Editor's Introduction This letter to the editor by Truliant FCUCEO Marc Schaefer is in response to piece in the July 13 issue ofCredit Union Times in which former BUCS FCU CEO and now BUCSFederal Bank CEO Herb Moltzan gave his first hand account of whathe felt the BUCS conversion meant to members and how it affectedhim financially. Schaefer may be best to respond to Moltzan asMoltzan maintains when BUCS converted it was due to fear of beingable to grow membership, while Schaefer's then AT&T FCU becamethe battleground for the banker attacks on CUs' ability to add newgroups. This led to the Supreme Court case and ultimately H.R.1151, the Credit Union Membership Access Act. Herb Moltzan's twoentire pages of ramblings on the virtues of for-profit stock banksin the July 13th issue of Credit Union Times are what they appearto be. Self-serving rationalizations of a born banker who fails tounderstand or appreciate the benefits and values of member-ownedfinancial cooperatives. Notwithstanding his time as a credit unionregulator and manager, Moltzan sold out to banking interests in themiddle of the field of membership battle that we waged with thebanking industry in the mid and late 1990's. Ostensibly, BUCSFederal Credit Union could not survive by just serving Blue CrossBlue Shield employees in Maryland and they were eying the AmericanExpress office across the street to expand their membership. TheAmerican Bankers' Association's forced injunction, as a result oftheir lawsuit against NCUA and AT&T Family FCU (now Truliant),had temporarily halted the ability for credit unions to add newgroups. So he decided it was better to switch than fight. Howadmirable and insightful! (according to Moltzan). The rest of usstayed with the fight and won overwhelming passage of the CreditUnion Membership Access Act of 1998, which would have solved Herb'soriginal problem. (Just as those who are ostensibly converting tobanks due to capital, i.e. PCA, and Member Business Lendingrestrictions could choose to work toward passage of CURIA instead).Now Herb has become a cheerleader for others to sacrifice theirmembers' best interests to join the for-profit banking sector. Oh,and no one that hasn't converted to a bank has any authority tospeak to the issue. I guess we all need to walk in front of a busto know for sure it's not a good idea? Moltzan's assertion that hisbank customers are better off than if they had remained creditunion members is sadly mistaken even though he delivers his messagewith great gusto. He seeks to dismiss the over $6 billion dollars($336 million in North Carolina alone-The Benefits of Credit Unionsto North Carolina Consumers of Financial Services 2005) inadditional benefits that credit unions deliver annually to theirmembers in the form of lower loan rates, higher savings rates andlower fees as fantasy. In fact, using conservative estimates,credit unions save Moltzan's and other banks' customers a couple ofextra billion a year by retarding their ability to further chargeand fee them. Herb's assertions that he has not changed his pricingin any way is difficult to prove or disprove; there are too manyvariables to quantify the change including interest rates, marketgrowth; etc. But what is certain is that BUCS FCU in 1998 had $5million in capital that their members had built up over the life ofthe credit union. That ownership interest would be "cashed in" bythem and their families and their heirs by using BUCS FCU'sservices without vying with stockholders for distribution ofbenefits. Moltzan would have you believe that nothing issacrificed. Members' equity can be diluted by bringing in newshareholders who I guess don't ask for anything in return. They candistribute a goodly portion of the capital raised to insiders andcover the additional costs of conversion and running a bank all forfree. What a wonderful fantasy world! Amazingly, Moltzan's commentsparrot Mr. Umholtz's of the Coalition for Credit Union CharterOptions letter in the same issue of Credit Union Times regardinginsider's profiting relative to the members. They both use almostidentical language to state that at mutual savings institutions,Board of Directors establish salary and benefits. Neither bother tomention that 8% of the stock offering can be allocated to theEmployee Stock Option Plan and another 4% to the Restricted StockPlan. The CEO can and often does receive 25% of what goes into eachof those buckets; that's before they even exercise theirpreferential right to buy additional stock. Because BUCS wasrelatively small ($78 million) and they only sold $5 million orless in stock those numbers may seem modest; apply them to a $1billion credit union with $100 million or more in equity issuing$150 million in stock and most would view that as excessivecompensation. I would argue that Moltzan's assertion that thisrepresents his well-earned performance award rather than adistribution of the ownership interests of the credit union isflawed logic. My guess is that his members would rather have beenpaid their $840 (or whatever their pro rata share of equity mighthave been) than have insiders and outside stockholders distributethe value of their ownership. He's right in that the credit unionboard could have and probably would have allocated resources to hisretirement; without diluting their members' stake in the creditunion. Another slight of hand that both Motlzen and Umholz try topull off in their respective articles is that the stock institutionmust establish a liquidity reserve equal to the original capital atthe time of conversion. So what? That capital is still diluted bythe ownership interest of the new stockholders. If a convertingcredit union can bring in 175% of the original capital, insidersget a hunk of the new capital, stockholders have to be paid andliquidation is unlikely, the existing members have been jilted outof at least some of the value of their ownership. Moltzan alsoassumes that every member has the money to invest in his preciousstock and Umholtz proclaims that "profit" is the American way. It'sdifficult to imagine two contributors to Credit Union Times (otherthan the bank trades) that are less cognizant of credit unionculture and values. Rather than continue to refute the self-servingviews of those that are rationalizing abandoning the credit unionmodel, I would recommend the following to those in the credit unionmovement (yes, Herb- movement) that understand, appreciate and seekto advance their members' longterm ownership interests: * Recognizethe value of your credit union; note that outside investors arewilling to pay multiples of your members' equity to own and controlyour credit union * Educate your members (including those thatjoined through indirect lending or affinity groups) on the truevalue of ownership; the benefits they receive in the form of lowerloan rates, higher savings rates, lower fees and truemember-centric service; encourage them to vote in your elections,run for the Board and serve on Committees * Become or staypolitically active at the state and national level; 88 millionAmericans benefit from credit unions and are depending on you. *Remember that the rule change that allowed only a majority of thosevoting rather than a full majority of all of the membership toconvert a credit union to a bank only occurred in 1998 as a part ofthe negotiations for passage of the Credit Union Membership AccessAct. It is possible that this was a concession to the bankingindustry and may be more permissive than other institutions (e.g.mutual savings to national bank) that may require a majority of theowners to agree. * Tell our credit union trade associations whatyou want. Those that ask them to sit idly by while watershedchanges occur in the movement are wasting our best resource. *Don't confuse those that advocate for conversion or wish to make iteven easier to beguile your membership into voting for conversionwith friends. This is a deadly serious business with hundreds ofbillions of members' dollars (and the quality of their financiallives) at stake. While we are all advocates of open discussion ofconversions (to wit, Credit Union Times July 13th issue was full ofpro conversion pieces) and understand that credit union members,Boards of Directors and perhaps management have the ultimate say inthe outcome for their credit unions, this is not the time toprevaricate. Make up your mind and stand up for your beliefs. Thetime is at hand and the time for action is upon us. Marcus B.Schaefer President and CEO Truliant FCU Winston Salem, N.C.