ARLINGTON, Va. – As the number of credit unions changing their charters to mutual banks has slowly risen, the credit union industry overall has had to consider whether and how those former credit unions should continue their relationships with credit union shared branching and ATM networks. And, as suggested by the most recent Credit Union Times Online Poll (latest poll numbers shown here), opinions on that question differ widely. The poll has already drawn the most number of votes ever for an online poll and shows CUs are almost split down the middle on this controversial issue. On the one side are those who believe the gulf between banks and credit unions must remain deep and wide, at least as long as the nationwide bank campaigns against credit unions continue. They contend that banks, even mutual banks that used to be credit unions and, it could be argued, have retained a mutual philosophy, have no business participating in or owning parts of credit union ATM and shared branching networks. They point out these networks are ones which credit unions have developed out of their cooperative natures to try to compete with banks over many years. Letting banks in now would betray credit union philosophy and history and give a competitive leg up to institutions which are committed to destroying credit unions. On the other side are those who argue that the issue is strengthening credit unions' service to members and in giving credit union members greater access to more places they can either conduct their business with a teller as in shared branching or get surcharge-free access to an ATM. In this model, co-operating to better compete with the much larger regional or national banks is the name of the game. This basic tension has bubbled quietly in the background for some time, but gained more prominence with the experience of the $1.4 billion Community Credit Union, headquartered in Plano, Texas. The credit union had been a recent participant in the Texas Credit Union League's shared branching network but announced that it had agreed with the League to sever the relationship as of April 1 after some credit unions, including shared branching board members, had threatened to pull out if it were allowed to remain. While the credit union's departure appeared to resolve that immediate flash point, the issue appears to have continued taking on a rising profile across the industry. Credit Union 24, the credit union-owned ATM network based in Florida, hasn't even had a bylaw that addresses the issue, according to Jim Park, network CEO. The network has one former credit union which became a bank, headquartered in Virginia, which participates and own shares in the network, Park reported. But one of the network's shareholding credit unions has asked the board to address the issue, he added, so he expected the network's board would take the matter up before the end of the year and that the network's shareholders will have to vote whether or not to ratify any bylaw change. Park declined to predict how the bylaw might be structured or what the policy might be. He pointed out under the current bylaws the credit union board has the right to consider every application to participate in the network or to buy a share in it, whether by a bank or credit union, on a case-by-case basis and that the board might want to retain that degree of control. He also pointed out that there is a long history of credit unions and banks cooperating in ATM networks including governing the financial institution owned PULSE EFT Association until it merged with the Discover network late in 2004. Cooperation in Delivering Access is Key, One Exec Says Bob Rose, CEO of the CO-OP Network, the nation's largest ATM network owned by financial institutions echoed Park's observations about the history banks and credit unions have had cooperating in ATM networking. "When we started CO-OP Network and surcharging came in to ATMs, we drew a lot of attention from some community banks which were concerned that the bigger banks were just going to eat their lunch when it came to ATM placement," Rose recalled. "At the time we urged cooperation as well as credit unions to get involved in their own ATM placement and networking." Rose made it clear that he viewed cooperation in ATM networking between community banks, independent banks and credit unions as an overall good thing since it brought increased access and service to credit union members and he went as far as to suggest that, within three to five years, CO-OP Network would be broadly open to both bank and credit union participation and possibly even ownership. In support of his contention, Rose reported that a vote among Network shareholding credit unions on the question of whether or not to allow bank participation in the late 1990′s came within three votes of passing and that credit unions already participate in other ATM networks, even surcharge-free ones, with banks. He also pointed out that changes in the ATM and EFT industries might help force the issue. "CO-OP Network is one of the last ATM networks owned by financial institutions," Rose observed. "And when it comes to delivery systems, community and independent banks have more in common with credit unions than with the big megabanks which are growing better at customer service," Rose said. "Those are what really worry me and I think both community banks and credit unions have an interest in countering this real enemy." Currently, three banks which used to be credit unions participate in the network, according to network senior vice president Jim Hanisch. Two of them have remained mutuals and one, Pacific Trust, has gone on to become a fully stock issuing bank. Ironically, Pacific Trust is the most open about marketing its participation in the CO-OP Network. Where Sound Community Bank, the former Pacific Trust Credit Union, merely links to CO-OP Network's ATM locating page on the Internet, Pacific Trust points out its competitive advantage. "We want you to be able to access your cash – whenever and wherever you are, without the added cost of surcharges imposed by ATM operators," Pacific Trust states on its Web site. "That's why Pacific Trust Bank is a member of The CO-OP ATM Network. In fact, we are the only bank that is part of this surcharge-free ATM network." What About Shared Branching? But what about shared branching, arguably an even more uniquely credit union service option than surcharge-free ATMs. Shouldn't that be reserved to credit union participation only? Not necessarily, argued Rose, who continued to put the emphasis on offering credit union members more points of access to financial services. In fact, Rose said that had Community Credit Union been a member of the Shared Service Centers shared branching network, which is a wholly-owned subsidiary of the CO-OP Network, instead of the network owned by the TCUL, it would not have had to leave. "What we are really talking about here are points of access," Rose said, "and what is really going to serve our members. If I remember correctly, Community was a big player in that network. Fine, so now they're not and members can't use those points of access. Who did that really help?" Currently, no SCC member credit unions have changed their charters to mutual banks, but Rose expected that his successor (Rose retires in June) will have to face the issue and almost sounded regretful that he would not be around to take part in the discussion. "I have some pretty strong opinions on the issue," he noted. The other shared branching networks have a wide variety of policies. Currently, the Atlanta based Credit Union Service Centers shared branching network, which works primarily through leagues, has a policy of going with whatever a state league decides to do. If the TCUL had not objected to Community being part of the shared branching network, CUSC would not have objected either. The Financial Service Centers Cooperative, the shared branching network headquartered in San Dimas, California, has a more nuanced policy. Sound Community Bank participates in the network, according to CEO Sarah Canepa Bang, but only as an acquiring institution and not as an issuer. This means that other network participants can send their members to Sound Community branches to conduct transactions, for which the bank is paid, but that the bank cannot send customers to credit unions to conduct transactions. This helps address the concern that credit union shared branches may be subsidizing a profit making bank, Bang observed, but leaves open some of the broader questions that the changing financial service industry will continue to spark among credit unions. Indeed, for Rose and Park, changing market dynamics are likely to push credit unions and banks closer together in areas where they can cooperate even as the political questions that divide the two industries persist. "I think credit unions need to keep coming back to what is best for their members. As credit unions that is where our heart is, in serving our members better," Rose said. "If that means credit unions cooperating with community banks to strengthen both against the encroachment of big regional or national banks, then that is what it will mean." -

[email protected]