With all the hue and cry that accompanied this year’s state budget debate, relatively few people noticed an item that wasn’t cut from the budget bill.
Gov. Scott Walker used his line-item veto 50 times before signing the budget bill into law, but he left in one provision that has the Wisconsin Credit Union League (WCUL) seeing red.
It’s an item that the league claims was “slipped into” the budget bill by the Joint Finance Committee and which, according to a WCUL release, “makes it easier for Wisconsin’s 2.2 million credit union members to be stripped of their equity in the cooperative financial institutions they own.”
According to the league, the provision, which allows the direct conversion of member-owned credit unions into banks, was a last-minute addition that was introduced without a public hearing and without notice to credit unions, credit union members, and credit union trade associations.
“If you go back to the basic reasons of why this even happened, it should raise questions in just about everybody’s mind,” said Tom Liebe, vice president of government affairs for the WCUL. “This is a provision related to credit unions that wasn’t asked for by credit unions, so that should raise the level of suspicion right there.”
The WCUL claims the measure was included in the budget at the request of the Wisconsin Bankers Association, and that it’s part of a concerted effort to take a bite out of the competition.
“Their ultimate goal is to eliminate credit union competition from the state … or convert them,” said Liebe. “And I imagine eliminating the competition is a worthwhile cause for them, because banks are not fraternal altruistic institutions, they’re corporations that are designed to enrich small groups of shareholders – and there’s nothing wrong with that. But there is something wrong with those groups trying to eliminate the competition who are out there serving working people really successfully.”
According to the WCUL, the provisions adopted in the budget permit the direct conversion of a credit union “with little meaningful notice requirements, no protections of members’ voting rights, and no requirement that any equity in the converted institution be returned to members.”
“Their ultimate goal is to eliminate credit union competition from the state … or convert them. And I imagine eliminating the competition is a worthwhile cause for them ….” – Tom Liebe, Wisconsin Credit Union League |
Liebe said that while the WCUL doesn’t object to credit unions’ converting to banks, per se, it does want to make sure that the process is transparent and can’t be manipulated by a small minority of individuals who might have a vested interest in operating under a stockholder-owned business structure.
“There are two ways of converting, and both ways have been utilized in Wisconsin, and that’s one of the mystifying parts of this,” said Liebe. “There’s already a method to convert. One is to become a federal credit union, follow the federal guidelines, which is about 13 pages of a transparent and prescriptive process for a credit union to go through. Do that, and then make sure you have a legitimate vote whereby independent organizations become a bank. Or you can dissolve your credit union charter and simultaneously establish a [bank] and convince all of your former members to do business with you.”
Liebe says that under the new system, however, the checks and balances that once protected credit union members’ interests are no longer in place.
“You can either have a real prescriptive, transparent notification and disclosure process up front, which this proposal doesn’t have, or you can have a minimum voting threshold on the back end,” said Liebe. “This doesn’t pass. This just says a majority of members voting at the meeting. So a quorum for a billion-dollar credit union is 30 people. Thirty people show up and vote in favor of a conversion, it can be converted. That’s an easily manipulatable system. We’re saying there’s a severely deficient process in place that could be taken advantage of, and that is unfair to members.”
More heat than light?
While members of the industry acknowledge that the chance of any given credit union deciding to convert to a bank remains low, they are troubled by the provision and the circumstances surrounding its passage.
“I think it’s unfortunate that our Legislature acted without consideration of credit unions’ viewpoint on this, because we are here to protect our members,” said Summit Credit Union CEO and President Kim Sponem. “I do think that there’s so much value in the credit union charter and being a credit union that the risks [of a credit union converting] are low, but we are here for our members, and we want to make sure that anything that’s done legislatively protects our members.”
But as much heat as this budget provision has generated within the ranks of the WCUL and individual credit unions, it’s largely been greeted with a shrug by the banking industry. Wisconsin Bankers Association President and CEO Rose Oswald Poels said the provision addresses an issue that rarely comes up anyway and, far from being surreptitiously slipped into the budget, was carefully considered in the past.
“I think their concerns are very exaggerated,” said Oswald Poels of the WCUL’s objections to the measure. “And certainly conversion generally is not of interest to probably even most credit unions, but perhaps they have some different statistics that prove otherwise. But certainly it’s only been a couple of credit unions over the years that have expressed some interest, at least to our knowledge.”
As for the criticism that the provision was slipped into the budget without a fair hearing, Oswald Poels notes that it had been discussed at length in past legislative sessions.
“The idea that this has sort of been rammed through is also false,” said Oswald Poels. “Last session – so two years ago – this legislation was introduced in the budget. … It passed on a bipartisan basis through that budget process, and the governor line item-vetoed it out. So there has been thought and discussion about this conversion subject for several sessions. Actually, there was even a hearing the session prior to that, so this isn’t all that new. And it certainly has a fiscal impact, so the budget is an appropriate place for it.”
As for the issue of transparency, Oswald Poels says the new measure addresses those concerns.
“I think there are plenty of opportunities for members to be well aware of what is going on,” said Oswald Poels. “In fact, some of those concerns [Liebe] raised are why the provision was further amended to require notice of 30, 60, and 90 days out. The original amendment only had one notice going out to members, so there’s now different times at which notice must go out to the membership to make them aware of this and encourage them to vote.”
For his part, Liebe stresses that he has no problem with credit unions converting to banks if that’s truly the will of their members, but he remains skeptical that members will be given a fair shake under the new system and that their interests will always be protected:
“If the members are informed of what’s at stake in conversion, what the benefits are, and what some of the challenges and drawbacks are and they vote to do that and you have an adequate number of members voting, then that’s their right to do that. That’s a business decision and we’re okay with that. But you need a good process, a fair process, a transparent process leading up to that first, and we didn’t get that in the budget language.”
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