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Credit union may become bank

By Marcie Geffner · Bankrate.com
Wednesday, October 5, 2011
Posted: 2 pm ET

Should a super-large credit union turn itself into a mutual savings bank?

That's the question on the table at Technology Credit Union, known as "Tech CU," in San Jose, Calif.

The organization's board of directors said in a preliminary proposal the change would allow Tech CU to significantly expand and diversify its commercial lending business by making more loans to small- and medium-sized commercial and industrial companies in Silicon Valley.

"This (change) should improve our earnings since commercial loans generally carry higher interest rates and origination fees than typical residential mortgage and consumer loans," the board said in the document.

The change also would allow Tech CU to expand its customer base beyond people in the technology field and give it access to new sources of capital that could be used to make more loans, build new branches, or enhance online banking and mobile application services, the board added.

Tech CU is no average credit union. Founded in 1960, the California-chartered organization has more than 74,000 members and $1.5 billion in assets, a considerable size for an entity of this type.

A credit union is a not-for-profit cooperative that offers banking products and services to its members, who share a common employer or other affiliation. A mutual savings bank is a thrift owned by its depositors and managed by a board of trustees.

As a credit union, Tech CU is exempt from federal, state and local taxes. If the charter were changed, that exemption would end.

Perhaps not surprisingly, the Credit Union National Association, or CUNA, which represents most of the 7,600 credit unions in the U.S., isn't keen on Tech CU's proposal to leave the flock.

In a statement, CUNA said it believes the credit union charter is "the best option for serving the interests of consumers" and that "in this instance it is difficult to imagine how converting from a credit union to a bank could really benefit consumers."

The association also noted that, of course, the decision will be made by Tech CU's members.

"We urge the credit union," CUNA said, "to make every effort to completely and transparently inform its members of the pros and cons of this critical decision the members will be asked to make."

Follow me on Twitter: @marciegeff

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2 Comments
buddy buddy
November 17, 2011 at 4:38 pm

Bad news all around. The only reason Tech is converting is because the board of directors and CEO want to make big money on initial public stock offering. They will be the only ones to steal money and they are basically selling out. The excuse to grow their loan portfolio is window dressing!

mikec
October 20, 2011 at 4:19 pm

Bad news for this CU's customers. They will have higher fees, lower interest rates and the top dogs will get insane compensation. If I was one their customers I would bail for another CU.