HELP! My Credit Union wants to become a Bank!

Big banks have been getting some big lumps, and progressives have responded by encouraging depositors to Move Your Money to a Credit Union.  But what if your Credit Union decides it would rather be a bank?

I'm a long time member of Tech CU, which is short for Technology Credit Union.  Tech CU was founded 52 years ago, chartered to serve employees of Fairchild Semiconductor in what wasn't even Silicon Valley yet.  In 1983 they expanded to serve more high-tech employees and became Technology Federal Credit Union.  Today they have $1.7 billion in assets and 74,000 members in six San Francisco Bay Area counties.

Back when I first joined in the late 80s, Tech CU was a Federal Credit Union.  I wasn't too clear why they stopped being one, but it looks like they aren't done metamorphisizing.  A few weeks ago I received a call from the credit union, telling me there would be an upcoming election on Tech CU becoming a Mutual Savings Bank.  Why would they want to do that?  I had no information but something sure didn't sit right about that call.  

And this morning I heard from them again.  The previous caller was friendly.  This lady was...  Follow me below the squig-a-l'orange and I'll tell you all about it.

Ongoing Since October

This move has been in the works a lot longer than when the membership first started getting the phone calls in June.  And just like the move from Federal to not-Federal Credit Unionness, they aren't being upfront about what they're doing this time.  Their own history page neglects to mention that little charter change.

Look what else isn't being mentioned on their website?  Here is the main page you see when you log in.

And at left is what you learn when you click on About Tech CU.  One would think that this conversion would feature prominently.  And one would be wrong.

Notice what you don't see?  How about We're considering becoming a mutual savings bank instead of a credit union?  There was a press release about it last October.  Well, it's gone now, because if they left it up, then they have to show membership comments on the news.  Now this announcement is conveniently missing.

This article in Credit Union Times covers Tech CU's "flirtation" with mutual bankdom.  Their management claims the conversion would allow them to "significantly expand [their] commercial lending business" and "diversify [their] loan portfolio."

Exploiting the Loopholes

Now, remember I mentioned above that Tech CU was no longer a Federal Credit Union?  That's because they are a California state-chartered credit union.  And there is no blueprint for a state-chartered credit union turning into a bank.  California's financial code simply doesn't cover it.

California's financial code explicitly provides for state-chartered credit unions to convert to federally chartered institutions and how to do that. Likewise, it provides for federally chartered CUs to adopt the state charter. But it is silent on state-chartered credit unions conversion to mutual banks.

Silencing the Objections

Friday, after close of business, I received two emails from Tech CU.  It turns out that the law says there is a 35 day comment period if a credit union wants to morph into a bank, and all comments submitted during that period must be shared with membership. Tech CU sent them on to us all right... after close of business on the 35th day.  That means they don't have to share any other comments they receive on the matter with its members.  

Fortunately, these emails told us there was already a move to organize against this push.  Two members, no doubt the two who got their comments in during the 35 day period, joined forces.  A members organization called SaveTCU is now up and running, complete with a websiteand Facebook presence.  And Tech CU already lost a round in the social media follies when SaveTCU fans began replying to their upates.  Tech CU's webpage now only has an Info and a Friend Activity section.  They don't want their members speaking to them in public.

What's Wrong with Conversion?

Here are Save TCU's arguments against the bank conversion:

• Bye Bye Credit Union -- No more one vote per member with a mutual savings bank.  Instead it could be one dollar, one vote.  Sound familiar?
• Bye Bye Better Rates --  Credit unions offer better rates because they not-for-profit.  This conversion is going to make some people a lot of money, but it won't benefit the members.  How could it?  It's going to be run for a profit.
• Bye Bye Capital -- 9.99% net worth ratio and $1.6 billion dollars just sitting there, waiting for someone to turn it into a bank.  And that means the people running the bank, the Board (unpaid) and the Executives (all former bankers) would vote to get PAID like bankers.

Here's the key point, according to Daniel Rodriguez of Save TCU.

Buried in a letter sent to members is perhaps the real reason why the officers and directors of Technology Credit Union want to convert to a mutual savings bank. The disclosure reads:

POTENTIAL PROFITS BY OFFICERS AND DIRECTORS. Conversion to a mutual savings bank is often the first step in a two-step process to convert to a stock-issuing bank or holding company structure. In such a scenario, the officers and directors of the institution often profit by obtaining stock in excess of that available to other members.

[...]If that’s not enough, the real feeding frenzy begins when mutual savings banks convert to stock-issuing institutions. Over 80% of credit unions that convert to mutual savings banks eventually issue stock. The Board could then award themselves and the officers generous stock-related compensation packages which, according to a study by the Credit Union National Association, netted additional compensation averaging $742,000 for each director and more than $1.2 million each for the chief executive and other top executives.

Rodriguez also has arguments against the glossy mailer that went out to members.  For me, the key item is that a bank would pay taxes, and money to pay them is going to have to come from somewhere.

A Resource for Opposing Conversions

The National Center for Member Trust has more information on the credit union to bank process and why you should oppose it.  SaveTCU co-founder Robert Marinace, in his email to the membership, noted the following links to check out.  The links below do not have Tech CU's trackers embedded in them since I typed in the website directly rather than click on theirs.

• Rates after Conversion -- It's true you will lose out when your credit union becomes a bank.  Here are the numbers.
• Eight tiresome arguments in favor of conversion -- and why you should reject them
• A list of past conversions -- mostly from 2005-07.  Looks like somebody wanted to get onboard the crazy train
• Conversion FAQs
• News & Resources

Continuing the Push for Mutual Bankery

Meanwhile, Tech CU is now trying to scare its members that the credit union tax exemption is about to be repealed.  They're offering carrots too; entering members into a drawing for iPads if they vote.

And as I described in the intro, I got the very articulate and persuasive, dare I say pushy caller from Tech CU today.  When I realized that this was another call encouraging me to vote (yes) on the proposal, I asked if she was from an agency or worked for TCU.  She said she worked for TCU.  (Dang, I forgot to ask if she was a temp.)  She was quite determined to counter my arguments.  Fortunately, I had a few and I ran through them: rates and fees getting worse, members having less say over operations, the mutual bank to stock bank two-step.  When she realized that I wasn't buying her load of field fertilizer, she began pushing on the nonsensical idea that I couldn't object to a credit union converting to a bank because I had never "experienced" it before.

Well, now I caught her in a really obvious whopper.  You see, I was trying to derail her from what was an obvious collection of meeting objections, and began asking her questions.  And before this "experience" nonsense, I had asked her if she could name a single credit union that became a mutual savings bank and remained a mutual savings bank for at least five years.  No she couldn't, because "this process is just beginning."

So to her "experience" wankery, I noted that by her own admission, there weren't any credit unions that had converted into mutual savings banks and STAYED mutual savings banks.  Therefore, nobody had the experience of having their credit union bankify and stay a good thing. Sheesh.

I asked her five times if she would read the study showing all the conversions then morph into stock banks. She said she would.  Yeah, right.  With Tech CU's record of hiding the objections and refusing to comment on any of these stories, that doesn't seem very likely.

Tracking the Opponents

Today we find out that Tech CU isn't just pushing chirpy "attitude swayers" on its membership, it's spying on them as well.  A new story in Credit Union Times reports the emails came loaded with trackers.  That would allow Tech CU to see who clicked on links for more information.

Rodriguez and Marinace said they were shocked to discover their email arrived in members’ mailboxes with tracking technology, called servlets, that allows the credit union to identify and track members who click on links for further information contained in the email.  [...]

In addition, Rodriguez noted that including the servlets in the email made them more likely to have been blocked by members’ mail programs which incorrectly identify them as spam because of the number of servlets the emails included.

Thus, Marinace and Rodriguez said, a member who clicked on a link to a Facebook page belonging to a charter change opposition group could have both the fact they have done so as well as their identity collected by Technology Credit Union.

Rodriguez has specifically asked the NCUA (National Credit Union Administration) if this is a violation of the rules, as the credit union should only be allowed to include a one paragraph introduction to member comments.  Needless to say, Tech CU isn't talking about this.

Why is this happening now?

Does this process remind you of anything?  It looks a lot like the "parent choice" movements, funded by outside money, pushing charter schools over public schools.  They certainly aren't doing that out of the goodness of their hearts.  Our credit unions are now in the crosshairs as well.  

Who is aiming the gun?  Maybe we need to look into this firm:

According to CU Financial Services, a Portland, Maine consultancy that helps credit unions change to bank charters, if Technology Credit Union succeeds in moving to a bank it will become the 37th credit union to change charters since 1995.

What do you know?  A consultancy that hleps credit unions change to bank charters.  Yes, there is definitely money to be made, but it won't be for us.  Given that Tech CU has been hiring a number of new executives from the banking world, they see this as a done deal.

What can I Do?

If you are a member of Tech CU, vote AGAINST the proposal.  Ballots will be arriving soon.

If you are a member of Har-Co Federal Credit Union (Harford County, Maryland), same thing.  Vote No!

Be on the lookout if your credit union starts talking about conversion.  If they do, be sure to comment during that crucial 35 day comment period.  And of course, vote no.  Vote for your credit union, not their bank.