Conversions would hurt millions in state

Brett Thompson

Advertisement
There's been a lot written recently about credit unions in other parts of the country converting their charters to be-come mutual savings banks. What's not often noted in those reports is that when a conversion occurs, consumers are the big losers. That's because they lose:

Ownership

Not-for-profit credit unions are owned by member depositors, not by shareholders like for-profit institutions. So when a credit union converts, that's the first step toward eliminating member-owner rights in favor of shareholders. In fact, of the 23 institutions nationwide that have converted to a mutual charter, all but five have converted to full or partial stock ownership or have announced their intention to do so.

Financial benefits

Annually, credit unions save their 2 million members more than $180 million through more competitive rates on saving and loans, as well as lower and fewer fees. But when a credit union converts, members lose these benefits. This was confirmed as part of a recent study by the University of Wisconsin-Whitewater's Fiscal and Economic Research Center, which found that credit unions that convert to mutual savings banks pay lower returns on deposits and charge higher interest rates on loans, including credit card balances.

Services

Because their interest lies in people, not profits, credit unions offer many free or "unprofitable" services, such as credit counseling or seminars on budgeting and home buying. All of these are lost in a conversion. Business people should be especially concerned about conversions because when they lose access to a credit union, they lose their tie to a member-owned institution that's willing to grant loans that banks often won't make because they're just "too small."

REAL Solutions

Helping people regardless of profit is a hallmark of Wisconsin credit unions' REAL Solutions initiative, the first of its kind in the nation. As part of that effort, credit unions are providing more affordable alternatives to the short-term loans offered by payday lenders, offering low-cost check cashing and wire transfers, and offering tax filers no-cost alternatives to predatory "refund anticipation loans." And in more than 50 Wisconsin schools, student-operated credit union branches teach the value of saving and responsible use of credit. Credit union conversions stand only to erode the colossal benefit our state derives from this good corporate citizenship.

Of course, insiders and consultants make out handsomely as part of conversions. The banking industry trade groups want it, too; they're pushing conversions as a way of eliminating credit unions altogether. This, combined with their longstanding multimillion dollar lobbying effort to increase the tax burden on credit unions -- that is, on their 87 million members -- tops banks' legislative agenda. Though the banking trades claim they want "tax fairness" by seeing more not-for-profit credit unions converting and paying the same corporate income taxes that for-profit banks pay, their hypocrisy is inescapable. More banks than ever now qualify for subchapter S status under the tax code, which reduces their tax liability. And some of the state's largest banks used out-of-state subsidiaries to avoid taxation completely until a recent crackdown by the Wisconsin Department of Revenue. So tax equity is not banks' real motive.

Perhaps banks are dissatisfied that in recent years they've become more profitable than the oil industry. If more conversions were to eliminate credit unions, the void of not-for-profit competition in the marketplace would only give profit-hungry banks a green light to charge even more for their services.

So if you're a credit union member, or even a bank customer, be on guard. You'll feel the loss of credit unions to conversions in your pocketbook.


Brett Thompson is president and CEO of The Wisconsin Credit Union League. 

Resources

Printable format

E-mail this story

Index of advertisers

Directory