The recent U.S. House Committee on Ways and Means hearingscoincided nicely with my efforts to get the industry refocused onserving the members instead of acting like for-profit banks. Had Ibeen asked to testify before the committee, I would have said allcredit union volunteers and paid management must examine how theircredit union uses the tax-exemption. And, I may have offered theseexamples of how credit unions betray the trust and confidencemembers grant, perhaps naively, management: * A credit union in theNortheast has 29% capital. Based on NCUA code 1 level capital of10% as a more-than-sufficient capital level, this CU hasunnecessarily withheld about $130 million from its membership –approximately $8,667 per member. Is the credit union so muchsmarter than its membership that it knows how to spend the moneybetter than the members that paid in the $130 million? Paying anaverage of $139,000 in annual salary/benefits is one way the CUspends its members' money. * There are some credit union CEOsmaking approximately $1 million a year. Simply because a creditunion has the resources to pay a CEO $1 million, does not mean itshould. Credit union CEOs are not solving world peace, curingcancer or educating our next generation. Any CU CEO thinking he/sheis worth $1million/year should move on to the for-profit,tax-paying free market. Don't expect U.S. taxpayers to subsidizeyour ego. * A credit union CEO in California convinced hisvolunteer credit union board of directors that massive fee incomeis needed to lead the $700 million credit union to greatness. Thecredit union will generate over $16 million in fee income in 2005.This works out to more than $100 per month per member. Can membersof modest means really afford $100/month? Is it any surprise thatsalary/benefit packages at this credit union are 50% above its peergroup? * Credit Union Times recently ran a Top-50 “Fee Income perMember” list of credit unions. Each CEO of these not-for-profit CUsshould put on his/her 2006 To Do list an action item to get offthis list. Apparently wanting to move higher up the list, one ofthese fee-focused CEOs convinced the board that itsindustry-average NSF fee was not sufficient and raised the fee evenhigher. Instead of increasing fees, the CEO should address thecredit union's expenses, which are double its peer group average.I've been accused of taking a few isolated instances and trying tocreate a much-bleaker image of the current credit union industry. Iwish that was the case, but the fact is there are hundreds, maybethousands, of credit unions blatantly overcharging their ownmembers, wasting the tax-exemption on ever-increasing expenses, andoperating as for-profit, “customer”-focused financial institutions.Record high expenses have put the credit union industry in such aprecarious position it actually needs its collective membership tokeep writing NSFs and courtesy pay items. Without the unregulatedmember-paid fee income thousands of credit unions' Return onAverage Assets (ROA) would be an NCUA code 3, 4, or 5. The hearingsof the House Ways and Means Committee focused on credit unionsserving people of modest means. While that is a justified goal,equally important to who you serve is how you serve. Payday lendersserve people of modest means, but I doubt too many credit unionfolks think that's necessarily a good thing. Yet, I've already hada number of credit union CEOs defend $25 NSF/courtesy pay fees withthe argument that their courtesy pay program is cheaper than paydaylenders. If payday lenders are the credit union industry's newperformance benchmark, what an embarrassing reality check asCongress evaluates the need to continue our tax-exemption.Committee Chair Bill Thomas also indicated more transparency may beneeded in the CU industry. With due respect, more onerousdisclosures have not stopped credit unions from converting tobanks, and more transparency will not lead to any significantchanges in the industry. Ample 5300 call report data and creditunion Web site information already tell anyone willing to take thetime that credit unions claim success if they merely beatfor-profit, tax-paying banks by a few cents or basis points.Members are complacent because their credit union is better than abank in relative terms. Congress needs to reach beyond transparencyand require accountability, which can be implemented with someminor legislative amendments to CURIA. A few suggestions: 1) capNSF/courtesy pay fees at three times the federal minimum wage, 2)cap the amount of capital a credit union withholds from itsmembership, 3) no CEO benefiting from a congressionally issuedtax-exemption needs to earn a salary greater than the President ofthe United States, and 4) require a minimum attendance of 1% of themembership at a credit union's annual meeting. Credit unions trulyoperating as not-for-profit cooperatives and respecting thetax-exemption will not be materially impacted by these simple,straightforward “accountability” requirements. CUNA, NAFCU, andother trade associations do an excellent job of serving the creditunions' best interest, but no unified group protects the memberthat pays $25 for an NSF, prevents a credit union from withholding$130 million from its membership, or keeps a CEO from gouging itsown credit union with an over-the-top salary. Lacking theindustry's willingness to self-police, Congress must be the memberadvocate group that holds credit unions accountable and forces usto operate in a manner worthy of tax-exemption. Lastly, I expectthe American Bankers Association to prove the validity of myefforts. How is that, you ask? The ABA will not support any of mysuggestions because it knows the suggestions will strengthen thecredit union industry in the long run, and that is not in the bestinterest of the ABA. Dale Kerslake President/CEO Cascade FCU Kent,Wash.

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