GREENBELT, Md. – Educational Systems FCU has reversed its decision to assess members of Montgomery County Teachers FCU an unusual, one-time $35 fee to help defray the costs of absorbing the troubled $400-million Rockville, Md., credit union.
The $390-million ESFCU estimated $2 million would be raised by the unprecedented fee to help pay costs of integrating data processing and changing signage, cards, and checks, and also help fill a capital hole that diminished the net worth of the surviving credit union, according to ESFCU President Chris Conway (Credit Union Journal, Aug. 9).
However, Conway told the Journal yesterday that the $35 fee was rescinded after speaking with a number of MCT members. Conway explained that ESFCU, prior to finalizing the merger, had asked the MCT board to find ways to increase MCT revenue to improve the troubled CU’s capital position before completing the deal. “But they refused,” said Conway, who explained that ESFCU had to then consider ways to generate revenue. Now, with the fee rescinded, Conway – via a letter on the MCT website – is asking MCT members to do more business with ESFCU.
The combination of MCT, which had just 4.3% net worth at mid-year, and ESFCU, with 9.7% net worth, will dilute the combined credit union’s net worth to just 7%. MCT racked up big losses – almost $30 million – from 2008 through 2011, before breaking back into the black for the first six months of 2012.
David Bartoo, president of Merger Solutions Group, Forest Grove, Ore., said he was surprised when he originally learned of the fee, calling it “groundbreaking” and potentially opening up a “Pandora’s Box.” “Then why doesn’t anyone charge a fee on a merger to make money?” Bartoo said. “There are costs involved with a merger. The fact that the fee was rescinded shows that it was bad, if not unethical. I don’t see how it is ethical to transfer costs of a merger onto a membership.”