No Flood of Converts after Patelco Conversion to Private Insurance

DUBLIN, Ohio-Though there was a great deal of chatter surrounding the conversion of the now $3.1 billion Patelco Credit Union’s to private primary deposit insurance last year and whispers about whether it would bring some other large credit unions with it, it hasn’t happened yet. “I’m not so sure it’s any more popular than it’s ever been,” American Share Insurance CEO Dennis Adams commented. He said ASI adds three to four credit unions a year. He also said he knows exactly why there was no rush to convert to private insurance. “The reason is very simple. It’s a very individual credit union decision,” Adams said, which is good because a large influx of insured deposits would strain the fund’s equity ratio. He added that ASI actually ended 2003 with fewer credit union members than it started with, 202 down from 212, due to industry consolidation. According to Adams, a few credit unions do have applications in the process but he was not able to discuss them at this point. ASI is also in talks with a number of other credit unions, he said. Patelco Credit Union President and CEO Andy Hunter said the experience with ASI has been “generally positive. We wouldn’t be able to tell you anything negative.” Previously, Patelco held $480 million in uninsured shares, he pointed out. Since the conversion to ASI, the credit union only has $67 million in uninsured shares. The number of members with uninsured shares dropped from 5,500 to 500, he added. “We view that as a good thing,” Hunter said. Patelco members have overwhelmingly accepted ASI over the federal insurer. As far as he knows, Hunter said Patelco lost about 158 members of a total of 192,000 members specifically because of the conversion, but admits there may be more. During the conversion, Patelco voluntarily made available a list of other local federally insured credit unions for disgruntled members to join and waived early withdrawal penalties. “We did that because we’re here for our members,” Hunter stated. One drawback has been that the credit union had to give up its membership in the San Francisco Federal Home Loan Bank, but plans to work on getting H.R. 1375, the Financial Services Regulatory Relief Act, passed, which would permit privately insured credit unions to join the FHLB System. In related news this year, Congress also included in its appropriations legislation language to force the Federal Trade Commission to enforce the member disclosure provisions for privately insured credit unions in the Federal Deposit Insurance Corporation Insurance Act of 1991. “We hope to be a source of input to either write the regulations or enforce the law,” Adams said. He added that ASI is confident in its own compliance with the law. The enforcement action resulted from a General Accounting Office study, which discovered that a large portion of privately insured credit unions were not disclosing that fact to their member to the extent required in the law. “ASI must supply financial statements within seven days of publication to the state regulators.” Adams explained. That same statement has to go out to the membership within 14 days. Additionally, ASI prints a small tri-fold brochure for credit union members with the information on it. The first 100 are free to member credit unions and after that ASI splits the cost with the credit union, which is relatively inexpensive, according to Adams. Those financial disclosures should be coming out right about now. [email protected]