I was disappointed that CUNA and NAFCU have taken the position that converting credit unions should pay future corporate stabilization fund assessments. I see this as an exit tax on credit unions. I see it as contrary to the principles of charter choice and free markets. I object to any exit tax for the following reasons.
Many credit unions paid a huge price for the collapse of the corporate credit union system when they lost the capital that was invested in the corporate credit union system. SAFE lost $13 million of Wescorp Capital. No one is going to recompense SAFE for capitalizing the corporate credit union system. The capital we provided benefited the entire credit union system. In a few short years when the disastrous new NCUA corporate credit union regulation reaps its harvest of unintended natural person credit union investment losses, the credit union movement will understand how much all credit unions benefited from that capital and the corporate credit union system. The corporate system, in hindsight, will be found to have managed investments far better than individual credit unions will manage them. It is a fallacy to argue that imposing an exit fee on converting credit unions to pay for the stabilization costs brings fairness to who pays for the corporate credit union meltdown.
Congress clearly intended for credit unions to have the option to convert to a mutual savings bank charter. The CUNA and NAFCU proposal are an exit tax that has the effect of punishing those who leave by making them bear an unknown and unknowable future cost. CUNA and NAFCU are both on record as doubting the estimates that the NCUA has made on corporate credit union losses. The Congressional Budget Office has also questioned the NCUA's loss estimates. Both CUNA and NAFCU are on record as saying the estimates are too high and so far unsupported. Yet CUNA and NAFCU propose to extract exit payments based on those dubious estimates. I see this proposal as nothing short of obstructing congressional intent by imposing an exit tax.
I think the trades made a fundamental error in opposing conversions to mutual savings bank charters. Converting to a mutual savings bank is another charter choice that credit unions can make. Charter conversion gives credit unions two competing sets of business rules and the ability to choose the set of rules that best serves members. The conversions to mutual savings banks help those credit unions that do not convert. They raise the issue of competitive advantage and of a level playing field.
CUNA and NAFCU should not block the option to convert and deny credit unions and their members access to alternative capital and removing the cap on business lending by converting. CUNA and NAFCU's anticonversion position is a direct contradiction to their position on alternative capital and removing the cap on business lending. CUNA's anticonversion position is also a direct contraction of its position on dual chartering.
Obstruction is always wrong and always backfires. Any movement that has to wall in its members will fail. CUNA and NAFCU should not expect to improve credit unions by building a wall that prevents conversions. Competition always makes the competing choices work harder and improve themselves. It is a principle of capitalism. CUNA and NAFCU are trading the short-term gain of preventing conversions against the long-term best interests of their member credit unions.
Conversions happen for reasons that trade associations deny. Saying a credit union charter is better than bank charter is a blanket statement that the history of conversions challenges. Although no one should want to convert, the fact that credit unions do choose to convert raises questions about why they convert. The explanation has always been that they convert for the wrong reasons. The movement has invented myths to explain why conversions occur such as taking the member's capital and getting rich by doing so. The myth has always been that no conversion has ever benefited the member. Please don't tell Kay Hoveland and the Kaiser Permanente employees that. They know better.
I agree that most credit unions are member focused, but not all and not always. The truth is that there are credit unions that treat their members badly, that provide poor service and that waste member's capital. The credit union movement has unfairly created an anti-bank bias that labels all banks as bad and all credit unions as good. Just like the citizens of Lake Woebegone, all credit unions are above average and all banks are not.
Credit unions should welcome and preserve the option to convert. It gives every credit union the option to say, I can do better. It makes regulators accountable for how they treat credit unions. Charter choice gives credit unions another option of getting a level playing field. And a level playing field is what all the trade associations have long championed.
Henry Wirz is president/CEO of SAFE Credit Union, North Highlands, Calif.
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