Editor's Note: Below are excerpts from a letter that appeared in the Providence Journal and authored by Erbin Crowell, a member of the board of the National Cooperative Business Association, about the proposed conversion to mutual savings bank charter by Coastway Credit Union in Rhode Island, of which Crowell is also a member.
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.
So, as an inquiring credit union member, I have serious questions about this conversion attempt. 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?...If you are a member of Coastway, your ownership share of the $25 million of member equity is at risk if your credit union becomes a bank. While Coastway's leadership tries to assure members that it has no plans to sell stock while converting, their literature leaves plenty of wiggle room, stating that the new bank could sell stock "in the event it is necessary to raise capital in the future."
In fact, 75% 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.
To this point, I Googled Georgeson Inc., the company on the return address on my conversion letter from Coastway. Georgeson describes itself as "the world's foremost provider of strategic shareholder consulting services to corporations and shareholder groups working to influence corporate strategy."
Why is Coastway using member-owned resources to hire a firm specializing in "strategic shareholder consulting" if they do not intend to become stock-owned?
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.
Coastway's CEO explains that the credit union needs to convert to increase its business lending. But Coastway can continue to make business loans as a credit union through the common practice of letting other credit unions participate in the loans.
So the conversion reasoning doesn't seem to add up...Coastway members must now be vigilant to ensure that our institution continues to provide Rhode Islanders with fair and affordable financial services that support our local economy.
(The letter concluded by urging readers to visit www.savemycreditunion.coop.)