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Members Resist Credit Union Conversion to Bank UPDATED
This entry was posted on 1/14/2008 11:24 AM and is filed under Credit Unions.
UPDATE: February 21, 2008: The Salt Lake City Tribune reported today that members of this 54-year-old
financial cooperative, by 54% to 47%, voted to approve the plan to convert
the nonprofit cooperative to a depositor-owned mutual savings bank. Only 36% of the 22,000 person membership voted.
January 14, 2008: The Board of Directors of Utah's $180 million Beehive Credit Union wants to convert the 54-year-old credit union to a member-owned
mutual savings bank.
Beehive is the latest in
a growing number of credit unions that have decided their
future lies in becoming for-profit banks rather than continuing to
serve members as nonprofit cooperatives.
A membership vote on the proposal is scheduled to begin this week.
According to Scott Jorgensen, Beehive's chief executive, by becoming a mutual savings bank,
Beehive would be able to open branches with relative ease, increase its
business loan portfolio, and search out new customers and serve
existing ones without" undue restrictions."
Although Beehive's existing charter allows residents of adjoining counties to join, state law limits where the Credit Union may open new branches.
Members are concerned that the proposal will only benefit members of the Board of directors, and that rates will eventually increase to boost profits.
A 2006 study by the Department of Economics at
the University of Wisconsin at Whitewater found that credit unions
that have converted to banks charged higher rates for products such as
automobile loans, credit cards and home equity loans.
Beehive is 14th-largest credit
union among 109 operating in the state. As a mutual savings bank Beehive would have to start
paying an income tax rate of 39%, a tax credit unions avoid.
So far, Beehive's Board has only guaranteed that for two years after the conversion
the Credit Union's rates will remain competitive" with those of the five largest
credit unions in their market area.
In the past decade, only 32 Credit Union have been attempted bank conversions, almost all of which were
successful, according to the National Center
for Member Trust (NCMT). As an organization that supports credit union members
who want to prevent their credit unions from becoming banks, NCMT argues that credit union board members and top
executives often push for conversion because they gain immediate profits for themselves and more should a public offering of the bank's stock occur.
NCMT believes that, on average, a conversion brings $742,000
to each director and more than $1.2 million for top executives.
After a mutual savings bank converts to a stock bank, the credit union's members effectively lose their
ownership interest.
Stock offerings have materialized at the majority of the
credit unions that have become mutual savings banks over the past 10
years, according to NCMT. As a credit union, each member gets one vote. As a mutual
savings bank, each member gets one vote for each $100 the member has on
deposit, which is capped at 1,000 votes per depositor.
Source: The Salt Lake Tribune, 1/12/08, "Credit Union wants to become a bank, but plan isn't flying with some members," by Steve Oberbeck
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