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The escalating effort by banking industry strategists to attack the long-standing credit union tax-exemption state-by-state (five to date) after repeated failures at the federal level, is a classic divide and conquer approach. So is disguising their motives. In each state where the state banking association has already played its hand, only the largest credit unions have been targeted. The bankers don’t care about credit union small fry and are well aware that these same small CUs often don’t care much what happens to the big fish in the CU pond. The bankers’ strategy is two-part: first, at least initially, only go after the “bank-like” (a.k.a. large) credit unions; secondly, attempt to convince state lawmakers that taxing large credit unions could help solve state budget deficits but in no way harm the majority of credit unions. Ironically, credit unions appear to have come up with a divide and conquer strategy of their own, involving motives that are also suspect. The CU version has nothing to do with tax-exemptions, but everything to do with the unique private insurance option available to some state-chartered credit unions. The credit union private insurance option has been around for a long time, but it didn’t garner many headlines until giant Patelco Credit Union ($2.9 billion in assets) in San Francisco recently decided to abandon the National Credit Union Share Insurance Fund (NCUSIF). That member-approved move made some credit union folks nervous. Not those at Patelco but some sideline observers. It made NAFCU more than nervous. The board of directors of the national trade group representing federal credit unions decided to do something about private insurance before any other large CUs decided to follow Patelco’s lead. NAFCU’s board took an unprecedented action by publicly declaring that private insurance is not worth the risk and that all credit unions, without exception, should be required to carry NCUSIF insurance for primary insurance coverage. Private insurance, they felt, should be limited to excess (over$100,000) coverage. To add weight to its argument, NAFCU even dredged up the old RISDIC (Rhode Island Share Deposit Insurance Corporation) fiasco as if credit union opponents needed to be reminded of that bank-caused black mark on 35 credit unions in that state. Although NAFCU members weren’t part of the board’s decision making process, at least one NAFCU member, Navy Federal, its largest and most influential member by far, was seen as a major push behind the board’s decision to take a bold stand. As a matter of fact, Navy Federal also brought pressure to bear on the Consumer Federation of America (CFA) to issue a statement echoing NAFCU’s stance. NCUA also weighed in when its three-person board sent a letter to the state regulator in Colorado where making the private insurance option available was under consideration. The letter essentially said “don’t do it if you know what’s good for Colorado credit unions.” These recent development have the potential of causing serious divisions among credit unions espousing different viewpoints on the value of the private share insurance option. It also raises a number of questions. Like these: Without debating the merits of federal versus private insurance, could the timing of NAFCU’s action more than hinting that private insurance is a consumer disaster waiting to happen be any worse? Doesn’t NAFCU’s expressed concern linking private insurance to the perceived safety and soundness of credit unions in a negative way have precisely the opposite effect of what they are seeking to accomplish? Is NAFCU’s board overlooking the importance of the dual chartering system? Have its members forgotten that the successful theme of the H.R. 1151 fight centered around “choice?” Were they not aware that CUNA would have no alternative but to support private insurance as a dual chartering and choice issue, thus driving a wedge between the two national CU trade groups at the worst possible time? Wouldn’t it have made more sense for NAFCU to stress the positive such as how good (in their opinion) federal insurance is? Doesn’t their action re-open some of the unspoken reasons why eligible state-charters like Patelco have converted such as the escalating overhead transfer rate and NCUA’s budget, and staffing levels? In virtually all other matters, NAFCU makes it clear that the purpose of the organization is to represent the interests of federally-chartered credit unions. Yet, in the matter of private insurance, something that NAFCU’s primary members are not even eligible for, it purports to speak on behalf of all credit unions. Is NAFCU still overly influenced by NCUA and by its largest members who have shown a historical propensity to say, “play the game my way or I’ll take my ball and go home?” Ask CUNA how this works. Ask Pentagon FCU. Ask Navy FCU. Let’s face it, no one involved with credit unions wants to see another RISDIC. Nor does any credit union supporter want to ever have credit unions perceived as anything less than 100% safe and sound. Nor does the credit union world need one of its national trade groups crying fire. Unity is what is needed now, not a credit union version of divide and conquer. The NAFCU Board has done a big disservice to dual chartering, the credit union industry’s ability to make an informed choice, to the image of credit unions, to the private insurance option, and of course to private insurance provider ASI, the primary provider of private credit union share insurance coverage. They have also forgotten that it is credit union boards that are elected to decide what is best for their credit union, and it is that same board that is charged with the responsibility for getting member approval with full disclosure where it is required, such as converting to private insurance. Divide and conquer tactics are best left to the banking industry. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman

Credit Union Times

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