The much anticipated hearing on Congressman Patrick McHenry's Credit Union Charter Choice Act, which would lessen NCUA's role in credit union-to-bank conversions, produced some interesting tidbits.
The No.1, superb, fantastic, terrific, awesome, stupendous thing that came out of it in my mind was Congressman Paul Kanjorski raising the issue of taxing the money made in a stock offering of a former credit union. Amen! Finally! It makes sense! All the members' money was built up over many years into the tax-free equity of a credit union. Once that credit union goes into the world of being a stock-issuing bank, the government should get its fair share. Thanks to Mr. Kanjorski for giving legitimacy to an issue many of us have had on our minds for a long time. It's bad enough the insiders of a credit union that convert to a bank get a free ride to unjust enrichment, let's not give them the added benefit of making it a tax-free transaction.
I spoke to many insiders after the hearing who believe credit unions have made progress with McHenry. I'd have to agree on some level. He does seem kinder and gentler, but he is still missing some basic CU points. In the very beginning of the hearing he called the ownership issue-that being the ownership rights members lose in a conversion to a bank-a "red herring." The ownership rights of the members of a mutual and a credit union member are very different. In a mutual it is based on how much money customers have on deposit. Some say that is fair because it gives those with the most at stake financially the biggest voice in the institution. Why don't we do that when voting for our government representatives? Let's make the vote of a millionaire count 10 times more than that of a struggling single mother. Why don't we? Because it's ridiculous. He's missing the great democratic virtue of a credit union, equality. Shame on you McHenry for downplaying the ownership privileges of being a member.
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He also scolded NCUA for the part of its disclosure that informs members that there is a potential for a credit union that converts to a mutual bank to one day also go on to become a stock-issuing bank. He said that's almost like leading the witness and causing hysteria where there is none. That would be a valid point if most CUs that converted didn't take the next step to stock ownership, but that's not the case and he should know that. Why not give the member that information so they can make an informed choice? If he doesn't like the language, there's a simple solution. In the disclosure, state the number of CUs that have converted to banks, and then state how many have gone to stock. Let the facts do all the talking. It would also be nice to see an average of how much money insiders made on the initial public offerings, but that's a pipe dream.
On to DFCU Financial where things continue to deteriorate. For anyone who hasn't done so, go to the CU's Web site (www.dfcufinancial.com) and read the litany of letters from management about the conversion. They go on and on and on and on about the same old thing-that leadership is now committed to being a credit union and wants to continue the great products and services it's been offering for years. Then why did they want to convert? We've been down that road too many times already.
The latest problem is the credit union has declared from up above in its ivory tower that it will not honor the members' request for a special meeting. It is doing this even though the required number of signatures were collected to force a special meeting. This is an outrage, an almost comical one because it's so hard to believe.
One of members' fundamental rights is to have a direction in the CU by electing the board members that set the policy. Members, unhappy with the conversion attempt, want a chance to kick these directors out. It's probably one of the preeminent examples of member rights. Members have the right to do this, but the CU has said it's invalid because they are trying to recall the entire board. Not true. The members want to vote on each and every board member, not all at once. There is no sweeping proposal to recall the entire board, it is each of the nine board members being voted on independently.
What makes this scenario that much worse is NCUA has informed the CU that it believes the special meeting is just and should be called; however, that's as far as NCUA is going. NCUA will not step in and force the special meeting. It says that the debate is between the credit union and its members, and does not involve NCUA. Ladies and gentlemen, meet your new regulator – the United States judicial system. The members group is now forced to sue the credit union to get the special meeting that it is entitled to under the CU's bylaws.
I realize NCUA is in a tough political climate and would rather this whole situation just go away, but this is an apple pie issue. We're talking about members' rights being trampled on. NCUA claims that since there is no safety and soundness issue, it will not step in. I think it is a case of NCUA letting the political climate drive its regulation. I can sympathize with that. NCUA has been beaten up by various members of Congress and a host of court cases, and it may finally see some light after the McHenry hearing.
But it would be nice to see the regulator take a firmer stand on such a fundamental issue. Couldn't NCUA tell the board that it is shirking its fiduciary responsibility by not abiding by its own bylaws and inform them that they can be subject to an administrative order for violating the Federal Credit Union Act?
It's the ultimate irony. NCUA and the trade associations and all other CU supporters are arguing that the rights of a mutual bank customer are not the same as members' rights, yet we're watching a case where members are being denied their basic right to a special meeting.
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