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Quotes from Credit Union Leaders
We have a huge bill
facing us for the corporate losses, past and future. We have a real
possibility of substantial natural person credit union losses in the coming
years (Chairman Matz said as much before Congress last week). Who will pay
for all of this? You can bet it won't just be the largest credit unions —
it's going to be all of us. If we don't come up with a better option for growing
capital, the credit union community will be digging out of this massive hole
for many years to come. Forget about growth, we risk becoming irrelevant! Tom Dorety,
CEO, Suncoast Schools FCU, Tampa, Fla. Scott Hunt, director of the Office of Corporate
Credit Unions, told attendees that the NCUA is monitoring some large credit
unions on the brink of failure. “The credit unions that have failed so far
have been relatively small," Hunt said, “but that will change in
2010." (CU Times 10-14-09) NCUA’s Bob Fenner’s
response when asked if NCUA could “create a wall” between natural person
credit unions and corporate credit unions: Fenner said that’s impossible
given the credit union’s system cooperative nature. (CU Times 10-7-09) NCUA’s Larry Fazio explained that if U.S. Central and WesCorp
were allowed to fail it would have sucked $33 billion (best case) out of
credit unions. Likely 3,000 credit unions would have failed over night, and
most of those left would have been “mortally wounded,” Fazio said. They would
die too from shrapnel called reputation risk. (CU Times 10-7-09) “Members do not control the operation of the credit union.
They rarely vote to elect Board members—most of the Board is appointed
and runs without opposition. Members have no financial ownership of the
credit union. They frequently perceive themselves to have the same
relationship as customers have with a bank. Members most often vote
with their feet. If the credit union is not meeting their needs, they
move their account someplace else”, wrote Henry Wirz, President/CEO, $1.3
Billion, Safe Credit Union in a commentary letter posted on “Credit
Unions.Com” Say What? “Outsiders should not interfere and meddle in individual credit
union business decisions. Period, ” said David Adams, the president
and CEO of the Michigan Credit Union League in a Letter to the CU Times
complaining about its reporting related to the Wings / Continental Merger
Proposal. But, just weeks earlier the American Banker reported that he
said his group made a donation to the National Center for Members Trust
(NCMT) in early 2006 through CUcorp, the league's for-profit subsidiary. He
would not say how much it donated. NCMT has interfered and meddled in the
DFCU Financial FCU, Lafayette FCU, Beehive CU and First Basin CU conversion
votes spending hundreds of thousands in credit union member money on the
effort. In 2004, the MCUL ran full page anti-conversion ads targeting
the members of Lake Michigan CU. The Credit Union National
Association (CUNA) will underscore the "staggering regulatory
burden" on credit unions at the second national forum on regulatory
fairness sponsored by the Small Business Administration (SBA) Wednesday March
11, 2008. Mary Dunn, CUNA senior vice
president and deputy general counsel, said she will note in oral and written
testimony the following arguments: Credit unions are subject to the same consumer protection laws
and regulations as other financial institutions, similar safety and soundness
requirements, and are subject to the increasing requirements of the Bank
Secrecy Act. In addition, credit unions are subject to more restrictive capital requirements than those that apply to
other types of financial institutions, field-of-membership and
member-business-lending restrictions, as well as a usury ceiling, limitations
on loan maturities, and stringent limitations on their investment options. The following are excerpts
from written remarks by Tom Dorerty, President and Chief Executive Officer,
Suncoast Schools Federal Credit Union on behalf of the Credit Union National
Association, during testimony to the March 6, 2008 House Financial Services
Committee Hearing regarding CURIA Professor
William Jackson, then of the University of North Carolina and now at the
University of Alabama, noted in a 2003 study that “CUMAA imposed more limitations
on credit union operations than it lifted.” Further, he states that the wave
of deregulation of depository institutions of the last two decades was not
applied to credit unions. It is also noteworthy that the Treasury Department
found in a 2001 study that “In general, federal credit unions have more
limited powers than national banks and federal savings associations.” These
new restrictions on credit unions have not been revisited by Congress since
enactment, ten years ago. On
Business Lending Quite
frankly, for many credit unions, the current 12.25% MBL limit effectively
bars entry into the business lending arena. Startup costs and requirements,
including the need to hire experienced lenders, exceed the ability many
credit unions with small portfolios to cover these costs. On
Capital By law
– not regulation, as for other insured depositories – credit unions must
maintain a 7% net worth or leverage ratio in order to be considered “well
capitalized.” In comparison, the current leverage ratio for banks to be well
capitalized is only 5%. [over 40% less] This capital requirement for credit
unions is inefficient in that it unnecessarily retards member service and
growth, and it does not appropriately account for risk of a credit union’s
assets. From Credit Union Journal
Brochure promoting “The Grow Show” 2008 Conference “Growth
has become a critical issue for credit unions, Growth in ROA. Growth in
revenue. Growth in service offerings. Growth in membership.” From “The Big Story” – A
March 3, 2008 report by The Credit Union Journal “The (1998) Credit Union Membership Access Act was a landmark bill
for credit unions. But the membership growth has not kept pace with
expectations.” “Most credit union auto loan growth is taking place through
indirect lending” “Auto lending is no longer first in the lending portfolio. Real
estate now has that honor.” “A case can be made that if one holds the new members brought in
by indirect car loans constant, membership growth has been treading water, or
declining, in recent years.” The simple fact is that many members choose to do most of their
business with banks, according to Bob Hoel, a Fellow with the Filene Research
Institute in Madison, WI. “44% of our members do more business with banks
than at their credit union,” said Hoel. “Filene research shows that members
perceive credit unions as friendly, but not as sophisticated as banks,” he
told CU Journal. From an “Opinion” Article
in the March 3, 2008 Credit Union Journal Mary Martha Fortney,
President of The National Association of State Credit Union Supervisors,
wrote: “The capital structure for credit unions [compared to banks]
potentially restricts credit union membership, services and growth. “Successful member
service potentially leads to asset growth; rapid asset growth can result in
diminished capital ratios and the end result is a challenge to Prompt
Corrective Action (PCA). PCA restrictions affect growth and may curtail
member service,” she added. (Editor’s note: PCA outlines minimum capital requirements that a
credit union must maintain to avoid regulatory penalties.) CUNA Mutual Group CEO Jeff Post to CU Journal: "Credit
unions have given up their tax advantage to cost inefficiencies. Even if you
look at the billion-dollar credit unions only, they are losing the expense
game," he said. "Banks are winning this game, and it's a game we
can't afford to lose. The expense game is crucial, and right now, expenses
are eating up the credit union tax advantage." Dick Ensweiler, president of the Texas Credit Union League to CU
Journal: "As credit union leaders, here we are believing in service
to members and in the credit union difference," he said.
"But, 70% of Americans don't belong. Why are we so passionate
and they're not? Where are we missing the boat? There seems to be this huge
disconnect." Ensweiler noted credit unions talk about being not-for-profit
cooperatives, yet in focus groups consumers say those things don't really
matter. (CU Journal 6-11-2007) Dan Mica on GAO Report which cites Weak Credit Union Growth: "The GAO report includes data showing net income has
increased at banks an average of 7% for the last 10 years, when adjusted for
inflation. During the same period, and using the same parameters, the study
showed credit union net income increased only 3% annually." (CUNA News
Now 6/6/2007) From CUNA News Now 3/29/2007 - The letter, signed by Bill Cheney, president/CEO of
the California Credit Union League said: "For many credit unions, the 12.25 percent ceiling
effectively bars their entry into the business lending arena at a
time when one in 10 adult credit union members owns a small business,"
Cheney wrote. From CU Times 3/13/2007 - According to John McKechnie, NCUA director of public
and congressional affairs, "A credit union’s elected board is the responsible
authority on determining whether a proposal is in the interest of the credit
union’s membership." McKechnie's remarks were made in response to questions about
credit union mergers. From CUNA News Now: SAN DIEGO (12/8/06)--Ramit Sethi, keynote speaker for the YES
(Your Essential Strategies) Summit, can identify with credit unions for two
reasons. First, he wants to change young adults' money management
behaviors. Second, he's not in the business to make money. Unfortunately for credit unions, Sethi said, young people don't
know or care about how credit unions differ from banks, he told the audience
at the Credit Union National Association (CUNA) program in San Diego
Wednesday. What they do care about is service, convenience, advice and
products that meet their needs
In his weekly article Paul Gentile, Editor-in-Chief of the
Credit Union Times wrote: " I always ask people I meet if they know what
a credit union is. I must be running into people other than the 80 million
credit union members out there, because most of them don't understand credit
unions." "I still hear about credit unions being labor unions or
places where you can have a savings account, but nothing else," he said. CUNA's 2006 - 2007 Environmental Scan More than 80% of consumers eligible to join credit unions have
yet to do so, according to CUNA's 2006-2007 Credit Union Environmental Scan. CUNA's 2006-2007 Survey of Potential Members indicates that
about 75% of nonmembers who are eligible to join a credit union are less than
"very familiar" with what credit unions are and the types of
services they offer. This includes 40% of eligible nonmembers who are either
"not very familiar" or "not at all familiar" with credit
unions. (CUNA News Now) WCUL White Paper Because of the risk-averse nature of credit unions and the lack
of access to capital markets, PCA rules induce credit unions to maintain
capital levels higher than those necessary to protect the share insurance
fund. Credit union response to these pressures is to limit growth, which
requires limiting service to members. This, in turn, reduces the amount of
funds that credit unions can devote to member loans that support the economy.
(Washington Credit Union Association - White Paper - "Defining the
Credit Union Difference".) CUNA's Dan Sagar "The stakes on the bill [2006 Reg Relief] are high because
if Congress passes regulatory relief this year it is not likely to pass
another bill for years to come, that includes CURIA." Saga, a long-time
veteran of regulatory relief lobbying while working on Capitol Hill, said he
could see the House following up with another bill as soon as next Congress,
but doesn't expect the Senate to do so for some time. "The Senate
will take five or six years to revisit the issue," he said. (CU Journal
- June 5, 2006) Boards Told Don't Unilaterally Oppose Conversions Speaking to nearly 70 directors from the nation's largest credit
unions at the Credit Union National Association's (CUNA) third National CU
Roundtable for Board Leadership meeting in San Antonio, Texas, Hyland told
directors that they should not unilaterally oppose conversion from a credit
union to a bank charter. "The board and senior management team should recommend a
conversion only if it is in the members' best interest," Hyland said.
"And the membership should decide the issue based on full and fair
disclosure of all the facts surrounding a conversion. "Your board can't automatically be against conversion
because you always need to be doing what is best for members, even if that
means protecting the members' right to make a choice," Hyland said.
(CUNA News Now 4/4/06) From CUNA News Now 10/25/2005 "We continue our efforts to try at a minimum to have
incorporated in the reg relief bill PCA reform provisions," CUNA Vice
President and Senior Legislative Counsel Gary Kohn said. "We haven’t given
up on member business loans either though that is more of a long shot than
PCA is, which is a long-shot in and of itself." [Emphasis added] From CUNA News Now
6/24/2005 WASHINGTON (6/24/05)--In a letter Thursday, Credit Union
National Association (CUNA) President/CEO Dan Mica blasted the vice chairman
of the Federal Deposit Insurance Corp. (FDIC) for anti-credit union comments
made during a recent Senate Banking Committee hearing on regulatory relief. Reich's "leveling the playing field" rationale ignored "the fact, attested to by the U.S. Treasury Department, that credit unions are already the most heavily regulated of the nation's depository institutions," Mica said. "While not covered by CRA--a law passed to address illegal redlining by banks--credit unions have more restrictive regulations in the areas of investments, capital, membership requirements, and member business lending..." Mica suggested that "if the so-called playing field is tilted at all, it tips heavily in favor of the banking industry." Mica cited FDIC's own statistics on banks' quarterly earnings, noting that "with each successive quarter, bank profitability climbs to new heights" and that they "posted record profits in 13 of the last 14 years." Community banks "are making bumper profits and growing quickly." "If your aim truly is to level the playing field, you might consider eliminating some of the advantages that banks enjoy over credit unions, which include no restrictions whatsoever on membership or customers, unfettered access to capital markets, lower capital standards, far less restrictive business lending, and the election of Subchapter S status as means of avoiding taxation at the corporate level," the letter said. From CU Times 3/15/2005 Mica said that CUNA is concerned about the proposal addressing
credit unions’ 1% NCUSIF deposit at all, but it may be too late now, so steps
should be taken to avoid a ‘slippery slope’ that could lead to a ‘write-down’
of the funds.
NASCUS Chairman and Michigan Credit Union Regulator Roger Little told
the Credit Union Times as reported in its September 22, 2004 edition, "credit
unions continue to be punished for their success because they are restricted
in their access to capital". Little added, " alternative capital
for many state chartered credit unions is imperative if they are to continue
to meet the financial needs of their members such as financing home
ownership, financial education, and credit counseling. The combination of PCA
requirements established by Congress for credit unions in 1998 and
significant deposit growth has created a financial and regulatory dilemma for
many state-chartered credit unions."
Aug 25, 2004 CU Times quoted a CUNA Mutual Executive
talking about how members are harmed without access to capital: An April 7, 2004 CU Times News Brief entitled: "CUNA Tries to Pump Life Into
Senate Reg Relief Bill" reported that CUNA President
and CEO Dan Mica wrote a letter to Senate Banking Committee Chairman Richard
Shelby (R-Ala.) encouraging the committee to get a bill passed this
congressional session. The Times said Mica reminded Sen. Shelby, "Credit
unions remain the most highly regulated and restricted of all insured
financial institutions." He noted the "severe restrictions"
credit unions have faced following the passage of HR-1151 solved some
problems but raised others. "As a result, CUNA supports efforts to
reduce regulatory red tape that prevents credit unions from serving their
membership and reaching out to underserved and unbanked communities."
Mica also said the regulation would help "relieve America's credit
unions of unneeded and burdensome regulations." A February 13, 2004 editorial in the American Banker written by
Mica defended NCUA's assault on the HR -1151 streamlined conversion provisions
and the charge that NCUA is a captive of credit union trade associations.
Although writing in a positive and supportive tone about the credit union
charter, the letter said, "Credit unions are indeed burdened by an
inappropriate system of prompt corrective action, which requires them to hold
even more capital than a bank despite their typically lower risk
profile." and "Indeed, although the credit union charter has some
disadvantages compared to banking charters, it continues to provide enormous benefits
to credit union members" He later said that he was
"heartened" by legislation proposed to reform PCA. John Annaloro, president of the Washington CU League, said
in a recent CU Times editorial, “... a string of conversions by credit unions
in the state with the most progressive charter may point to the need for
revolutionary, not evolutionary, changes.” He also said in a press
release that recent conversions are representative of the “fundamental
weaknesses in the overall national credit union charter that needlessly
restricts capital accumulation and business lending.” Back to top
Dick Ensweiler, Chairman, Credit Union National Association, in a
letter to the editor of the American Banker newspaper defending the credit
union tax subsidy, implies that it would be foolish for banks to convert to
credit unions because, "the bank turned credit union would have to
operate under much more stringent rules - for example limiting commercial
loans to 12.25% of total assets - and more onerous capital regulations."
Rick Craig, President / CEO of America First FCU (UT) said
before a Las Vegas audience of credit union executives and reported by the
Credit Union Journal, "Credit union taxation is a topic that is not
going away any time soon ... we are going to have to worry about it for many
years ... I expect more state-level attacks before a national level
attack," he predicted. The retiring CEO of a large west coast credit union
recently told the CU Journal that credit unions will eventually be taxed and,
"there's not much difference between them (community chartered credit
unions) and a community bank in reality." The Congressional response to these restrictions and
weaknesses faced by credit unions is simple: Convert to a Mutual Savings
Bank. In 1998, with the enactment of HR-1151, Congress recognized it
was putting handcuffs on credit unions in the form of higher capital
requirements than banks and product and market restrictions. Therefore, it
passed a law to facilitate the conversion of a credit union to a bank.With
the help of CU Financial Services, some credit unions are seizing the
opportunity to remove the significant impediments addressed by these credit
union leaders. The long term solution to impediments imposed by poor credit
union awareness and restrictive regulation is conversion to a bank charter.
CU Financial Services helps your credit union get the facts about this
dynamic opportunity. © Copyright 1996-2005, CU Financial Services, 1-800-649-2741
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