In early 2010, lobbyists for the Wisconsin Banking Association quietly helped push through an amendment to the 2011-‘13 budget bill that would change the process that allows not-for-profit credit unions to be converted to for-profit state banks. The measure has gotten little attention, but it could have a long-term impact on investors and borrowers.

Under the new law, a simple majority vote of a credit union’s members attending a meeting is needed to approve conversion to a state bank. Before its adoption, the standard was higher; the majority of all credit union members were required for such a change under a federal charter.

Adopted last March, the measure has not yet had any impact. No attempt to convert a credit union to a bank has been made. 

The banking lobby has long claimed that laws unfairly favor credit unions, pointing out that credit unions are tax-exempt. In July, the banks also lobbied the state’s Congressional delegation to push for federal legislation to end the tax exemption. The banks claim that the exemption is not only unfair to banks but unjustly deprives the state of millions in taxes and the federal government billions.

Conversely, credit union lobbyists are pressuring Congress for the ability to make larger loans to businesses.

The conversion legislation comes at a time when credit unions are increasingly popular. On both the national and local levels, credit unions have seen a surge in new members and deposit, a response, in part, to the federal government’s bank bailouts and proposals of added fees for bank customers. Last fall, one national bank’s proposal for new debit card fees was dropped amid public protest.

In November, the state Department of Financial Institutions reported that credit union assets grew by nearly 1 percent, from $21.6 billion to $21.8 billion in the third quarter of 2011. Deposits increased at a similar rate, from $18.85 billion to $19.02 billion in the same time period.

Brett Thompson, president of Wisconsin Credit Union League (WCUL), denounced the conversion legislation as a move to kill credit unions and asserted that the Wisconsin Bankers Association’s lobbying efforts were not in the best interest of credit union members.

“They have made it clear of their intent to harm or eliminate not-for-profit credit unions,” says Thompson. “They have no business determining public policy on behalf of Wisconsin credit union members.”

Thompson went on to slam the Wisconsin Bankers Association (WBA), which has more than 90 percent of the banking services market in the state.

“Those banking giants have snatched billions of TARP dollars out of taxpayer’s pockets and are once again attacking credit unions in an effort to reduce what competition there is even more,” he says.

Rose Oswald Poels, president of the Wisconsin Bankers Association, dismisses the criticism, saying the measure gives credit unions more flexibility and is fairer to other financial institutions in the state.

“Credit unions do not pay state or federal income tax like banks do, which is a competitive disadvantage for banks,” Poels says. “It should be a level playing field. Even though most credit unions serve low- or moderate-income individuals, they still should be taxed like a bank or any other institution.”

In a press release, the credit union league identified some banks that have avoided taxes. Associated Bank of Green Bay, the league noted, “paid no income tax from 2000 to 2009 in spite of booking $2.6 million in profits.”

Poels and Republican sponsors of the bill say the adoption of the measure “is a non-event to the public.” She notes that an almost identical measure received bipartisan support by legislators during the 2009-‘10 session, but that former Gov. Jim Doyle vetoed it.

Thompson of the WCUL said more discussion was needed, despite the passage and veto of the earlier measure.

“We would certainly have supported a legislative discussion regarding the conversion issue, but this is a major policy item that stands to negatively affect Wisconsin credit union members and should not have been part of a state budget bill,” says Thompson. “If the WBA thinks it is good policy to make it easier for a credit union to become a bank, then it should have reintroduced it as a stand-alone bill, permitting all interested and affected parties a chance to be heard in an open discussion.”

The credit union league argues that the conversion legislation was unnecessary and does nothing to help consumers and businesses. They claim its adoption is a tip of the hat to groups and individuals in the banking industry that supported Republican candidates in the 2010 election, helping them to win control of both chambers of the legislature and the governor’s office.

Andrew Welhouse, communications director for Senate majority leader Scott Fitzgerald, says the legislation merely eliminates unnecessary red tape if members want their financial institution to become a state bank.

“This is part of a much larger issue in Wisconsin,” says Welhouse. “Republicans’ top issues right now are improving the economy and creating jobs. Businesses consistently point to unnecessary regulations and red tape as one of the areas in desperate need of improvement. With this change, this is one instance where we’re putting that ability back in the hands of the business itself and its members.

“If a credit union is considering this kind of a move, we’d prefer to have a way that they continue to be a state-chartered institution instead of a federal one,” says Welhouse.

“In the past, when an individual credit union, which has a structure similar to a state bank or savings and loan, wished to convert to a bank, it had to collapse itself and basically build a new bank from the ashes under a federal charter,” Welhouse says. “With this new legislation, it can transfer its state credit union charter to a state bank charter.

“This conversion to a federal charter is unnecessary in many other states, and this provision in the state’s budget gives credit unions greater flexibility to manage their own operations,” Welhouse adds.

Representatives of the credit union league see it differently.

“Conversion of any financial institution from one type of charter to another is a complex matter that should require thoughtful consideration, appropriate information sharing with stakeholders, and sufficient protections for the financial institution’s owners,” says Tom Liebe, vice president for government affairs for the WCUL.

“A Wisconsin credit union that has management or a board of directors that wishes to convert to a bank already had two avenues by which it can bring its plan to its member-owners for their vote,” he adds.
 
The legislation will not help Wisconsin citizens or businesses, Liebe adds.

“It is poor public policy on its face,” he says. “The conversion legislation wasn’t needed because it helps only small groups of bank shareholders. In fact, private banks have been behind more than just the conversion legislation to stifle consumer-friendly competition, even at the expense of those it helps. It has been fighting common-sense legislation at the federal level that would help Wisconsin’s small businesses and families with new business credit at no expense to taxpayers and no expansion of government.”
So what does the amendment mean to business owners and leaders in Wisconsin? The WCUL isn’t sure it will open the floodgates to big changes.

“Years of research prove consumers generally receive better rates and lower and fewer fees at credit unions. In fact, our research shows consumers using credit unions in Wisconsin saved $203 million in 2010 alone. It is obvious that becoming a stock bank is not in the interest of Wisconsin consumers,” Liebe says.

Liebe agrees this legislation will have little long-term effect on Wisconsin businesses that prefer to handle their financial transactions through Wisconsin-chartered credit unions.

“To make such a dramatic change from a one-member/one-vote cooperative to a closely held private bank would require a majority vote of members in attendance at the meeting in where this is brought up for a vote,” says Liebe.

In one way, he concurs with Poels. “This is a non-issue to the substantial majority of Wisconsin credit unions. I have no knowledge of any credit union in the state considering a change to become a privately held bank. However, I am aware of a few banks considering the switch to becoming a credit union.”

Liebe says the credit unions are pushing Congress to remove the federal cap on credit union lending to businesses, a move that could create as much as $405 million in new credit and result in 4,400 new jobs in Wisconsin.

Poels adds her perspective: “The change in the law gives credit unions choice in how they are structured. It is easier for banks to raise capital than credit unions. The public won’t see an effect from this change. It’s just a different structure.”

By Clair Urbain

Clair Urbain of Urbain Communications provides marketing services to a variety of business-to-business clients in Wisconsin and across the country.

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