Prevent A CU To Bank Conversion: Playing Not To Lose [Conversion]

By Christian Mullins

There are about 16,000 credit unions and banks in the United States, and that total is currently declining by more than 400 per year.  While some banks and credit unions fail, the vast majority are lost through mergers; larger credit unions swallow smaller credit unions and banks follow the same practice.  There is even an existing belief that if a financial institution is under a certain size (the size varies greatly), they have no choice but to merge with a larger one, even if they’re economically sound.  After an entire generation of consolidation, it is becoming more difficult to find merger partners; the supply of willing candidates has dwindled.  With organic growth becoming more difficult in many markets, some credit unions have embraced the idea of converting to a mutual savings bank, which in the form of differing regulations would allow them more flexibility in growing their deposit and lending base than currently allowed with credit unions.

Naturally, some credit union members will object and try to block the move, whether it’s for intellectual or emotional reasons.  There are two ways this can be done: they can Play Not To Lose or they can Play To Win.  Both can be effective, though each has a fundamentally different strategy requiring different skill sets.

Playing Not To Lose is all about blocking the credit union’s conversion to a bank through a vote of the present (usually ‘in the building’) membership.  In essence, it’s a public relations battle between a small, dedicated group of members and the credit union staff and Board of Directors.  Fortunately, the facts generally favor the credit union.

Information Gathering

Most credit unions can, in general, offer higher savings rates, lower loan rates, and a reduced fee structure when compared to banks.  A look at your local newspaper may refute this claim based on advertisements, but over the course of a calendar year the averages tend to favor credit unions.

This information is collected and maintained by several sources, and most likely your credit union, though they’ll be less likely to share the information while attempting to convert to a bank.  Contacting your state’s Credit Union League (or Association) is a great place to start, and a quick Google search will get you the contact information you need.  Ideally, information regarding your specific credit union will be available, though statewide information can be nearly as effective.  For those seeking an intellectual reason to remain a CU, this is an excellent route.

It is also helpful to track down long time members of the credit union and ask them to share their stories.  Psychologically, this will have a much stronger effect on certain members than any numbers being thrown around.  They’ll connect to the permanence and tradition of the credit union (called the credit union story in some circles), possibly even relating it to a tradition that’s been challenged in their own life.

Finally, because a credit union is a non-profit entity, their financial records are available for public view at the National Credit Union Administration (NCUA) website.  This is helpful if the credit union is claiming that performance in key areas are dwindling or that resources are scarce.  While cumbersome, these quarterly reports offer a wealth of information that may bolster your claim that the credit union’s reasons for converting to a bank are unfounded.  Certain things to look for and numbers to crunch include Net Income, Loan to Deposit ratio, and the Net Worth Ratio (anything above 7% is currently considered Well Capitalized).  Help or support from someone with a background in accounting or finance would be very helpful.

Get The Word Out

After gathering all of the pertinent information necessary to make your case, it’s time to make it available.  There are several ways to do this:

Newspapers – Get a list of every newspaper located within your credit union’s geographical location.  Once you have the list (even if it’s a list of one) start writing letters to the editor explaining that a conversion would be to the detriment of the membership, citing different examples in different letters.  In addition, contact local journalists and try to generate interest in covering your efforts to keep your CU a CU.  This is more effective in smaller towns than in large cities.  Finally, if you’re well-funded, spending money on advertising in the weeks leading up to the vote may prove beneficial.

Internet – Create a website or blog (or both) dedicated to ’saving’ your credit union.  Websites or blogs should be titled ‘Save JKLCU’ or similar.  Here is where unpublished letters to the editor, links to letters published, and other stories from long time members can be published and shared.  (Note: There are many resources available explaining how to create an effective website or blog, so for the sake of keeping this shorter, I’ll leave that to Google)

Advertise – Put up ‘Save JKLCU’ flyers in locations around your credit union branches (grocery stores, libraries, or any other place with a community message board or kiosk) that include the voting date as well as your website or blog, and a quick fact (if you have it) stating that converting to a bank will cost the average family ‘X’ dollars per year.

Additional Methods – Very few credit unions began as community chartered institutions; most began as a Select Employer Group (SEG), limited to one specific entity.  If the SEG is still a predominant portion of the credit union membership (a factory, school, hospital, etc) contact individuals within those groups for support, as they may be able to reach, or at least disseminate information, to a greater number of members than you could.

Warm Bodies

In the end, a vote to convert is a simple numbers game.  The credit union will typically announce that they’re exploring the possibility of converting to a bank, if for no other reason than to gauge member opinion.  If they decide to pursue that possibility, they’re likely to include some sort of conversion FAQ page on their website that vaguely answers several potential questions without getting into any real detail.  After the FAQ is published, they’ll keep the membership informed as infrequently as the law allows.  Why?  Because when the vote comes, they’ll have loaded the vote with their own Board of Directors and employees, counting on member apathy to keep turnout low.  Increased awareness among the membership creates an uncertainty in the outcome, and it is in that uncertainty that members have a legitimate chance at keeping their credit union.

In other words, the more bodies you can put in those seats, the less likely a conversion will happen.  If the vote is lopsided in favor of remaining a credit union, the issue will likely be dropped.  However, if the vote is close, the chance of a second conversion attempt, especially after a poor fiscal year, rises dramatically.  The only way to ensure that doesn’t happen is to Play to Win by stacking the deck in your favor.