UNDERNEWS

Undernews is the online report of the Progressive Review, edited by Sam Smith, who has covered Washington during all or part of one quarter of America's presidencies and edited alternative journals since 1964. The Review has been on the web since 1995. See main page for full contents

April 2, 2009

CREDIT UNIONS ALSO IN DANGER

Erbin Crowell, Providence Journal - With our financial system in disarray, I was surprised to learn that my credit union, Coastway Credit Union, has proposed converting from a member-owned nonprofit into a bank. After all, credit unions have been a bright spot in these difficult times, providing loans in a responsible manner and avoiding the kinds of risky, greed-driven lending that fed the crisis.

Coastway has a long history as a Rhode Island member-owned co-op. It's the fourth oldest continuously operating credit union in America, founded in 1920 as the Telephone Workers' Credit Union. Over the years it has carefully grown to more than $25 million in member-owned equity and $284 million in assets. Today, one in 40 Rhode Islanders is a member.

What is motivating Coastway's leadership to turn a nonprofit, member-owned cooperative into a bank? How can Coastway give up its nonprofit tax exemption without charging customers higher rates and fees? And what will happen to the $25 million owned by Coastway's members?

These are the sorts of concerns that have led national organizations such as the Consumer Federation of America and the National Cooperative Business Association to oppose proposed credit-union conversions such as Coastway's. . .

Credit unions that have converted to banks now charge higher rates on loans and offer lower-paying deposits. This has been clearly documented. .

Seventy five percent of credit unions that have converted have eventually sold stock. And all too often the very executives and directors who advocated conversion to a bank end up with a disproportionate share of that stock. At a minimum, this possibility of undue enrichment is a conflict of interest between the opportunity for personal gain and the responsibility to serve the members' best interests. . .

We need to reform U.S. conversion law to make it fair to rank-and-file members. The easiest solution is to require a majority of all members to vote for a conversion, as opposed to current law which requires only a majority of voting members to approve. This was the standard before 1998 and this "majority-rules" standard is commonly used by federal regulators for other types of conversions. . .

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