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How Fitting That Independence Day Is Coming This Week

As if the summer of 1787 were not hot enough in Philadelphia, the men meeting there wore wool clothing, jackets, long sleeves and in some cases, wigs. Simple fans were a century away; the undreamed of air conditioning nearly two centuries. As if to make hot rooms hotter, lighting came from candles and oil lamps, so they would often convene outdoors and under trees. As was the custom if not outright necessity of the times, men wore generous amounts of colognes and powders to, if nothing else, keep the homicide rate down.

And still these representatives of the then 13 states met, overcoming the heat of the day and the heat of the rhetoric stemming their own often deeply-rooted differences, united that their cause was bigger than any of them and perhaps recalling an observation made 11 years earlier by Benjamin Franklin, who was there perspiring among them, that "We must indeed all hang together, or, most assuredly, we shall all hang separately."

If you know your history then you know that the U.S. Constitution would emerge from that summer of meetings, but only after much debate and argument, compromise and common vision. If you are paying attention to your present, the nation's credit unions, which pride themselves on their democratic underpinnings, have arrived at their own Philadelphia Summer in 2007. And if you want to know the future, you're going to need to play an active role in the debate and argument, the compromise and the common vision. NCUA has taken the first step with its proposal for greater transparency in credit union operations for members; credit unions must take the next.

Fittingly, Independence Day is this week. The day will be marked by considerably more time with thought about food than any food for thought on why there is a celebration in the first place. As was first reported on cujournal.com and is reported in further detail on page 1 of this issue, for the most part credit unions are embracing NCUA's proposed new rules for "transparency" like Bostonians took to the Redcoats.

NCUA's proposed regs may ultimately end up being resculpted in response to credit union objections, but whatever form they take they are long overdue. It's an old tale of a few rotten apples spoiling the whole barrel. Many of the credit unions that have converted or attempted to convert to bank charter have done their dancing in the dark, methodically parsing language so that the only thing that can be found in the "disclosures" is the word "disclose" itself and not much else. Members never find out how much of their money went to pay conversion consultants and lawyers, or how much of their money will be going to management and the board when the word "bank" starts appearing in the name. All those members are really ever told is that they should just do the easy thing and quickly check off the "yes" box so the credit union can get on with becoming a bank and delivering on all those loosely defined "improved products and services" that have been promised.

The other glaringly weak link in the credit union democracy has been that when those member-owners protest and seek more information, they are turned away not just by the board that is supposed to represent them, but by the regulators and courts.

NCUA's new proposal aims to provide members with more information about the process, and the agency is also proposing it step in and resolve bylaws disputes. The agency deserves credit for volunteering to take a stand in what is bound to be acrimonious proceedings (democracy can be a messy business). This is NCUA recognizing that "Articles of Confederation" aren't working. As was the case in Philadelphia in 1787, what's happening now is the great debate over checks and balances. It's about time, because the only checks and balances occurring in many of these charter conversions is the check being added to insiders' balances.

The vast majority of commentary from credit unions has opposed NCUA's plan. What many may be missing here is that like most laws and regulations, they aren't aimed at the vast majority, they are directed at that minority who take advantage of laws, who search for loopholes, who almost dare the silent majority to stop them.

For credit unions, member democracy was a lot easier when it really just involved text in a brochure, some slogans, the occasional contested board election, and the annual meeting. Democracy is tough business and requires work; most things of value do.

In their comment letters, credit unions have called NCUA's proposal a "terrible idea" and "unnecessary, unjustified and ill-advised." Perhaps portions of the agency's plan are indeed just that, but there is one thing that should give any credit unionist pause: the banking industry also opposes the plan, claiming (apparently without a trace of hypocrisy), "We are concerned that the proposal would be used by well-funded outside interest groups that do not have meaningful ties to the credit union involved." Incredible. The banks' position is that the NCUA plan would stifle credit union conversions to bank charters. If the banking industry is opposed to anything related to credit unions, it's hard not to think you're on the right track.

At the core of this debate is the question of what do members (always referred to as "member-owners" when credit unions are lobbying Congress) have a right to know about what they own. Credit unions need to answer-to their own members and that same Congress-why members should be kept in the dark about some things. Some of the disclosures the NCUA is proposing to require can be uncomfortable, especially when it comes to salaries and benefits for executives.

Change is always uncomfortable. Just ask those men whom we now immortalize in statues how uncomfortable they were some 220 years ago. Today there are six credit unions with "Madison" in their name, 13 with some form of "Franklin." Who will be our new Madisons and Franklins?

Frank J. Diekmann can be reached at fdiekmann<at>cujournal.com.

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