Words: The Blogger’s Tool Chest

The initial premise from Joseph Pearce

“One of the most important treasures to desire is the possession of words. Words are necessary because they are the very things with which we do our thinking and liberate us from the slavery of ignorance. We can only make sense of the world, and our place within it, if we have the vocabulary to articulate our thoughts. It’s not simply that we need words to communicate with others; we need words, first and foremost, to communicate with ourselves. If we are unable to make sense of the complexity of our situation because we do not have the words in our mind to articulate what’s going on in our lives, we are doomed to the sort of frustration which leads to despondency and despair, and rage and violence which are their toxic fruits.”

I have forgotten the following writer’s names.

Words 1: Changing Minds

We all have filters, [such as] What do I already believe? Does this new idea or piece of information confirm what I already think? Does it fit in the frame I’ve already constructed?

Ideas that don’t fit easily will require me to think, and think twice, and maybe even rethink some of my long-held assumptions. That kind of thinking is hard work. It requires a lot of time and energy.

Words 2: Rules and Extreme Cases

A sagacious legal maxim states that hard cases make bad law. If we make a generally applicable law(or rule) to counter an extreme or extremist circumstance, we risk removing freedom from all people in order to restrict the freedom of the extremist.

Words 3: Generosity and Wealth

Generosity is simultaneously a moral and a material imperative, especially among people who live close to the land and know its waves of plenty and scarcity. Where the well-being of one is linked to the well-being of all. Wealth among traditional people is measured by having enough to give away.

Words 4: God’s Question to Job

The question:  Where were you when I laid the foundation of the earth? Who determined its measurements-surely you know?

We manage the contributions, loyalty and human capital of our founders going further back than our initial chartering dates—generations helping generations. It takes a community to create a credit union. We see in our time how this founding effort has been paying forward, establishing our present public standing. Whenever an enabling legacy is honored, this renewed awareness generates deep gratitude, even awe.

 

 

 

Jim Blaine’s “Inaugural” Address

As the CEO of America’s second largest credit union for 37 years, Jim Blaine had the unusual skill of translating simple cooperative concepts into profoundly valuable benefits for members.

Every member received the same rate for the same kind of loan.  Believing home ownership was vital to members’ financial security, he designed a 100%, non-conforming first real estate loan for any member with a simple explanation: “Why compete with the government?” (Fannie/Freddie conforming products)

He railed against FICO-determined lending decisions and risk-based loan pricing. This early use of “artificial intelligence” offended his belief in the uniqueness of each person.  Character and judgment, not computer algorithms, should be the basis for granting credit to members.

Words Matter

In addition to steering State Employees North Carolina Credit Union, Jim was a wordsmith.  His blog, and his talks, were audacious, controversial, fun to read and based on core principles.  “Sometimes wrong, but never in doubt” was his tagline. His writing style and graphics were intended so that a reader immediately got the message.

He understood that a leader’s influence was in direct proportion to one’s ability to communicate. To the entire crowd: fellow-believers, opponents, the uninterested and the unwashed, meaning those who corrupted cooperative values for self-interest.

Some of his most scathing and widely read observations were about NCUA, a government agency which believed that its core purpose was to tell credit unions what to do, or not do.  Examiners would constantly challenge Jim’s traditional implementation of credit union purpose.  He would use the agency’s own words and facts to demonstrate the lunacy of their demands.   When he dared to break the code of silence NCUA imposed on examiner ratings and publish his credit union’s score, the regulator wreaked vengeance on the entire North Carolina state-chartered system.

Jim’s most enduring gift to the “movement” may be his writings.  As Churchill stated: “Words are the only thing that lasts forever.”

The Course to Be Pursued

In an inaugural address more than 157 years ago, the speaker gave “a statement of a course to be pursued.” That course concluded with this purpose:  “with charity for all; with firmness in the right, as God gives us to see the right, let us strive on to finish the work we are in; to bind up the nation’s wounds. . .to do all which may achieve and cherish a just and a lasting peace among ourselves. . .”

Lincoln used 722 words in 1864.  Jim’s 503 words address the legacy Lincoln hoped the civil war would resolve.

Jim speaks to the goal of a “lasting peace among ourselves” based on economic fairness and justice, core principles of the cooperative ideal. Diversity, equity, and inclusiveness are matters of the heart, much more than policy; something to practice in your life, rather than just preach.

Jim followed his own drummer when leading his credit union.  I believe these latest words will inspire all and even provoke some to answer his closing call for individual acts of rebellion!

Blaine’s “Inaugural” Address

(March 18, 2021)

“I am truly grateful to the African American Credit Union Coalition for this honor. The organization is remarkably successful and on the rise! I have known many of its leaders for a lifetime and have often sought, and even heeded, their advice! We shared a common bond – a belief in credit unions.

My life has been centered around my family, my wife Jean, and credit unions. Why credit unions? Because I could never accept that in America those who had the least and knew the least should pay the most for financial services. I believe that credit unions were created to correct that injustice. In the words of Thomas Paine – a true revolutionary in all respects – “I have always objected to wealth achieved through the misery and misfortune of others”.

That economic injustice continues to thrive in our financial system today. Credit unions remain the alternative, the best hope, the answer.

We all confront an uncertain future, and many folks would like to rewrite the past. You and I know we cannot change the past. But if we have credit union leaders with integrity, courage and character; we most certainly can reshape the future…but changing the future is very hard work. Arthur Ashe, the great American tennis player, described the credit union leaders we need. Ashe said: “True leadership is not the urge to surpass all others at whatever cost, true leadership is the urge to serve all others at whatever cost.”

One  word of caution as we look to the future and choose our new leaders; let’s make sure that diversity, equity, and inclusion is not a false guide, a false prophet. Can we really tell how diverse a credit union is by looking at the faces of our boards and leaders? Choosing our leaders by their race, their gender or their age is the old way – more of the same. We need a new way for credit unions.

And, the new way is to judge people not by how they look, but by how they think. As a famous preacher – I believe his name was King – said over fifty years ago: “Hopefully my children will be judged by the content of their character.”  Yes, let’s truly diversify and choose leaders based upon the content of their character. That is a more difficult, complex task, but our future depends upon it.

By the way, if you want to get a jump on reshaping the future, try starting a little personal revolution of your own. Next time you are filling out a form and come to the question of “Race?”, drop down to “Other” and write “Human”. When you reach the ethnicity question, drop down to “Other” and write “American”. And of course when you reach the question on “Sex”, drop down to “Other” and simply write in “Yes!”….and the world will begin to change!

Onward and upward – for all!… With the African American Credit Union Coalition leading the way!

Thank you again for this honor.”

 

 

An Insightful Co-op History Lesson

This week I listened to a 55-minute lecture on Rochdale and the Early Cooperative Movement.  Presented by the National Farmers Union, the speaker, Erbin Crowell, is an expert in the history of cooperatives.

The Rochdale reference is a name familiar to persons working in credit unions.   But the reasons for its pivotal place in history are rarely told.  Moreover, it was only one example of decades-long efforts by social innovators to improve the lives and status of the English working class.

These multiple reform theories included socialism, capitalism, mutual aid societies and cooperatives as England transitioned to an industrial, post-agrarian economy. One very successful  capitalist Robert Owen promoted both factory reforms and utopian socialism.  He attempted to establish his vision of an experimental socialistic community at New Harmony, Indiana in 1824.

This lecture describes the context in which Rochdale became a lasting cooperative example.  He mentions the Cooperative Group’s role in Great Britain today.  One learns that cooperative principles were not an initial framework for Rochdale, but rather assembled  only in the 1930’s in the US.

Taking this 55-minute journey will provide more than a glimpse of the past.   It presents the  cooperative concept as an evolving one, not a static design limited to traditional segments of an economy.

 

 

Rex Johnson (1943-2021) Part 2: Putting “Credit” Back in “Credit Unions”

A CEO reflects:

“It is an honor to comment on a wonderful man who has been the most influential mentor in my career. Rex taught all of us the unique way of being significant in individual lives. At Utah First, you see Rex’s influence in every employee. We don’t judge members; we look for the opportunity and good in every relationship. Bad things can happen to good people and we try to look beyond the moment and provide the chance for everyone to be their best. This is Rex to his core. We will miss our dear friend but find comfort that he lives in all of us each day.”

– Darin Moody, President/CEO, Utah First Credit Union

Rex’s Entry into the Credit Union Story

In 1979, the Illinois credit union system was at a critical turning point. The 1,035 Illinois charters was the largest of any state. Wisconsin at #2 had 633 charters.

Illinois charters served over 1.4 million members and held 7.2% of all state-chartered assets in the country. In August 1979 a recodification of the state’s credit union legislation (first passed in 1925) was approved by the legislature to respond to the onrushing disruptions in financial markets and the economy ushering in the era of deregulation.

Short term Treasury bill rates spiked in 1979 at over 15%. Disintermediation of deposits from the regulated rates paid by depository institutions was redistributing consumer savings into unregulated money market mutual funds.

In addition to this unprecedented rise in short term rates, labor strikes directly affected many of Illinois’ largest credit unions. There was a 58-day strike at United Airlines in the spring. In the fall, almost all of the farm implement companies saw labor shutdowns—first at John Deere plants, then Caterpillar Tractor locations, followed by International Harvester work sites.

At the end of the year, Chicago’s school system troubles caused payless paydays for the teachers and their credit unions. Eight of the state’s largest 15 credit unions served members who had been on strike, faced layoffs or were suffering from the economic slowdown.

Key Illinois Credit Union Trends

Of the 1,035 charters, only 56% (580) had NCUA insurance. Share growth at 6.4%, was half of the 1970 decade’s 12%. Members earned on average 6.8% on savings and borrowers paid 10.9% on loans. Loan rates were capped by a 12% usury ceiling. Average capital was 7.6%. Delinquency rose to 3.2% at year end.

Lending portfolios were almost all consumer loans. Regulations required credit unions to have over $1.0 million in assets to make real estate loans or issue share drafts. Of the 310 above this asset threshold, only 23 reported real estate loans. They totaled $66.2 million, or just 3.7% of all $1.8 billion loans outstanding. In this same asset group, only 49 credit unions offered share drafts which amounted to just 1.7% of all member savings.

The system’s loan to share ratio stood at 93.5%. Rules limited unsecured loans to a maximum of $5,000, secured loans to $20,000 and real estate loans to $50,000. Credit cards were nonexistent for most consumers from any financial provider.

Illinois federal and state credit unions combined reported total members of 1.5 million, or 10.3% of the state’s total population of 11.3 million. However, these 1,477 credit unions provided 13.5% of the state’s consumer loans, just behind the 15% share from consumer finance companies. Credit unions’ share of the deposit market was 4.2% compared to 30.4% for banks and 65.4% for thrifts.

The Personnel Upgrade

To respond to these seismic changes in financial services, the Credit Union division’s annual budget was $633,000, entirely funded by exam and supervision fees from credit unions. The division’s Chicago and Springfield offices employed 32 personnel including 22 field and review examiners. The division conducted a surprise exam and a full exam for every credit union. To set contact priorities, the semi-annual call report was automated. Credit unions were sent the same financial five-year Financial Performance Report examiners were given to monitor trends

Other division activity, including administering 25 mergers, 13 liquidations and 3 new charters during the year, plus implementing a landmark recodification expanding credit union powers and upgrading regulatory oversight.

That was the “day job.” The division’s managers spoke at trade association events, chapter dinners, CUES training conferences, attended a minimum of seven Advisory Board meetings and two “Days with the Director,” one upstate and the other down. Nationally, Illinois became an active member of NASCUS. I was the first state regulator chosen for the newly formed Federal Financial Institution Exam Council (FFIEC) coordinating the implementation of truth in lending legislation. The division followed the establishment of the NCUA’s CLF. Caterpillar Employees Credit Union was the first borrower to use this new cooperative liquidity option.

A critical priority for Ed Callahan, Director of the Department of Financial Institutions (DFI), was upgrading the performance of all field and professional staff. In the credit union division, CPAs were hired to supervise field staff and all examiners were required to have or obtain accounting credits. New managers were recruited from outside government to supervise the Chicago and Springfield Offices.

This is when Rex Johnson entered the credit union story.

The ad in the professional job listings in the Chicago Tribune was for the Chicago Office Manager of the Credit Union Division of DFI. The position’s requirements included an undergraduate, preferably an MBA degree, and management experience in banking or finance.

Rex met none of the listed criteria. No college, no finance courses. Just a dozen years making and collecting mostly unsecured consumer loans, working his way up the hierarchy of Household Finance Corporation (HFC & “Friendly Bob Adams”). His performance in multiple branch assignments in North Carolina and Virginia earned him a promotion to run an HFC’s branch in Chicago near the company’s headquarters.

Rex passed on the DFI ad. However, his wife Connie urged him to apply because he enjoyed managing people. She believed the prestige of working for the State would enhance his professional opportunities.

The DFI’s general counsel Bucky Sebastian initially interviewed Rex, outside business hours at a 24-hour diner, to avoid jeopardizing Rex’s HFC career. Was his asserted capability “for real?” It was. When I talked with Rex, so persuasive were his answers, I hired him with one condition: that he get a degree–as part of DFI’s program to upgrade the professional skills of all staff.

Rex immediately looked into night school to get an undergrad BA. He did not find that option appealing because much of undergraduate coursework had no direct job application. We then met with the Dean Vennie Lyons of Northwestern’s evening MBA program (in which I was enrolled) to see if Rex might qualify. Dean Lyons while open to the possibility, also suggested Rex consider Northwestern’s new Executive MBA program which offered a more structured and traditional academic model.

This “executive” program targeted mid-career professionals working full time with weekend meetings in a class size of 25 who would learn together for the entire 2-year program. Each class was admitted as a group with a common curriculum. Lyons said the program might consider one or two “high risk” applicants in each class from persons who did not meet the normal academic and experience requirements. Rex was accepted, received his Masters in Management (MBA), and years later told me, “it was the hardest thing I ever did.”

While Chicago supervisor, Rex brought his lending insights to help examiners and also added a special capability when instances of fraud were uncovered. Most wrongdoing involved key personnel, often the CEO, in smaller shops. If not tracked and resolved quickly, the future of the credit union could be jeopardized as most small credit unions were run by few employees.

When an examiner found false accounts, unreconciled bank statements concealing theft, or other misappropriations, the agency’s job was to restore sound operations rapidly. Most credit unions had no share insurance. The fidelity bonding company was reluctant to pay quickly for “unfaithful performance” claims without full evidence of the loss.

Upon receiving the examiner’s findings Rex would go to visit the suspected bad actor. His goal was to persuade the person to cooperate to quickly resolve the situation. The best way to do this was to obtain a written statement outlining what the person had done. He would explain that by confessing their errors, a person could be at peace with their conscience.

He succeeded every time. With the signed document in hand, the credit union’s board understood the need for new leadership and the bond company responded quickly upon receipt of the state’s exam findings and written confession. The credit union could continue normal operations and avoid being bogged down reconstructing records to find which accounts and transaction were false or real.

Moving on to Baxter as the Founding CEO and Spreading the Lending Gospel

In 1981 Director Ed Callahan delivered a new charter to Baxter corporation which wanted to provide credit union benefits for their employees. Later the company’s executives asked Rex to interview for the CEO’s role of starting the credit union even though still lacking a college degree. He was chosen to organize this new charter startup, a processing taking over a year. As CEO he grew the organization to over $ 300 million in 1994 when he left to become a full-time lending consultant starting his own firm.

By experience and conviction, Rex believed the most important activity of a credit union was making loans. He brought his years of hands-on lending and collections from HFC to promote lending as an “art,” not merely filling orders. The “art” required learning a person’s whole story to understand their character, the basis for sound credit judgment. Always look for the good, not for reasons to turn down a loan, he would later tell students.

While growing Baxter as a lending machine with a loan to share ratio at 85% or higher, Rex spread his gospel into the broader credit union community. He even worked with NCUA to produce a special edition for the agency’s Video Network showing examiners how to evaluate loans.

He wrote lending case studies for the monthly Callahan Report addressing all aspects of loan decisioning and oversight. The titles summarized his main point: “Don’t let Ratios Turn Loans Away,” “Five Focal points of Every Application,” or “Get control of Your Decision making.” In September 1988 Callahan’s and Rex coproduced a Special Lending Workshop, called, It’s Time to Fight Back-Increase Loans, Stop Bankruptcies and Inspire Staff.

These cases studies and loan management skills became the basis for Callahan’s publishing, A Passion for Lending, and its sequel, More Passion for Lending. The cases were drawn from the dozens of credit union consulting projects Rex completed on weekends while still CEO at Baxter Credit Union.

In February 1994, he left Baxter (now BCU credit union) to form Lending Solutions, Inc and devote the rest of his career to helping credit unions better serve members diverse borrowing circumstances.

His Skill as Teacher and Preacher

While continuing to do individual credit union consulting, he converted his observations into five-day workshops called the University of Lending. Loan officers, CEO’s and even directors would attend.

A key to the success of these week-long workshops was that attendees worked with real loans from their own credit union. not just Rex’s vast collection of cases.

In these classes, Rex would do live phone calls using recent turndown examples from attendee’s loans, to show how an apparently “unqualified” applicant could be prudently helped. Once done, he would close the call by saying, “Now that I have helped you, if you would like me to assist any of your friends or family in a similar situation-just have them call me at this number.” He would then hang up the phone and predict he would receive callbacks within the hour. He normally did.

He would also do live collections calls in the class. He would often get an answering machine and would leave a message, asking the borrower to call him saying, “I have great news for you.” When an attendee asked what the great news was, Rex would say, “I won’t know until I have talked to them when they call back.”

These high wire live performance demonstrations helped convince credit unions that they too might adopt Rex’s approach. That is, everyone has a story, find out their circumstances, and look for the good. Before Rex’s teachings, loan staff were often taught to be “order takers,” responding only to the member’s request, and overlooking many other ways a credit union could improve the member’s financial life.

Rex honed his lending skills in the trenches. He was always willing to put his words into practice. Before visiting a credit union, he would ask them to send a sample of 20-30 recent applications including turndowns, charge offs and newly approved loans. Out of these small samples he could create concrete examples showing ways credit unions could better serve members and make the credit union financially stronger. His ability to demonstrate his approach created believers who were frequently hesitant to change long standing policies endorsed by examiners.

Rex had high energy and was competitive. In the first five months in his own business, he consulted with over 100 credit unions. He worked seven days a week pushing himself and seeking the same effort in his colleagues.

At Lending Solutions, he developed all channels to spread his wisdom: publications filled with case studies, videos, webinars where attendance might exceed 1,000; the 20 or more week-long in-person University of Lending programs each year; individual credit union loan consulting and workshops on the road; and a joint venture to establish a 24-hour call center so credit unions could outsource lending decisions after hours, during peak periods or for other support calls.

An Evangelist Who Believed Credit Affirmed Members’ Hopes

Rex’s life captures many qualities of the iconic American spirit of the self-made person. He had no advantages of personal circumstance. Moving from one opportunity to another he believed in the power of word of mouth. He was his own best salesman while convincing others they could do the same.

Credit unions were a fertile environment for his many talents. His passion was lending because it gave people hope. Every member he believed had some good credit points even when recent history might suggest otherwise.

He entered the industry when credit was extended based on character or the credit union’s often advantaged position with payroll deduction or being tied in with a member’s employment. As consumer lending accelerated after deregulation, the process became more controlled by policy parameters, FICO scores and automated response fulfilling members’ requests.

Rex put the member back at the center of the lending decision. Document why you made the decision, he would say, not that you followed policy. His cases and videos are still relevant today.

But an even greater aspect of his legacy is the tens of thousands of credit union employees and directors who attended his multiple events. These students have undoubtedly helped millions of members benefit from Rex’s lending gospel.

In a recent Zoom call where his passing was announced, some reactions marked impact:

  • He taught you to go deep and understand each person’s story.
  • I attended his lending school and then sent all my loan officers-it changed the way we loaned.
  • You can see a spike in our lending level after our annual training sessions, and it stayed.
  • We set up a requirement that any loan decline had to be reviewed by a senior manager; (Rex believed 80% of credit union turndowns were fundable)
  • He changed our mindset; he was one of a kind.
  • Rex’s training brought humanity into lending; strongly supported C and D applicants.
  • Eye-opening. He showed us that lending is a judgment business.

For the thousands who knew Rex personally and experienced his presentation gifts, all would agree that he put the “credit” back in the “credit union” story. Every member should be grateful for that reawakening.

Two “Cases” Highlight Rex’s Influence

With all of his lending skills, story-telling and positive spirit, Rex’s success came from an instinctive insight about people: everyone’s need for mutual connections to feel fully valued. His lending philosophy recognized this compelling human reality—the same motivation that causes individuals to organize credit unions in the first place. It is as simple as “people helping people.”

Rex believed case studies were the most effective means of showing his lending philosophy. Following are two personal accounts demonstrating this ability to inspire individuals.

His Last Engagement 

Dana Garrett. President/CEO
North Memorial Federal Credit Union

I hope it is okay to reach out via email. I feel more articulate in writing than verbal, especially in light of the loss of someone so impactful to both our industry and my personal career path. My voice still tends to quiver when remembering and talking about someone I was lucky enough to call a mentor and friend.

Rex Johnson is the person I credit with turning my “job” as a green New Accounts rep into a career- moving all the way up into a credit union CEO role. Many years ago, Rex, on a consulting visit to our $70M credit union in Colorado, told my CEO I was wasted talent behind a new accounts desk. As a result, I was one of the first to be given the opportunity to attend Rex’s University of Lending school in Illinois.

Rex’s passionate interpretation of the movie Patch Adams and its application to credit union member services appealed to me and brought home the philosophy of “seeing what no one else sees.” This philosophy has followed me throughout my 25-year career in credit unions. 

In my current credit union, this is most evident in the creation of our BIG PICTURE LENDING program. We believe our members are more than their credit score. We work to understand their full story and provide relief where many have been turned down. We have seen credit scores improve and members who felt they may never qualify for a mortgage now realize the dream of home ownership.

Rex’s philosophy is engrained in our lenders and all credit union staff. We knew that to provide loans to higher risk borrowers we would need buy-in from the top down. So we engaged Rex to speak to our Board and staff at a team building event. It would be the last engagement he agreed to, according to Scot Vackar at Lending Solutions. Our entire team at North Memorial FCU became instantly bonded to Rex, his dynamic and unforgettable personality as well as his philosophy. His loss has been felt across our entire organization. 

Our industry has lost a pioneer and the void will be impossible to fill. His legacy will live on in Lorrie as well as Ed, Jack, Bob, Scot and the entire team at Lending Solutions. His many U of L graduates will continue to be ambassadors for his work and belief in credit union members.

There is part of me that still believes I am doing what I am doing because Rex “saw what no one else saw” in me. J

He Was My Patch

Kara Reno, Loan Officer,
CSE Federal Credit Union, Canton, Ohio

Thank you for reaching out. Where to begin? A sentence or two would just not be enough. He was my friend, my mentor, my cheerleader. To say he will be missed is an understatement. His being placed in my life was one of the best things that has happened to me.

Over 16 years ago was the first time I attended one of his schools. We all know Rex teaches a little differently. The first part of the day is watching the movie Patch Adams. He stops the movie at pivotal parts that he feels should be highlighted and are important to help you think differently, live differently, work differently. To see what no one else sees. Then the 2nd half of the day is textbooks and numbers.

When I got back, I presented the CEO with what I thought we should do. I was so excited I couldn’t talk fast enough. I was flipping through my notes, reading him quotes, and telling him my ideas faster than he could process what I was saying. He told me he would think about it. The next day I went back into his office again to see if he was done thinking about it. I told him we have to do this, trust me, I know it will work, please let Rex come here and talk to the board, let’s change what we are doing, give it a chance.

It worked!! We did this, Rex did this, success!! A success for our credit union and our community. I will miss his lectures to me about how I made a difference, telling me I’m special, how smart I am, and most importantly telling me I’m one of his favorite people…..He will always be one of my favorite people too. The person always in my ear telling me “you did this, you made this happen, you changed people’s lives for the better.” The person that NEVER let me down. Over 16 years of some of the best times, conversations, and memories. I will miss having him around to believe in me. I will miss Rex.

Rex Johnson (1943-2021) Part 1: The Player-Coach

Going to college in the Boston area in the ‘60s meant following the Boston Celtics. They were the dominant team in the NBA led by coaching legend Red Auerbach. Near the end of yet another Celtic victory, he would light up a cigar to celebrate the win, before the game was even over.

When he retired the critical decision was who could follow this extraordinary leader. Management chose Bill Russell, the team’s center, to be a player-coach. An unusual and risky option.

Russell was a five-time NBA Most Valuable Player and a 12-time All-Star. As the centerpiece of the Celtics dynasty, the team won eleven NBA championships during his 13-year career. In his three-seasons (1966–69) as player-coach he become the first black coach in American professional sports and the first to win a championship.

To perform both leadership roles well requires not just a superb athlete, but unusual awareness of the team and game’s multiple dynamics. During a season as a member of a military basketball team for the Naval Supply Depot in Yokosuka, Japan, I volunteered to do both roles when our coach was away on temporary duty. At halftime the best player on the team took me aside and said, “Chip, you can play or coach, but you can’t do both.” My brief Russell-like imitation effort was over.

The Player-Coach dual role was a perfect fit for Rex Johnson. As CEO he repeatedly proved he could perform at the highest levels of lending keeping Baxter at an 85% or greater, loan-to-share ratio. As a consultant, he taught (coached) thousands of credit union loan officers and managers the art of lending using their own institution’s examples.

The Case Study-The Core of His Teaching Method

The following example “Who Will Trust Me?” is from Rex’s book More Passion for Lending. It demonstrates his skill as a loan manager-“player.” From this experience he developed specific lessons on  the art of sound loan decisioning. Here’s the case.

Just Starting Out-Who Will Trust Me?

“To illustrate that lending is based on judgment, not formulas, let’s review the case of a young, first time borrower.

On the application, we learn that Doug is nineteen and is just starting out on his own. He has been a member of the credit union for two years. His parents are also members.

Doug wants to buy a new Chevy truck and finance the $10,500 loan in his name only. He is just beginning his first real job, and has no credit history, and might well ask, “Who will trust me?”

That’s a good question. You could see a lot of reasons for turning Doug down, or require his parents to co-sign:

  • lack of credit history;
  • short time employment;
  • no credit bureau report;
  • no real assets.

Every situation is different. There are 19- and 20-year-olds who may be excellent credit risks. When Doug applied for the loan, some of the things you should have liked were:

  • He saved his money and was paying $1,795 down on the new truck;
  • He had worked all through high school and although he is not going to college, he did want to learn a skill;
  • The credit union will have a 100% secured loan;
  • The credit union knows the family; and
  • There is good stability-Doug has lived at the same address in an established area for nineteen years.

When the application was taken, the credit union learned the following:

  • Doug had enrolled in a trade school for four years to learn to be an electrician. Doug is good with his hands. His employer allows him to work full-time while going to school; and,
  • Doug had completely restored a 1969 Pontiac GTO. It looks as good as new, and Doug wants the truck to haul it to car shows. The GTO has a value of $12,000.

If you are looking for a way to make loans, sometimes it is vital to take time to develop the application by asking the right questions. The new information above made the loan application much stronger. Developing an application is an art that can be taught.

Doug is not going to college. However, he is a very industrious young man. Based on this information, the credit union made the loan three years ago without the benefit of payroll deductions.

Doug has only two years left on his loan. He has never missed a payment. He is now earning $12.75 an hour and will graduate from trade school next year. The credit union has since given Doug a credit card, which he is handling very nicely.

I do not suggest that you start out granting loans to every 19- and 20-year-old who applies. I am suggesting you treat them as individuals and look at their qualifications based on their age. Doug always appreciated the fact that the credit union gave him his start, and my guess is that the credit union will have a life-long member.

Look at each application individually, even those showing no credit history. You may find some of the applicants well qualified. Remember, lending is a judgment business.”

(An observation on this first case in More Passion. I cannot help but wonder how much Rex empathized with this applicant whose life seems a close parallel to Rex’s own starting out.)

A CEO on Rex as Coach

By Karen Church, CEO,
ELGA Credit Union

Rex was my hero and mentor. I’m not sure where our credit union would be today if I hadn’t called on him in 1993. 

Rex revolutionized lending for the credit union industry. He taught us to listen and record the story of each member coming to us for a loan. He said, “ask good questions to understand their future attractions rather than dwell on their colorful credit from the past”. He explained that we would help them with affordable loans, and they would help us with higher yielding loans. Rex was spot on!

He was a phenomenal credit union leader!

A Brief History of Elga Credit Union

“We are a not-for-profit cooperative; formed in 1951, owned and operated for a single purpose: members helping members.”

“ELGA Credit Union had a humble beginning, helping Consumers Energy employees that were paid below the average of other industrial workers in the 1940’s and 50’s. ELGA got its name from a contest held in 1959 to rename the credit union, replacing the previous name, Flint Division Consumers Power Company Federal Credit Union. The name incorporates the first two letters of Electrical and Gas. Today we like to say it stands for “Everyone Loves Goals Achieved”. We are dedicated to helping you achieve financial success.”

In Part II tomorrow, I will present Rex’s four decade- long contribution to the ever-evolving credit union story.

A Cooperative Distinction: Owe versus Own

The British writer on religion,Joseph Pearce, used the period of Lent to write the following observation on life.  His distinction between owe and own is helpful in understanding how cooperative value is distinct from private sector intent. And how easy it is to confuse the words in practice.

The following is from a longer essay on Lear and Shakespeare.

“The paradox at the heart of Lent is that life itself is lent. It is not owned outright by those who possess it. If it were, we would not relinquish it when our life’s sand is sifted softly away.

“Off, off, you lendings!” Such is King Lear’s exclamation as he strips himself naked on the heath, the moment of madness being the moment when he comes to his senses. Lear, powerless in the face of elemental nature and stripped of his political power by unscrupulous treachery, realizes that the very clothes on his back are but lent to him. We can take nothing with us when we shuffle off this mortal coil. We will leave as naked as the day on which we arrived.

“Shakespeare knew this, as the “lendings” scene on the heath shows; but most of his critics seem oblivious of this elemental fact of life. It is, for instance, all too common that Shakespeare’s use of the word “owe” in relation to human life is glossed as “own,” an egregious error that exposes the pride and ignorance of those who consider themselves experts. As Chesterton quipped, it didn’t matter how much he made the point of a story stick out like a spike, the critics would still go and carefully impale themselves on something else.

“As Shakespeare affirms in his multifarious works and manifold ways, we do indeed “owe” our lives. And this stark reality has practical ramifications. It means that life is not simply a gift; or, in any event, it is not simply a free gift. It comes at a price that we are obligated to pay. To put it bluntly, if our lives are lent, we are debtors.”

Redesigning the NCUSIF: The Cooperative Way to “Finish the Job”

On Feb 8, 1984, NCUA Chair Ed Callahan gave his GAC keynote, an annual tradition.  He started by describing the state of the industry with one word: “fantastic”.

He acknowledged credit unions’ success in meeting the challenges of the previous two years: implementing deregulation and expanding credit union access across the country.

But there was one more structural change necessary to complete a sound cooperative system-redesigning the NCUSIF’s premium based funding.

The proposed change, depositing 1% of insured savings for continual underwriting, was recommended in a Report to Congress dated April 1983, Credit Union Share Insurance.

The Report’s  seven sections examined the history of cooperative insurance, risk rating, expanding insurance coverage, merging the three federal funds, and revisions to the current NCUSIF system.  An 8-page appendix listed over 50  credit union commenters, including leagues, state regulators, credit unions and the state cooperative insurance funds.

Why Listen to the Speech Today ?

This eleven-minute excerpt from the 14-minute recording is a critical moment in NCUA and credit union history.  It began a joint legislative effort to restructure the NCUSIF on cooperative principles, a design that has sustained for four decades. In these same years, the premium-based FSLIC failed, merging with the FDIC. The FDIC has had multiple periods of negative equity and still struggles today to find an adequate financial model.

The address is more than history. Ed’s “finish the job” challenge is a prime example of regulator industry collaboration. These mutual connections were empowering. It is a vision of leadership guided by “power-with,” not “power-over.”

Change was made through honest, open discussion seeking “a better way.” Over 2,000 comments were received to the proposals in the April 1983 study in which all parties had a say.  Chairman Callahan’s approach was based on “relational power” not assumed legal authority.  He was committed to teaming with credit unions-“we, not me.”  The cooperative way.

This excerpt is available at:  https://youtu.be/BmxvX7wQxgg 

I believe you will find this talk as enlivening and informative today, as it was years ago.

 

 

 

Does Infinity Have An Endpoint? Members Comment

On March 25, I published an analysis of Infinity FCU’s proposed merger with Deere Employees CU in Moline, Il whose tagline reads, “Exclusively for the John Deere family.”

Infinity is Maine’s oldest credit union, founded as Telephone Employees in 1921.  The analysis highlighted the absence of facts supporting any member benefit.  Most importantly it pointed out members will lose their ability to vote annually  for credit union directors or on any future mergers due to the use of proxies under Illinois credit union regulations.

April 15-Voting Ends

Federal credit unions purport  to be “democratically controlled” with a statutorily defined one member, one vote governance structure. No proxies permitted. Member ballots must be submitted by the date of the special meeting or by voting in person on April 15.

The member’s comments below augment the many shortcomings outlined in the above initial analysis.  The most concerning critique is of the board’s role outlined in detail by a former Infinity board member.

If Infinity’s 18,000 or more members do not participate in this critical decision to give up their charter, then the democratic process has been circumvented.   A motivated few will impose their way on the unorganized majority.

Ben Franklin’s once observed: “It takes many good deeds to build a good reputation, and only one bad one to lose it.”  Or in this situation, a century old successful $350 million local cooperative.

Infinity Members Comment

All merger notices include an option for members to post comments via a site managed by NCUA.  Three members have posted their concerns.  Names are required with these posts.

John McGinn: I went with Infinity that was then Telco over thirty years because it was a Maine based credit union. I absolutely do not want to be joined with an out of state large corporation credit union. I do not like or support this merger. If it happens, I will be reviewing all my options.

John Lander:  The CEO has changed the culture of the Board of Directors (BOD) during the last six years. Directors must be committed to on-going education to be able to make “best practice” policy decisions. The current BOD is averse to on-going education and has, as a result, become dysfunctional in many areas. . .

About ten years ago, The BOD hired a local Board Source consultant to help the BOD with governance. Using a Filene Research and Board Source collaboration we developed roughly 12 principles of good governance to guide the consultants’ work. The BOD accepted the concepts and directed the Governance Committee to implement the recommendations with the consultants help.

Unfortunately, the Governance Committee chair relied only on advice from the COO ignoring the consultants. A few years later, the committee quietly reported their satisfaction with our governance. Now dysfunction is present in the development of mission and vision, strategic planning, BOD evaluations and succession planning.

Directors must be committed to on-going education to be able to make “best practice” policy decisions in the best interest of members. . .

Nine months before my term expired, I attempted to join the Governance Committee, but Board Chair and the Governance Committee Chair said no. During my many years on the board, directors have always been welcome to join a committee. . .

A few months before the end of my term, I requested a discussion on governance be put on the agenda. At that meeting the CEO brought an attorney. The hiring of an attorney was not approved nor previously discussed by the BOD. The Chairman did not give notice if he approved it. The CEO asked the attorney to comment on my governance discussion. The attorney agreed with me in his own words. After this BOD meeting the Governance Chair withdrew from her BOD position.

She is now on the Supervisory Committee. The committee usually has had an odd number of members to avoid ties, but not now. As a Board Director and Treasurer, I tried to meet with the Supervisory Chair; I wanted to discuss governance including member service. He would not meet with me. Board members said, “I can only talk to the Supervisory Committee if I file a complaint.” This is dysfunctional governance.

Effective directors maintain an attitude of constructive skepticism; they ask incisive, probing questions, and require accurate answers. This BOD does not have a culture of inquiry because of its lack of commitment.

In 2020 Infinity’s capital was strong. We have opened two branches in four years and ROA is low. Membership growth is also low. We had better loan growth than five larger credit unions in our area.

We don’t need to give away control of our credit union so that we can open another branch soon. We need the BOD to commit to good governance. Please vote against the merger and demand the BOD fulfill their responsibility. John Lander, MBA, NAFCU Certified Volunteer Expert, 2017

Joe Mottershead: I Have Been a Loyal Member Since Infinity Was Telco Credit Union 1990s. I can Not Imagine what Benefits there are to Merging with John Deere CU That is a Billion Dollars in assets Larger? Are any of the Officers of Infinity Getting Stock or other Benefits From this merger? I am TOTALLY AGAINST this Merger!!!

Two Cooperative Webinars-No Charge

Both are on April 13, but at different times.

I. Rochdale & The Early Co-operative Movement
 (from: National Farmers Union)
Description: Working People and Business Owners. Weavers and Socialists. Democracy Activists and Abolitionists. Over 170 years ago, a small group of people founded a humble grocery co-op in the North of England with an ambitious vision for a better world. Building on earlier experiments in co-operative enterprise, their ideas soon spread around the world, complementing local struggles, traditions, practices of mutual aid to help inspire what became an international movement for economic democracy.

What became known as the Rochdale Principles were taken up by groups such as the National Farmers Union, forming the basis for organizing successful agricultural co-ops, and other organizations focused on their adaptation to consumer, worker and other co-operative models. In this webinar, we will discuss the origins of the Rochdale Society of Equitable Pioneers, the challenges that they were trying to address, and how their legacy remains relevant today.

Submit any questions to: elindberg@nfudc.orgDate Time: Apr 13, 2021 02:00 PM Eastern Time (US and Canada)

II.  Cooperative Board Self Evaluation
(from: UW Center for Cooperatives: Fostering critical thinking and understanding about cooperatives.)

Description: Board evaluations are a critical component of maintaining a healthy, functioning board of directors, however they often fall to the backburner. This session will explore why and how to conduct board evaluations. It will also explain different methods for conducting board evaluations and their respective advantages and disadvantages.

Submit any questions to: mawebster@wisc.eduDate Time: Apr 13, 2021 10:30 AM Central Time (US and Canada)

Voting: “The Most Hallowed Act in a Democracy”

A vital aspect of cooperative design is democratic member ownership.   Each member has one vote, regardless of share or borrowing relationships; proxies are not allowed for federal charters. This governance and accountability dynamic is both a moral and an organizational imperative.

Democracy is not merely a set of bylaws, or regulations or another organizing concept.  Rather it is the interactions developed between leaders and their constituents. Member involvement is more than a democratic cooperative value; it is the essential good will on which all credit unions rely replacing startup capital from the beginning.

Voting is the practice that enshrines and enables democratic organizations to legitimize leaders’ decisions.

Voting is Front Page Today

Voting is a front-page story across the country today. State legislatures have initiated changes to restrict voting access in response to the Big Lie of a stolen 2020 Presidential election.  Last week the spotlight turned to Georgia where the governor signed a law that would  prevent water being given to voters standing in line.

Public outrage has grown as evidence suggests that a purpose is to limit voting access in specific segments of the community.

The CEO’s  of Delta Airlines and Coca Cola, whose world headquarters are in Georgia, published strong statements opposing efforts to roll back voting opportunity.

Darren Walker the CEO of the Ford Foundation on NPR explained this change in the traditional low profile corporate leaders prefer on matters of public controversy.

“Voting is the most hallowed, important and sacred act in a democracy that its citizens exercise.”  He continued: “They (the two CEO’s) stood up when it mattered. We hope we can mobilize courageous CEO’s and companies across America willing to stand for American values.”

The State of Member Voting in Credit Unions

There are two occasions when members exercise their democratic role by voting:

  1. The election of directors at the required annual meeting of members;
  2. The voluntary merger of their credit union with another.

I think in both instances the vast majority of credit union practice is not “democratic” in any meaningful sense of the term. Some failures are the result of poor organizational habits, others by deliberate design.

The Members’ Annual Meeting

Recently I received the required Notice of the annual meeting from my credit union. It read in part:

Here’s the good news about our Annual meeting: There’s nothing you need to do. . .sharing this (Notice) is a legal requirement. . .Questions will not be taken during the meeting. . .there is no new business to discuss. . . only matter requiring a vote of members is approval of the 2020 Annual Meeting minutes. . .directors nominated (3)will be approved by acclamation of the Board. . .And this closing comment: We’re in this together. . .Our commitment to improving our members’ experience remains at the heart of what we do.   Signed:  President/CEO

This is not an invitation to participate, vote or become better informed about the cooperative the members allegedly own.  Instead, members should stand aside. Even the required meeting notice is portrayed as just a legal disclosure, like the rate on a loan or savings account.

The problem is deeper than this caricature of democratic governance.  The fundamental strength of credit unions is their member relationship. Member loyalty, initially via a common bond, and subsequently, lifelong patronage, created the credit union that exists today.

Sustaining these core relationships is essential for credit union success.

Members instinctively understand that the cooperative model is supposed to be different even if they cannot provide a precise legal distinction.  Treating members just like customers of a bank forfeits the most important advantage of credit unions in a market economy: the user and owner are one and the same.

Some credit unions use the annual meeting as a daylong opportunity to go beyond the legal formalities by providing workshops on member financial issues.  Sometimes the event is capped by a meal or with an outside speaker to celebrate the success of past year.

If credit union leaders fail to respect their member-owners’ role in this annual event, will members respond when leaders ask them to stand up for an issue needing their support?

Voting in Mergers: A Case Study

All voluntary mergers of sound credit unions require a majority of members voting to be approved.  This critical requirement is often treated as an administrative exercise with boards routinely encouraging members to sign off on the enclosed ballot.  Rarely do vote totals exceed single digits in this required member approval to give up a charter.

The merger Special Meeting Notice frequently lacks any specific data for members to compare their current situation with future promises. The reasons cited are general: “an expanded network of branches,” “improved operational efficiency,” “ the possibility of better rates on loans and shares,” and “we believe we should provide even better service due to additional investments in talent, technology and new products.”

The above are the verbatim explanations in a 2020 member merger Notice.  The vote in this merger, as certified by the Board Chair and Secretary, was 32,494 in favor and 0 opposed.  NCUA’s Director of Supervision for the Western Region acknowledged receipt of this certification and formally approved the combination effective June 1, 2020.

This merger of the $867 million Andigo Credit Union into Consumers Cooperative gave the members’ collective reserve of $107 million (12% net worth) to the continuing credit union.  No member dividend; only  vague promises.

However, Andigo’s senior managers were all given continued employment contracts from two to five years. Their compensation over and above what they were earning includes:

CEO: $226K in early payouts of deferred compensation plus $357K in higher bonus;CFO:  $150K higher; CLO: $165K higher; COO: $167K higher: VP Business Services: $74K higher.

This façade of members’ having voted approval is a perversion of democracy.  The members were provided no reasons supported by data.  No plan.  The process is ripe with conflict-of-interest.  It is an abdication by those with fiduciary responsibility covering up blatant self-dealing.  A scheme of enrichment and a moral swamp blessed by NCUA.

A Challenge to the Integrity of the Cooperative System

Every institution, every system, every country that follows a democratic model faces the challenge of constant renewal.  Democracy at any level of society is not self-perpetuating.  Leaders and circumstances change. Commitment to self-rule requires constant practice and vigilance.

The ever-present temptation for those in authority to exploit their current position for self-advantage is a facet of human character.  A credit union’s legacy bequeathed through generations of member loyalty is wiped out in an instant by self-serving leadership.

Two decades ago, the charlatans of Wall Street were proclaiming the need for credit unions to convert to mutual, and possibly, bank charters.  They asserted the credit union model was an anchor slowing growth and opportunity.  Almost three dozen credit unions took the bait.  Today, only one survives as a mutual.

Two outspoken credit union CEO’s led the fight against these false prophets of doom.  Bucky Sebastian and Jim Blaine did not win every fight; they were even sued for their cooperative gallantry.  But they had the courage to speak out and act when others were reluctant to challenge peer CEO’s.

Their efforts emboldened others who wanted to do the right thing.  However, the reality then is the same now. “The incentive today for corporate leaders in America discourages courage,” explained Darren Walker in his NPR interview on the reluctance of business CEO’s to speak out.

Next Steps

To address these patterns of democratic failure will require CEO’s, directors and leaders to assess their own practices of member governance.  Is the annual meeting just a perfunctory chore or is it a chance to renew and honor the member-owners’ role?

Mergers should be based on facts and logic with a documented plan, not rhetoric and vacuous future promises.  Every other area of credit union oversight needing regulatory approval (alternative capital, derivative authority, FOM changes, et al) requires more documentation than the decision to give up a sound charter via merger.

The century-long evolution of the cooperative credit union system in the midst of an economy driven by competition and private ownership is a remarkable accomplishment. To paraphrase Albert Einstein when asked about religious belief, “it is not that one thing is a miracle but that the whole thing is a miracle.”

To see this miracle of human and community enterprise crumble piece by piece through self-destruction is a tragedy.  One that only today’s leaders can reverse.