WEST PALM BEACH, Fla. – Navy FCU President/CEO Brian McDonnell and retired Patelco CU President/CEO Ed Callahan are two well-known credit union figures who are on the opposite sides of the fence on the private insurance issue, which has raised a firestorm of debate recently. There's certainly no solidarity coming from the major trades on private insurance. Much of the debate started when NAFCU and later the Consumer Federation of America came out against private insurance, maintaining that all credit unions should carry federal insurance. CUNA, on the other hand, says credit unions should have the private insurance option. NAFCU believes private insurance isn't worth the risk that it could have on consumers and credit unions. NAFCU believes FDICIA disclosure requirements on private insurance are not being enforced, and a private insurance failure of the kind of the Rhode Island Share Deposit and Indemnity Corporation would harm the entire credit union industry, even federally-insured CUs. CUNA believes the private insurance option is key for having an unimpeded dual chartering system. CUNA says state governments have the right to permit and oversee private insurance. But what do McDonnell and Callahan base their views on? The two agreed to a rapid-fire Credit Union Times' Q&A on the issue. Both stressed they were not speaking on behalf of either NAFCU or CUNA, but as individual credit union leaders. Callahan believes there are three fundamental reasons private insurance should be a viable option. "When you're talking about comparability, you ought to say insurance is about the insured not the insurers. In the credit union system we're talking about members. How would they view it? In one fund you are insured up to $100,000 on your deposits. In the other, each account is insured up to a quarter of a million dollars. Clearly, the more insurance must be the edge," said Callahan. "Second, without a doubt the NCUA fund as it is today is an exact copy of what already existed in Ohio (ASI). I don't know why they call it private insurance, it's cooperative insurance. You can't escape the fact that both existing funds are identical. However one (NCUSIF) was caused by a crisis, the other wasn't. When you're talking comparatively, give a point to the cooperative fund, it's been around longer," said Callahan. His third point hit on uninsured federal funds. "NCUA is adamant that those who are uninsured need to know and receive full disclosure. But they only require full disclosure to those who use the cooperative fund (ASI). The disclosures are onerous and frightening. Patelco made the disclosures before they converted, and every time members make deposits they have to get disclosures again. "They (Patelco members) had $480 million uninsured, now it's approaching $600 million, but it's insured. If it was still in the federal fund it would be uninsured. "Navy Federal is huge and who we're most proud of. They have $2.3 billion that's uninsured. Do they furnish a disclosure by NCUA that those funds aren't insured? If there's a bankruptcy the federal government isn't going to bail them out," said Callahan. McDonnell said no additional disclosures are needed for federal insurance as long as credit unions are disclosing to members that up to $100,000 is insured. As for private insurance disclosures, McDonnell said one only needs to visit the Web sites of privately-insured credit unions to see they're not following disclosure rules. "We looked at some sites where credit unions claim to have primary private insurance. Six contained only the ASI logo. One contained an ASI logo and dollar amount. Three contained a logo and a statement. Two contained a statement with no ASI logo. Two had a brief description of private insurance. Just one had the full notice required by FDICIA," said McDonnell. "By looking at the Internet sites, you see they're not really fully disclosing, and they don't police it." McDonnell said he didn't want to be overly critical of Patelco, but reading Patelco's newsletter doesn't give a clear message to members that their funds are privately insured either. Both McDonnell and Callahan said this private insurance debate probably wouldn't even be an issue right now if Patelco, at $3 billion, hadn't converted. McDonnell simply doesn't think the private insurance model works, and he doesn't want to see a trend of large credit unions converting to it. "The fact that there's one private insurance company in the entire U.S. says something, and what that something is is from an economic standpoint it's not a very good model. I'm not being critical of ASI, but if this was such a wonderful business model there would be a lot of them," said McDonnell. McDonnell said he hasn't examined ASI's books or its actuarial standards, but believes no private insurer can match federal insurance. He said he is aware of ASI's assets and reserves. "We should be very careful about trying to replace federal insurance with something that could potentially cause more risk for all of us. When the Rhode Island crisis occurred we all got painted because we're credit unions. The general public doesn't make a distinction between privately-insured and federally-insured credit unions," said McDonnell. "There's a very good reason banks and thrifts can't have it anymore. I value the full faith of the United States government." Callahan believes that people throw around the term "backing of the full-faith of the federal government" too loosely. "Credit union funds, our funds, are insured by the deposits by our credit unions, not the federal government. Until all those funds are gone, then the federal government could, and I say could, step in. And by then where would the credit unions be?" Callahan said. "Credit unions should have a right to have a choice. Choice is the balancing act that keeps the subsidiary industries that we need in line. They compete with each other," said Callahan. McDonnell said he's tired of hearing the "choice" argument over and over. He compared it to a teenager having too many choices – they're going to make some bad ones. "There's a price you're going to pay for choice. Things like secondary capital, private insurance, wide open FOMs. I feel like I'm being drawn into the swamp. If you continue to take away the distinguishing characteristics about our industry, we're going to disappear," said McDonnell. "With Utah going to open FOMs and Arizona going to open FOMs now, there's going to be a price to be paid. Why is it necessary for leagues like Arizona to be pursuing open FOM and quoting the Renaissance vision statements? There's no free lunch," said McDonnell. He said Renaissance didn't even conclude what Arizona is trying to do, and it was used incorrectly. He also noted that he's speaking out on his own because he's tried to work within the system, but often it doesn't work. "There are many things I have a problem with these days with respect to the credit union movement. I'm tired of people speaking on my behalf. I've tried to work within the system, with NAFCU, CUNA, CUNA Mutual the AACUL folks," he said. Callahan believes NAFCU's position isn't about what's best for credit unions or consumers as it claims. "What is NAFCU really afraid of? Are they afraid their association will lose members because Americans want their funds insured? And if they are why aren't they insisting that the $40 billion of uninsured deposits out there are insured. They're stirring the pot unwisely. NAFCU is using fear tactics. It's unconscionable as far as I'm concerned," said Callahan. This is a debate NCUA shouldn't even be involved in, said Callahan. "They should stay out of it. Matz came out strong about our (Patelco's) members not knowing what they were voting on because of disclosures. There were disclosures. They voted to choose. If she really cares about disclosures, she should make a fight at the board table about disclosures for uninsured federal funds," said Callahan. He also said NCUA has used the NCUSIF to fuel their growing costs over the years with virtually no federal oversight. "The only part of the NCUA that has to take their budget to get approved by Congress is the CLF (Central Liquidity Facility), and that is such a tiny speck of NCUA," said Callahan. McDonnell believes he's not alone in his view on private insurance. "There's a silent majority. I think there's a number of people who feel like me, but they're not as vocal perhaps as they should be," said McDonnell. McDonnell said he has no problem with supplemental insurance. As for private insurance, he'd like what happened to banks and S&Ls to happen to credit unions – they aren't permitted to offer it. [email protected]