David Morrison's article, "Should the Earnings of Credit Unions That Convert to Banks be Taxed", (CU Times May 24, 2006) was a great survey of the issue. As a long-time CU board member and volunteer (Navy Federal) and as a retired CEO of a charity (501 (c) 3), I have found the difference between the two not-for-profit models a wonderful education.
I have taken a lot from each. I am fascinated that there are no rules about what to do with the remaining capital or retained earnings when a credit union goes out of business. There is nothing in my credit union's bylaws. I checked. With a charity, it is clear. Remaining assets go on to another charitable purpose. The IRS says so. In the credit union case, I guess you could tax what's left. I guess you could also figure out a way to give the capital back to the people that created it. I like that better than taxation. I also don't like the idea that my money might go to enrich a bunch of self-serving board members and executives. I agree with Jim Blaine who calls it stealing.
When I joined the Navy, officers were told to get their automobile insurance from USAA (members own it), your life insurance from Navy Mutual Aid Association (members own it), and put your savings and borrow your money from Navy Federal Credit Union (members own it). I did. As members we all have somewhere on their books an equity interest in these organizations. In the case of USAA, they give us back a piece of our capital contribution with something called the "Subscribers Savings Account," which passes to our estate when we die, or to our spouse if she continues membership. In the case of NMAA, we get a piece of the capital when we die with something called the "Member Equity Account," which also passes when I pass. Clever stuff, this return to us of ancient equity. Why can't the credit union movement be as clever? Why can't it be in our bylaws? Why can't NCUA, like the IRS with my charity, give some guidance here? Give us back our money. Be clever about it.
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I have another idea about how to knock off this credit union-to-bank conversion self-serving tendency of some CU executives. How about another bylaw provision, but one that says if you go out of business as a credit union (i.e. convert to a bank or to something else … maybe an auto dealership), that no current or past executive or board member can benefit from the change? No stock, no bonus, no personal enrichment, no sudden undeserved wealth based on the savings practice of others. Put it in your bylaws. NCUA loves its new standard bylaws.so add this idea in it. Now, that would really make for some honest behavior. Dan McKinnon Volunteer Official Navy Federal Credit Union Vienna, Virginia
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