shareholders.”
Thompson's statement also said: “Any policy to allow for the conversion of a state-chartered, not for profit, member-owned credit union to a shareholder-owned, stock bank should include a transparent, neutral and prescriptive member notification process and a meaningful voting threshold. These are necessary to ensure the membership truly understands the consequences of the conversion vote and all have made an informed judgment about the future of the institution they currently own.
“Unfortunately, the policy the governor left in the budget bill fails on all counts."