Cooperative Leaders Ask Governor to
Veto Credit Union Conversion Provision

June 16, 2011

The Honorable Governor Scott Walker
Room 115 East
State Capitol
Madison, WI 53702

Dear Governor Walker:

We are writing as your state’s cooperative business leaders to request that you veto the credit union conversion provision in the final state budget passed by the Legislature.  The Joint Finance Committee inserted this provision without opportunity for public input and against sound principles of keeping complicated and controversial policy issues out the state budget.  This provision has no fiscal impact; therefore a veto of this item will not change the fiscal projections in any area of the budget.

You may recall that both the Wisconsin Credit Union League and Cooperative Network discussed this as an important issue during meetings with your transition team.  We were pleased to see that you did not include it in your budget proposal.  However, Joint Finance Motion #169, a motion that contained four separate items, added it in as item number one.

Since the Joint Finance Committee amended your budget bill, we have spoken to a number of legislators who do not want to choose between banks and credit unions, especially without hearings and a chance to fully explore this issue.  To this end, members of the majority party in the Assembly sent a letter to leadership requesting removal of the provision and also asked for amendments to the provision. 

There is a similar sentiment among members of the Senate majority caucus.  More than several senators have told our staff that they would support a veto.  While minor changes were made to the provision in the Assembly, it still leaves Wisconsin as the least transparent state for member-owners of credit unions should their credit union managers explore the option of becoming a bank.

As you know, credit unions are financial cooperatives, and the entire cooperative community in Wisconsin takes conversions of cooperatives very seriously.  History in other states has shown that a conversion of a credit union to a mutual savings bank is then followed by a conversion to a bank with traded stock.  This process, according to the National Credit Union Administration, typically results in dilution of member’s equity, while the directors and management are often enriched by the conversion.   In other words, credit union conversions have often been found to be nothing more than an equity grab by management and the board of directors.

The provision creates an unnecessary new state process to convert a credit union to a bank in addition to two statutory processes already in place.  No one representing credit unions or cooperative businesses was involved in the creation of this new process which has the potential to cause serious financial harm to member-owners who have considerable equity in their credit union.  In addition, this provision makes a significant change to credit unions owner’s rights and their ability to have a say in the future of their financial institution.

A new credit union conversion process is not needed because federal and state processes are already in place.  Current Wisconsin law provides two methods for a credit union conversion.  Furthermore, the federal process contains considerable consumer protections that are not present in this budget provision.   For example, the proposed state process does not contain requirements to inform the members about the impact of the conversion, only that a conversion is proposed and that a vote is scheduled.  The provision of transparent information to members is required by the federal process.  The federal process also requires the credit union’s board of directors to make a specific finding that conversion is in the best interests of the members.

We understand this budget is a challenge to your administration, the Legislature, and all that are working to serve the citizens of Wisconsin during these unprecedented economic times.  We further understand the challenges that you face and the tough decisions we all need to make.  What we don’t understand, however, is how a substantial and harmful policy item can be included in the state budget without any kind of public hearing where opponents have the opportunity to express the reasons for their opposition.     

Finally, while state cooperative law requires a 2/3rd’s super majority to vote in favor of the conversion following the establishment of a substantial quorum, , this proposed budget provision merely requires a majority of those voting to vote in favor with no quorum requirement.  This is a much lower threshold and could lead to substantial abuse, particularly to the extent management does not provide members with transparent financial information prior to the vote and does not provide ballots to all eligible voting members.   This harmful budget provision appears to be a part of a national strategy promoted by national and state bankers associations and is being pushed forward by various lobbying groups and paid consultants that make their living converting credit unions.

We believe an important budget provision that could harm many thousands of Wisconsin credit union member-owners deserves to be heard in the light of day so that our concerns can be aired to state policymakers in a public forum. 

As Cooperative Network board directors, and as leaders of your state’s cooperative business community, we respectfully urge you to veto this provision from the state budget. 

Thank you for your consideration.

Sincerely,

Cooperative affiliation is for identification purposes only and is not intended
to convey an endorsement of this letter by the listed cooperative.  

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