BOSTON — Aite Group LLC, a well-known and well-regarded financial consultancy, has reported that 33% of credit unions it surveyed for a recent report on the credit union industry said they planned to convert to a mutual bank charter.

In researching The Evolution of the Credit Union Market: A Survey Of Credit Unions, Aite interviewed a total of 201 credit unions, 101 of whom participated in a survey of retail banking products and technology initiatives and the remaining 100 participated in a survey of business banking products and initiatives.

All the credit unions included in both surveys were of more than $100 million in asset size, Aite said. The group chose only CUs of $100 million because CUs above $100 million represent the top 1,200 CUs in the US and often use the most technology, according to the report.

Of the 101 CUs that responded to the retail banking survey, 5% had assets greater than $1 billion, 10% had assets between $1 billion and $500 million, 19% had assets between $250 million and $500 million and 62% had assets of between $250 million and $100 million.

The group only asked one question related to conversions, inquiring of the survey participants if they worked at CUs that planned to convert to mutual banks. Fully 33% of the survey respondents said that they did, a number significantly higher than any previously published estimate of the actual interest in charter change among CUs.

Christine Barry, research director for the Aite, conducted the surveys and a spokesman for Aite said the question was specifically about whether the CUs were planning a charter change. But Patrick Kilhaney, spokesman for Aite, said the study results were gathered through interviews and that there may have been dialogue about the question. Barry was not available for an interview about the survey as of press time.

Notably, credit union advocates on either side of the charter change issue did not express surprise at the number, though they interpreted it rather differently.

Alan Theriault, CEO of CU Financial Services, a financial consultancy firm that helps credit unions considering changing their charter, along with other financial services, said he was not surprised at the number and used it to highlight what he characterized as NCUA's opposition to CU's leaving the credit union charter.

“Clearly this percentage of CUs leaving the credit union charter would have a direct impact on NCUA's budget,” Theriault said. “And it would illustrate why NCUA is so determined to keep credit unions handcuffed in the credit union charter.”

Theriault argued that the survey results showed how credit unions faced with a changing market and increased competition persisted in trying to better serve their members, even when that might mean leaving the credit union charter and he said NCUA was not following the intent of Congress by making it harder to do.

“By all rights we should have had 100 CUs converted by this time,” Theriault added, “but the agency's regulations have made it very, very expensive for a CU to do.”

Jim Blaine, CEO of the $15 billion State Employees Credit Union, headquartered in North Carolina and co-founder of the National Center for Member Trust, agreed with Theriault in that he was not surprised at the percentage of CUs that reported planning to convert. But unlike Theriault, he said the number should represent a wake up call to CU industry leaders.

“This is a clear call to credit union leaders to get their heads out of the sand on this issue,” Blaine said. “It has taken a well-respected, nationally known financial research firm to come out with something that we should have confronted already,” he added. “And it's always embarrassing when someone else comes up with something that we should have known already.”

Blaine discounted the notion that converting a credit union to a bank charter, particularly where the bank took the second step to issue stock, was ever in the best interest of the members and argued that there should be a federal law preventing the practice.

Blain argued that if a credit union's leaders are so convinced that their members would be better served in another form of financial institution, which may be accurate for some, it would be better for the CU to liquidate itself and distribute the equity among the CU's members according to some schedule than for the CU to convert.

“At least that way, the members still get to keep their money,” Blaine said. “One of the things about having open fields of membership is that there may well be ten, twenty, or more credit unions, not to mention banks or thrifts, where a CU member could be served. It would be better to let them migrate to another financial institution with the equity from their credit union than to let someone else steal their money.”

For its part, NCUA declined to comment on the reports results, saying that it would be inappropriate for an agency to comment on a private entity's data. NCUA Director of Public and Congressional Affairs John McKechnie did say however that NCUA's only motivation in its regulation of the CU-to-bank conversion process was to obey the law.

NAFCU CEO Fred Becker pointed to the relatively low number of conversions and seemed to question how many CUs in the survey might have been actively engaged in the conversion process.

“While many credit unions may for planning, contingency, or other reasons, contemplate the possibilities of conversion to a mutual savings institution at some future date, the low number of actual conversions tends to support our view that credit union members strongly value the credit union charter over that of a bank,” said Becker.

He added, “NAFCU is not opposed to conversions per se. If a majority of credit union members believes that a mutual savings institution would be more suitable model to do business, NAFCU would not object–provided there is transparency and full disclosure in the process.”

–dmorrison@cutimes.com

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New Report Finds 33% of CUs Surveyed Plan Change To Bank Charters

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