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The stepped up pace of credit union charter conversions from federal to state, state to federal, and both state and federal to bank charters, has caused several unexpected consequences. At one point there seemed to be a flood of conversions away from the federal charter to what was considered to be a much more favorable state charter. This was particularly true for credit unions seeking expanded fields of membership in states with more liberal FOM policies. The consequences of going from FCU to state charter included a loss of revenue for NCUA because it has fewer credit unions to regulate. And as FCU totals declined, questions regarding NCUA staffing levels arose more frequently. Eventually, as more and more FCU friendly initiatives were approved and implemented by NCUA, the trend began to reverse. Some of the same questions asked of NCUA were now being asked in those states that began seeing their state-charters switching over to the fed charter, some for the first time and others returning to the FCU fold. Another consequence of state conversions to federal development was that states, especially Utah, were seeing revenues they once were able to take for granted no longer flowing into state coffers. There are several other consequences. The switching credit unions themselves had substantial expenses as many opted to change their names completely at the time of their charter switch. Name changes of course are costly. Besides the obvious re-doing of all signage, forms, etc. marketing budgets had to be beefed up to keep members and potential members in the loop. Even those credit unions that opted to turn Federal Credit Union into Financial Credit Union encountered significant expenditures. Another consequence of charter conversions: the National Association of Federal Credit Unions (NAFCU) felt the impact of the initial rush by FCUs to state charters. As the name makes clear, NAFCU was founded to serve exclusively the needs of the 60% of credit unions that were FCUs. At its peak total NAFCU membership never exceeded 1,200. Watching several of its dues paying members, some of them quite large, go the state charter route had a direct impact on the organization. If NAFCU was for federal charters, would they have to declare a FCU member that switched to be ineligible to continue its membership? The easy answer is yes. What actually happened after NAFCU officials weighed all the pros and cons including what could be a decline in membership and a possibly significant loss in annual dues revenue was that they decided that those switching could continue as members if they chose to do so. A similar but different scenario is now playing out as some credit unions have not decided to play charter musical chairs between federal and state, but to instead convert to a bank charter. Just as NAFCU had to address its membership qualifications, and even though less than 30 credit unions have become banks, a long list of credit union only groups are now facing a similar question. Should banks be allowed to continue being a part of their organization? Any banks? Or just those banks that were once credit unions? The Aerospace CU Group is a loosely knit, informal organization that is run by volunteers from member credit unions. It consists of about 30 large credit unions. CUs can’t join it. It is a by-invitation-only group of CUs that once had a direct if not exclusive connection to the aerospace industry. The CEO of a former credit union wanted to continue to be a member and to participate in the group’s primary activity, its annual conference. Much to the chagrin of the bank CEO, the group said no. It wasn’t debatable. Aerospace would simply invite another credit union to take his place. It is proving to be not quite so simple for other credit union organizations where such a decision could have a direct impact on their bottom line. For example, shortly after the first couple of credit unions converted to bank charters, the question of CU league membership came up. At least one league president said he saw no problem in letting former credit unions continue to be members and pay dues, attend league conferences, and purchase all league products and services. What a colossal mistake. What about other organizations which historically have only been open exclusively to credit unions? Will CUNA, NAFCU, NASCUS, CUES, CUNA’s Councils and Leagues, NACUSO, ITCUA, and DCUC, to name a few, become CU/Bank groups? From a philosophical as well as a group purpose viewpoint, I would certainly hope not. In fact, in light of the intensified attacks by the banking industry, allowing the fox in the hen house would be ludicrous. To say nothing of the argument that a credit union is different than a bank from structure to purpose. Can anyone envision a credit union being granted membership in the American Bankers Association? What about credit union suppliers who are either owned by, or serve only credit unions, or both? Like the CUNA Mutual Group, COOP Network, PSCU Financial Services, and the Financial Service Centers Cooperative? This could be a tricky issue for them, too. Although their decisions will be made from an entirely different perspective than the CU trade groups, the fact that they even have to consider it is definitely another consequence of the charter switching environment. To me, welcoming former credit unions into the CU fold based solely on financial and membership considerations would be a huge mistake with long term consequences. But maybe it’s just me? 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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