The "butterfly effect" is a component of chaos theory that holds that small variations in the initial condition of a dynamical system may produce large variations in the long-term behavior of that system. In practice, the reference is to the theory that the fluttering of a butterfly's wings could create the tiniest of changes in the atmosphere that might ultimately, through a chain of events, lead to a tornado.
Although I remain a good dozen years short of my doctorate in chaos theory, despite employing it in everyday life, the butterfly effect is more reality than theory within the credit union community, and it's developing into one of those tropical storms few pay attention to until suddenly it's a hurricane.
In this case, the butterfly's wings first fluttered in 1989 when North Carolina banker Jim Culbertson picked up his phone and, with no idea what it would lead to, put into motion a series of events and scenarios that are being felt nearly 20 years later in ways few in the credit union community realize.
At the time, Culbertson was chairman of what was then the $300-million First National Bank & Trust Co. in Asheville, and his phone call that day was picked up at the other end by the American Bankers Association in Washington, D.C. Culbertson's specific beef was with the then AT&T Family FCU and the expansion of its field of membership beyond that sponsor company. His general gripe, which had been embraced by the ABA for decades, had to do with, surprise, the CU tax exemption.
What went on to occur over the decade that followed that phone call has been well-documented: a local lawsuit that eventually became a Supreme Court decision against credit unions that in turn was overcome by a landslide win for credit unions in Congress with HR 1151, the Credit Union Membership Access Act.
Where many within credit unions are mistaken is in believing the effects of the butterfly's flutter disappeared like yesterday's Weather Channel broadcast once the storm surrounding that legislation passed. It has not.
The fight to get HR 1151 passed changed credit unions. Vowing "never again," it left the credit union community well-prepared to fight external enemies. Even the American Bankers Association concedes their forces are no match for the grassroots army credit unions can turn out, with CUs turning into an Appalachian Trail of Hill Hikers.
The butterfly's flutter can be seen in the trade associations. I've noted here before that what the fight for HR 1151 did was turn CUNA from a Wisconsin-based operation with a Washington office into a Washington lobbying powerhouse with a Wisconsin back-office. Indeed, you will often hear a CUNA Washington staffer make reference to "back in Madison" as if it were some type of train car that became disconnected from the locomotive and now sits quietly rusting on a railroad spur somewhere in the upper Midwest.
It's time to reconnect the train car, because the enormous challenge in front of credit unions right now is more of the Madison variety than the D.C. variety; the movement has fortified its front door, but the burglars are walking out the back.
Surely some among you are asking "What in the name of Ed Filene is going on?" When did it all become a Mad, Mad, Mad Credit Union World? It's not just that the butterfly's flutter, for instance, has led to charter conversions (it was language slipped into HR 1151 that has made conversion votes much easier), but that converting credit unions have so thumbed their noses at their own members. Perhaps all that time lobbying Congress has led some boards to believe they are Congress. At DFCU Financial, for instance, its own bylaws require it to hold a special member meeting if more than 500 members sign onto a petition demanding it. The board's response when triple that number sign just such a petition? We're not going to hold the meeting, so sue us. In a fit of benevolence, last week the credit union announced it would allow members to review the materials it relied upon in recommending the charter conversion to a bank - although members aren't allowed to tell anyone what they say. It also doesn't point out that those very same documents were prepared by consultants and lawyers who make their living doing conversions! Hmm, probably no need to tell us what they say?
Meanwhile, in Columbus, Ohio, the board at Nationwide FCU has approved a plan "selling" the credit union to the insurance company at a price just about every analyst says is well below its market value. The credit union's board is made up of Nationwide employees, so we're guessing the due-diligence didn't get much beyond, "All in favor, say 'aye.'" And a Washington State court just ruled that members do not have a right to sue directors for a breach in fiduciary duty. So what, precisely, is the point of having a fiduciary duty? Apparently about the same as having bylaws.
It's time for credit unions to make like Jim Culbertson and start making some phone calls and asking questions, even if they make you uncomfortable. Where is the credit union community headed? Who's going to lead? Who's really looking out for members? What is the value of membership? Are the bankers really the threat? Perhaps a Summit on these issues in order. If the trade groups won't do it, The Credit Union Journal would certainly be happy to take the lead.
It's time to act now. Remember, what floats like a butterfly...
Frank J. Diekmann is Publisher of The Credit Union Journal and can be reachead at fdiekmann<at>cujournal.com.