Tuesday, January 27, 2015

Activist Depositors and Associational Groups

I've written regularly about credit unions abusing associational groups as a vehicle to circumvent field of membership limitations.

However, a credit union that uses associational groups to allow anyone to join also opens itself to a small cadre of like-minded depositors to seize control of the credit union -- although it may take a couple of years to do so, as board of director terms are staggered.

The reason why a small group of like-minded members can take control of a credit union is that few credit union members actually participate in the governance of their institution and vote for board members.

So, why is this important?

Credit unions are sitting on a significant amount of undistributed retained earnings, which members currently cannot tap except in a voluntary liquidation.

While it might be difficult, activist depositors can use the associational membership loophole to potentially gain access to this undistributed retained earnings.

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