Warren Buffet’s Wisdom for Coops

Someone’s sitting in the shade today because someone planted a tree a long time ago.

Buffet’s phrase would appear to state a fundamental truth about cooperatives.  After all, cooperative results are meant to be paid forward to benefit future generations.

As I follow credit unions, other interpretations of his observation are apparent. Here are some:

Different Views of Shade Trees

Some believe the trees should be cut down and sold for firewood.  Others want the trees removed because it restricts their view.

Some did not notice the tree until they were in its shade.  The conclusion is they were the ones who did the planting.

Occasionally, some uproot their neighbors’ trees to replant nearby to expand their shade.

When asked to help plant a tree for others, the response is, “there is no need, just sit in our shade.”

The government inspectors come to see how the trees are doing.  They direct certain limbs to be cut down because they interfere with the power lines. They believe no new trees are to be planted. The existing canopy gives all the shade the community needs.  Besides it takes too long for a sapling to grow big enough to provide real shade.

Instead of a cooperative forest passed to future generations, the landscape slowly becomes a level field.  All the trees are privately owned, and the communities’ open spaces require members to pay a fee to sit in the shade.

Buffet’s question:  Are today’s credit unions planting trees or living off a forest created by others?



Learning from Another Co-op: REI

Recreational Equipment, Inc., or REI, is an American retail and outdoor recreation services corporation. Founded in 1938 in Seattle, Washington as a consumer’s co-operative, REI sells sporting goods, camping gear, travel equipment and clothing.

REI operates 146 retail stores in 39 states plus DC. In addition to its products, it also offers services such as bike maintenance and outdoor-themed vacations and courses.

This is the announcement upon entering the store: reminding members they belong to a coop:

Membership Fee and Equity

REI’s annual revenue for 2020 was $2.75 billion. The co-op lost money in 2020 as stores closed during the pandemic but ended the year with $2.3 billion in total assets and $990 million in reserves. By adding 1 million new members the membership fee portion of equity increased by over $18 million to a total of $331 million. This annual addition to permanent capital partially offset the $34 million 2020 operating loss.

REI defines active members as persons who paid a $20 lifetime membership fee and purchase $10 or more of merchandise in a given calendar year. Each active member is entitled to vote for members of the company’s board of directors.

The annual patronage dividend is normally equal to 10% of what a member spent at REI on regular-priced merchandise in the prior year. None was paid in 2020 due to the operating loss.

Online Community and Executive Compensation Models

The company’s online community notes that 24,313 members have engaged in 31,629 conversations. These dialogues are intended to “connect, learn, share and inspire members to get outside!”

REI employs over 11,000 people and has been ranked in the top 100 Companies to Work For in the United States by Fortune since 1985. Its disclosure of executive compensation could be a model for credit unions. The seven page document outlines both the pay evaluation steps and full details of all remuneration. The 2020 report shows that top executives received no annual incentive and took substantial pay reductions compared with prior years.

What a Credit Union Might Teach REI

As I left the store I picked up REI’s branded credit card application that “co-op members love.” One feature promotes REI’s values on the environment and conservation by donating 10 cents for every transaction, up to $1 million, to the REI Cooperative Action Fund. Members receive 5% back on all REI purchases and 1% back on all other transactions.

Interest rates on outstanding card balances are variable: 11.49% to 23.49%; cash advances have an APR of 23.99% plus a 4% fee with a $5 minimum. Convenience checks charge 3% of the draft amount; the balance transfer fee is 3% and the minimum interest in any month is $2.

Who issues the card? US Bank, a $530 billion bank with a .93 ROA in 2020. It would appear that a partnership with a credit union card issuer could provide members better rates. For REI this would also be an example of the cooperative value of working with other coops.

Anyone interested?

A Poem for a Summer’s Day and our Time

The essence of genius is presenting profound insight simply.  Frost’s words at first glance seem easy to understand.  A summer field, mowed by a person who is now gone.  The scene and story of a butterfly weed left for nature’s creatures.  An action that resonates in Frost’s own kindred spirit.

The last couplet presents his belief in common human purpose whether working together or apart:

‘Men work together,’ I told him from the heart,

‘Whether they work together or apart.’

The Tuft of Flowers


I went to turn the grass once after one

Who mowed it in the dew before the sun.

The dew was gone that made his blade so keen

Before I came to view the levelled scene.

I looked for him behind an isle of trees;

I listened for his whetstone on the breeze.

But he had gone his way, the grass all mown,

And I must be, as he had been,—alone,

‘As all must be,’ I said within my heart,

‘Whether they work together or apart.’

But as I said it, swift there passed me by

On noiseless wing a ‘wildered butterfly,

Seeking with memories grown dim o’er night

Some resting flower of yesterday’s delight.

And once I marked his flight go round and round,

As where some flower lay withering on the ground.

And then he flew as far as eye could see,

And then on tremulous wing came back to me.

I thought of questions that have no reply,

And would have turned to toss the grass to dry;

But he turned first, and led my eye to look

At a tall tuft of flowers beside a brook,

A leaping tongue of bloom the scythe had spared

Beside a reedy brook the scythe had bared.

I left my place to know them by their name,

Finding them butterfly weed when I came.

The mower in the dew had loved them thus,

By leaving them to flourish, not for us,

Nor yet to draw one thought of ours to him.

But from sheer morning gladness at the brim.

The butterfly and I had lit upon,

Nevertheless, a message from the dawn,

That made me hear the wakening birds around,

And hear his long scythe whispering to the ground,

And feel a spirit kindred to my own;

So that henceforth I worked no more alone;

But glad with him, I worked as with his aid,

And weary, sought at noon with him the shade;

And dreaming, as it were, held brotherly speech

With one whose thought I had not hoped to reach.

‘Men work together,’ I told him from the heart,

‘Whether they work together or apart.’




What Does It Mean to Declare a Business “Dead?”

One way to get reader’s attention is to declare some activity, celebrity, business or popular style “dead.”  No more growth.  The hype is over.  The transitory fascination revealed.

One widely published writer using this headline is Jared Brock (jaredabrock.medium.com) who in January wrote a blog declaring that Uber and Lyft are Dead.

His essay focuses on the $200 million “dark marketing” campaign the delivery companies used to defeat proposition 22 in California which would have classified gig workers as full-time employees.

The Business Model Critique

After describing the ride-hailing services efforts to kill the new regulation, he also points out their “predatory” financial strategy which  is how others have characterized the firms’ business models:

Luckily, Uber and Lyft occupy a very precarious perch in the taxi universe. Like Airbnb, they’ve extracted a huge amount of value from their employees and stock investors, but what real value have they contributed in return?

If you strip it to the core, you realize the only thing any of these predator app companies actually do is build pretty-looking booking services and then weaponize colossal amounts of debt and private equity to strangle their competition, as while marketing the myth that they’re doing no harm.

 The Meaning of “Dead”

But Brock has another, more fundamental interpretation of “dead” than corporate demise.   More than a rapacious business model, it also refers to the absence of an underlying contribution to society.  He tells the story of returning to his hometown after years away. The main street is full of chains that have replaced the local shops, cinema, and restaurants.  He remarks:

And it hit me: this place is dead. Spiritually dead. Morally bankrupt. Worthless in all the ways that truly matter.

 That’s Facebook. That’s Instagram. That’s Airbnb. That’s Uber and Lyft and Robinhood. Predator companies, leaders in the menace economy. They create nothing, contribute nothing, mean nothing. They just take, broker, skim, flay. They’re dead in the future, yes, but also dead to me right now, and dead to a world that wants to flourish.

When People are Left out of the Calculation

Brock’s critique is that these companies leave people and their communities out of their business calculations. Gig, not full-time employees.  Rental housing, not owner occupied. National versus local solutions.

When challenged they follow the tactics one economist described as the menace economy:  “the pursuit of wealth at the expense of other human beings.”

Is there a Lesson for Credit Unions?

Time will tell if this interpretation of dead accurately foretells the fate of Uber/Lyft.  Brock’s concern is broader than platform technology companies.  What happens when organizations become “spiritually dead, morally bankrupt?”

These are human failings, not limited to organizations built with new technology.  Companies can easily equate financial performance, market appeal or innovation with sustainable success.

Credit unions were formed with a different focus: does what we do benefit our members?

Recently I received the following member assessment of a pre-pandemic merger of two strong, long-serving credit unions:

I have found no personal benefit in the combination of the two organizations.

 The employees I hear from are frustrated in numerous ways and lack a sense that their jobs are still secure. 

  I attended the virtual Annual Meeting . . .A highly scripted meeting seemingly meant only to satisfy the requirement to hold it.  Incumbent board members were re-elected by acclimation as there were no other candidates on the ballot.

 I am keeping a checking account open but transitioning other relationships over to another credit union.

 There are numerous examples of well-capitalized credit unions merging to benefit  executives or using members’ accumulated reserves to buy out bank owners.  Several very large credit unions have even adopted the fintech model of just an online platform, few or no branches. The token rhetoric for these initiatives refers to corporate growth, technology advantages and/or diversification goals, not member value.

Is the future of credit unions these cooperative merger combinations within, bank asset purchases from without, or the total embrace of digital-only?  Is it possible these options are merely the last hurrah of credit unions that are already “dead”?



A Response to: Do Small Credit Unions Matter?

My June 2 blog ended with this hope:

Two factors suggest this decline in small credit unions can be addressed.

The places of economic disparities and need are as numerous now as any time in our history.  The human spirit of solving problems and the values of cooperatives align with many seeking to bring change for a more equitable America.

From Great Britain came this response, used with permission:

Your published pieces are forwarded to me across “the pond” by a valued co-operative credit union sister at American Airlines Credit Union Ltd.

The last sentence of your piece of 2nd June is a killer blow – a killer blow that spells out the co-operative credit union difference: “The human spirit of solving problems and the values of cooperatives align with many seeking to bring change for a more equitable America.”

Our leaders, both lay and professional, should “do” because they want to, not because they “must”.  Our leaders at all times must think “we” and not “me”, must be humble “servant” leaders and not imperial ones.

As shapers it’s our role to prospect for, discover, encourage and develop those folks regardless of their histories, as most often they will have talents and gifts that we have not got, nor ever had!!


Barry Epstein, M.IFT, I-CUDE

Co-Trustee – ICULD&E Foundation/Director ICULD&E Co.Ltd

Awards Office – “Edward Filene” & “Joe Biden” Credit Union Awards for Excellence

Act Local-Impact Global

As in many areas of life, America’s example for good or otherwise, has implications beyond our borders.  The world is watching how our cooperative financial system responds to today’s members as a unique component of the globe’s largest capitalist economy.

Taxi Medallions in the American Cooperative System

In February 2020 when the NCUA board voted to sell over 4,500 credit union members’ taxi medallion loans to a private hedge fund, it broke faith with the borrowers and the credit union model authorized by Congress.

Cooperatives are intended to be a financial option different from the market-driven, for profit business models.

Yesterday’s blog, “Low Balling Price to Win Market Share,” described the Uber/Lyft business model’s use of venture capital to underprice the regulated cab industry fares to achieve market dominance.  One reader commented:

The “destroy the competition” at any cost business model is capitalism at its most ruthless point (and it’s what China is doing right now too).  I’m a capitalist but running the competition out of town with an unprofitable business model backed by a war-chest of reserves is poor form.  Don’t know what to do about it; legislating it away may do more harm than good. 

But that legislation is already on the books.  First by state charters, and then in Congress (in 1934), consumers and groups were given an option to fight predatory practices by forming not-for-profit, member-owned financial services.  The question is whether the leaders of the system–regulators and credit union CEO’s–believe in this cooperative difference today.

Cooperative Ownership Supports Individual Owners

To recruit back their driver business partners, Uber and Lyft have reportedly paid incentives of $250 million and $100 million to entice them to return to their platforms.  But this time these price incentives are being passed through in the fares which are as  much as 40% higher.

What made the credit union financing of medallions special was that it gave drivers the chance to buy a medallion and become an owner, not just a worker.

A person familiar with the medallion financing industry described this credit union role as follows:

The decline of the 75-year history of the taxi industry is very complicated.

 But one thing remains true.  “Ownership” was key in its success and if the medallion rises from the dead, that will be why. In America, it is better to own than be owned by your employer-no matter how benevolent that employer might be. That is why immigrants of many colors and nationalities turned to the taxi industry.

 The incentives the ride share companies gave passengers and drivers when they were initially focused on destroying “Yellow” are now gone.

 The medallion buying market is now only owner-operators, so investors and speculation are gone.

As long as the purchase price affords the “new” owner the chance to earn what they earned as a worker, they will choose the owner option.

 Cooperative financing gave these members a way to create their own business-the American dream.  Credit union lending has always intended to enable individual empowerment for productive purpose.

NCUA’s sale of the members’ loans to a hedge fund seeking control of a significant share of the NYC medallion market undercut this core purpose. Several credit union and borrower groups with firsthand experience managing these portfolios asked to provide options and were ignored by NCUA.

If borrowers had been given the payment options based on balances similar to the amount the agency received from the sale, the member workout transitions could have been accelerated and future values enhanced for both NCUA and these borrowers.  But NCUA decided to wash its hands and walk away.

The Credit Union Way or Not?

Time and again credit unions have demonstrated their ability to act in borrowers’ best interests even when this means reducing the credit union’s bottom line or using reserves.   The industry’s wide-spread fee waivers, deferrals, refinancing and just being there for members during Covid is the latest in a history of such actions.

Unlike for-profit firms, cooperative structure provides a shield against the ever-present market pressures for earnings.  Patience provides for both individual circumstances and market cycles to play out so decisions are not made when events seem at their worst.

Cooperative patience is a valuable capability.  It means the industry can act counter cyclically in a downturn by keeping loan windows open and giving members options to defer or even reduce payments.  Even now, there are  reports that the “Yellow” taxi option is making a comeback versus the technology disrupters.

But if this unique advantage is not understood and used by regulators or credit union leaders, then credit unions will end up responding to crises no differently than their banking competitors.  That is not what Congress intended.  It is not what America needs.  It is not in the member-owners’ interest. That banking approach would violate both cooperative design and values.






An Update on the Taxi Medallion Business or:  “Low Balling Price to Win Market Share”

Uber and Lyft have never made money.   Cumulative losses are in the billions.  And continuing.   Two reasons for this lack of profit are spending billions of venture capital funds to subsidize fares below the regulated cab industry.  Secondly, under compensating their driver-business partners.

Now that both firms are public, the pressure for profits by public investors (now that the venture capital funders have made their windfalls) is changing their business and pricing models.

A thoughtful comment by my favorite market analyst (CNBC’s Kelly Evans), suggests the game may be up.  While it does not mean NYC taxi medallions will rise to the former values of over $500,000, it suggests that the future will be much more stable and that drivers and medallion owners can expect reasonable returns—as medallion prices become linked to actual earnings.

Kelly Evans kelly@cnbc.com, June 15, 2021:

Here’s a half-baked thought I’m just going to throw out there: 

Is venture capital bad for society? 

I was thinking about this as we talked to Kevin Roose yesterday about his recent NYT piece, “Farewell, Millennial Lifestyle Subsidy.” His point is that all the goodies millennials enjoyed over the past decade or so–cheap Ubers, food delivery, and on-demand household workers–were never properly priced until the companies all went public, suddenly have to turn (or at least pretend they’re on a path to eventually turn) a profit, and have to raise prices as a result. It doesn’t help this is all happening amidst a historic labor shortage, either.  

“Hiring a private driver to shuttle you across Los Angeles during rush hour should cost more than $16,” he wrote, “if everyone in that transaction is being fairly compensated.” It’s one more reason many millennials have tired of their previous urban/on-demand lifestyles and see the advantages of things like car and home ownership.  

So now that Uber has to shore up its financials, its rides aren’t as cheap and its service isn’t as attractive. This isn’t just a pandemic phenomenon; the company went public at $45 a share in May of 2019, and today trades at just $49 and change. If you’d bought General Motors the day Uber went public, meanwhile, you’d be up more than 60%.  

In other words, the $20 billion that Uber raised as a private company basically just allowed it to underprice rides for a while–long enough to nearly put the rest of the transportation-for-hire business into bankruptcy. How can any viable business, which has to rely on actual profitability, compete with one that’s that highly subsidized by the wealthy (which are most early-stage VCs and their investors)? Are all of these jazzy start-ups really about improving the future, or about using neat technology to earn subsidies that allow them to undercut legitimate businesses all over the country? 

On an even grimmer note, the rise of Uber led to a plunge in the value of New York City taxi medallions, leaving drivers who had bought medallions before Uber’s arrival holding massive debt. A 2019 investigation after more than eight drivers committed suicide in 2018 found the typical driver had $500,000 of debt, and a quarter of them were considering bankruptcy. 

Listen, I’m all for technological innovation. But there’s a difference between hey, now you can book a car from your phone! and hey, our private capital is allowing us to price this way below what it should actually cost.  

Now that we’ve seen how many of these stories actually play out, perhaps we customers ought to be a little more discerning. Maybe I don’t need to play in the unsustainably-cheap-to-the-point-of-being-bad-for-existing-businesses game. Maybe the next time we hear of a “disruptor” raising however many millions of dollars to “change the way we do xyz,” our first question should be–are you really innovating, or are you just temporarily lowballing the price of these services to win market share?  

Just a thought. Am I way off base here? 


Kelly’s points are very helpful.   We are now seeing the cycle of disruption play out and a new equilibrium being sought.   Four of my previous blogs discuss some of her observations about the fragility of the Uber/Lyft business model.

The common theme of each blog is that credit unions and NCUA should demonstrate as much responsibility to borrowers in a crisis as they do to savers.  Without the former, there will be no return for the latter.


https://chipfilson.com/2020/02/an opportunity for the NCUA Board to do the right thing/

https://chipfilson.com/2020/02/NCUA’s betrayal/

https://chipfilson.com/2020/12/disposable-members: an NCUA policy that must change/



What Credit Unions Can Learn from Morris Plan Banks

In justifying whole bank purchases credit union CEOs will reference learning from their competitor’s experiences and banking knowledge. Several areas include expanded commercial loan opportunities, entry into new markets and adding staff with  different expertise.

Trying to beat the competition by becoming the competition has always been a dubious strategy. Moreover, the example of early competition from the Morris Plan banks suggests credit unions will be more successful developing their own unique competencies.

Credit union success was never guaranteed. In fact, one of the earliest and largest competitors for the untapped consumer credit market grew much faster and was far more consequential than the slowly emerging credit union system. That is, until the 1934 passage of the FCU Act ushered in a new era of cu expansion.

Morris Plan Banks

In 1910, attorney Arthur J. Morris (1881–1973) opened the Fidelity Savings and Trust Company in Norfolk, Virginia.

The Virginia lawyer, was troubled that a securely employed workman, seeking a small loan, was denied access to credit from local banks and forced to borrow from loan sharks. Morris thought that a country that denied bank loans to a large part of its population had a “weak spot” in its banking system. Morris studied the various banking laws in the U.S. in the hopes that some type of “banking institution could be evolved that would correct the existing evils and supply credit to the needy”

Under a concept called the “Morris Plan” he offered small loans to working people. In this approach would-be borrowers had to submit references from two people of like character and earnings power to prove the borrower’s creditworthiness. Repayment of the loan was made through the weekly purchase of Installment Thrift Certificates equal to the face value of the loan, less origination and investigative fees.

Morris Plan Banks expanded relying on state charters just as did the nascent credit union movement. By 1931, there were 109 Morris Plan banks operating in 142 cities with an annual loan volume about $220,000,000.

In a November 23, 1931, TIME magazine personnel announcement, the industry’s two decades of success and growth were described as follows:

“Walter W. Head, past president of American Bankers Assn., was elected president of Morris Plan Corp. of America, succeeding Austin L. Babcock. Morris Plan Corp. has large stock holdings in all the Morris Plan banks, the largest industrial banking system in the U. S. In the last 21 years these banks loaned $1,750,000,000 to 7,000,000 people, and now do about $200,000,000 annual business with 800,000 customers.”

Morris Plan banks pioneered the use of automotive financing through arrangements between the Morris Plan Company of America, the holding company for Morris Plan banks, and the Studebaker Corporation. In 1917 through the subsidiary Morris Plan Insurance Society, credit life insurance was offered to pay off any outstanding loan balance if the borrower died. Any insurance left over went to the borrower’s estate.

In their description of Morris Plan banks, authors Phillips and Mushinski offer one explanation for model’s success versus credit unions:

“The Morris Plan structure was more attuned to the individuality of typical Americans than were credit unions.

“It should also be noted that the Morris Plan was not without critics, especially from the Russell Sage Foundation which viewed the lending procedure to be misleading at best, and at worst, an attempt to defraud the borrowers. Hence, many viewed the profit-seeking Morris Plan institutions as little better, and in some respects worse, than loan-sharks.”

Morris Plan Banks vs Credit Unions’ Growth

Morris Plan banks began the same year as credit unions. In just two decades, by 1931, they became the leading provider of financial options for consumers.

The following slides summarize this state chartered, for-profit enterprise.

1. Begun by a lawyer to meet the need for unsecured personal credit.

2. Innovative legal structure incubated in the state chartering system.

3. Loans were made based on character, for a good purpose with at least two cosigners of similar economic standing.

4. Morris plan banks’ annual loan volume in 1931 is estimated at over $200 million. The state-chartered credit union system reported just over $40 million.

5. Morris Plan banks failed during the Depression. Many converted or were sold to commercial banks which took consumer deposits and had broader lending options.

Today the descendant of this banking model is the Industrial Loan Company (ILC) state chartered, FDIC insured banks that primarily serve as specialty lenders.

Morris Plan institutions relied on wholesale funding and stock subscriptions. Credit unions which offered savings options and consumer loans quickly became the preferred option for members and communities in the Depression. Their non-profit cooperative design, self-help appeal and local leadership created a positive reputation and loyal members following numerous failures in the banking system following Roosevelt’s bank holiday in March 1933.

Some Reflections for Credit Unions from the Morris Plan Experience

  • Being first to prove a market need and establishing a dominant position does not guarantee ongoing success. Second movers can create a long-term advantage.
  • Growth requires innovation and staying in touch with a market’s needs.
  • The more flexible the institutional model, the greater the chance of sustainability;
  • The Credit Union system took on a new wave of expansion and credibility when a federal charter option became available—Morris Plan banks were dependent on state-by-state legislation;
  • Values and perceptions matter. Although Morris’ instinct was to serve the unbanked, the for-profit structure created a public perception of conflicting purposes.
  • Dramatic or sudden changes/crises in the economic, social, or political environment can lead to demise of models developed in another era.

Buying Used Up Models?

As credit unions pursue whole bank acquisitions, are they buying “tired” business models built with different values and goals? Are these credit unions giving up the advantages of cooperative design and innovation attempting to purchase scale? Will combining competitors’ experiences (and customers) with the credit union tax exemption create an illusion of financial opportunity that fails to prove out when evaluated years down the road?

Two decades ago, the prophets of cooperative doom were selling charter conversions, first to a mutual option and then later, going public with stock. The pitch was: more capital flexibility, no common bond restraints and expanded asset and investment options. And oh, you could also make a lot of money if the former credit union went public.

Between 30-35 credit unions bought into this vision of future financial nirvana. Today only one institution remains, still a mutual whose growth has trailed its cooperative peers since the conversion took place. But that is a story for another day.

We know the fate of the Morris Plan banking model and the “consultants” siren calls to convert to another financial charter. We don’t know if bank purchases will indeed add value for members or their co-op.

But we can learn one thing from history—if these purchases do not create a stronger cooperative, the credit union’s future may have just been attenuated in this effort to induce growth by paying out members’ collective wealth to bank owners.

Historical Trends & Today’s Share Growth

How unusual is credit union’s 20.3% share growth in 2020?   Or the slight uptick to 23.2% for the 12 months ending March 31, 2021?

For the decade ending in 2020, the credit union system’s compound annual share growth (CAGR) was 6.7%.

Share growth drives the balance sheet.  The two sources for shares are expanding existing member relationships and adding new members.  The rate of new member gain in this same decade was 3.4% (CAGR).  This suggests a balance of internal and external growth sources.

In 2020 however, new members grew at 3.3% or just 16% of the total gain in shares that year.

The 2020 results remind one of the marketing adage about finding more business: there is always more business to be gained from existing customers than from acquiring new ones.

In plain speaking, if existing members aren’t growing their relationship, why will new ones find your offerings attractive?

Data Source:  Callahan’s 2020 Credit Union Directory (pgs. 1-2)

The Key to Cooperative Success

Everyone has a different perspective on the advantages of cooperative design.  For some it is self-help and self-financing.  For others, member ownership.  The tax advantage creating free capital. Cooperative values. Collaboration. Etc.

One CEO described his operational priority that states this critical factor most clearly:

Invest in your owner’s agenda and remember, it’s outside your own. The success of your members is the only chance you have at success.

 I would add that everything else is just becoming the competition.