Has the Credit Union System Lost its Entrepreneurial Edge?

The cooperative model thrived because the founders believed their innovative efforts would improve members’ lives. That belief in creating something better is a key motivation for persons launching startups.

In the credit union system this pioneering spirit lasted well into the 1980’s. New organizations were designed to serve members and enhance collaborative efforts. At a system level, both the CLF and NCUSIF were fully funded with models requiring shared responsibility between the regulator and credit unions.

Onboarding the Next Generation

Coop charters for new generations of members were one element of this creative energy. In 1984, NCUA in coordination with the credit union system, launched CUE-84 (Credit Union Expansion 1984). The goal: achieve 50 million members to celebrate the 50th anniversary of passage of the Federal Credit Union Act.

An essential component was expanding student run credit unions at colleges and universities. In NCUA’s 1983 Annual Report, three student credit unions – at Georgetown, Skidmore, and the University of Chicago– were highlighted from that year’s 105 new federal charters.

This effort continued into the mid 1980’s. The New York Times in a lengthy 1986 article, Credit Unions Boom On Campus, opened with a brief history of student charters:

“The first student credit union was formed in 1975 at the University of Massachusetts. Students at the University of Maine formed one in 1978 and at the University of Connecticut in 1979. But it was not until 1983, when the National Credit Union Administration helped to organize its first conference for colleges, that today’s credit union movement began. Four were formed that year.”

The attraction for the student organizers was “the students who start credit unions see them as good training for a career in finance.”

According to the Times, interest was widespread: “By doing so these young people, a group increasingly known for their career-mindedness and entrepreneurship, have made the student credit union into the campus business of the 1980’s.”

NCUA’s role

NCUA’s support for student charters was a central point of the article:

“There has been significantly more growth in the number of new student credit unions than other types of credit unions,” said Harry Blaisdell, a spokesman for the agency. ”The chartering of new credit unions has slowed down significantly in recent years, but there has been a real explosion of interest in college student credit unions.”

Mr. Blaisdell estimated that at a minimum, another ”half dozen” would be chartered in 1986, with ”a good possibility of more.”

The increase has been due at least in part, Mr. Blaisdell says, to an effort by his agency to encourage their formation. In 1984, the agency modified a credit union regulation so that student credit unions could accept deposits from corporations, philanthropic organizations and ”other supporters” outside their chartered group.

Normally, Federal credit unions are permitted to accept deposits only from members, but the law also allows credit unions that serve primarily ”low income” members to accept insured savings accounts. The agency expanded the definition of ”low income” to include students.

”This is in keeping with the Administration’s emphasis on private-sector initiatives in this time of decreasing availability of college funding,” Mr. Blaisdell said.

Mr. Blaisdell said that his agency has organized several national conferences on student credit unions and published pamphlets that tell students how they can form their own. One of its pamphlets, called ”Credit Unions for College Students,” offers, at no cost, to provide information and send an official to help organize the credit union.” (emphasis added)

De Novo Efforts and the Future

Attracting the rising student generation is critical for the survival of any business or industry. Today NCUA’s chartering process is at best clogged and at worst nonexistent for everyone, not just student led credit unions. This disinterest in new charters is also widely shared. Many existing organizations prefer focusing on established credit unions versus small startups.

Moreover, there is a world of difference in the skills required to manage an established institution versus the spirit necessary to start something new. In an ever-changing economy, losing this startup instinct can quickly lead to obsolescence or what academics call isomorphism—copying the competition and becoming identical in structure and form.

One CEO, an ardent believer in chartering, described why this creative impulse matters:

  • “De Novos spark renewal and all it implies about the faith in what the current players are doing – “we like what we are doing and want more to join us in the effort” – an endorsement of the future.
  • De Novo is about the spirit and the energy of those who will start something worth the effort and are ready and willing to push up a hill.
  • De Novos create a small sandbox opportunity for innovation and agile adjustments to longer standing models.
  • De Novos create a rallying point for participation and sponsorship by ALL – an opportunity to give generously, with gratitude, to encourage system resilience.
  • De Novo efforts are always more than starting a small CU – they are the feel-good effects where individual hope is ever present and renewed.”

Emulating Banking Strategy?

Credit unions’ remarkable success has led some away from the key factor that underwrote today’s industry standing. The cooperative model succeeds because it is people-centric, putting the member as the focus for all decisions.

This is very different from a capital-based system where decisions are driven by investors’ projected return on their wealth.

Credit unions’ financial stability and reserve accumulation have tempted CEOs to adopt this capitalist model:

  • to buy new businesses, not innovate current processes;
  • to merge other credit unions versus organic expansion into underserved markets;
  • to buy banks versus offering better value to their customers and communities.

Credit unions increasingly finance versus invent change. Innovation means searching for and funding external startups deemed relevant to a credit union’s priorities.

A Gap in Human Capital

Credit unions’ growing financial surpluses now cover for a deficit of human ingenuity and commitment. Some CEO’s and boards invert the cooperative model of self-help and collaboration. They use their ever-increasing financial reserves to purchase competitors or further market dominance, not pursue their members’ agenda.

The efforts by students and others to start their own institution should remind all credit union supporters of their cooperative roots. It is vital that newcomers be given the opportunity enjoyed by ordinary citizens in prior eras to start their own coops. If new entrants are not encouraged, the alternative will be a maturing system preoccupied with institutional trophy acquisitions.

A critical priority for today’s leaders, building on the fruits of others’ labors, is promoting this spirit of renewal. Entrepreneurs are an essential resource to bring new life to cooperative systems both present and future.

3 Replies to “Has the Credit Union System Lost its Entrepreneurial Edge?”

  1. A college student run credit union pioneer:

    Jeff Carpenter
    Chief Executive Officer at WEOKIE Federal Credit Union
    Oklahoma City, Oklahoma, United States

    Miami University
    Degree NameBSField Of StudyFinance
    Dates graduation1986 – 1990

    Activities and Societies: Founding President and Chairman of the First Miami University Student FCU.

  2. Great piece, Chip- really insightful point that launching a CU and operating one for the long term requires different skill sets- fortunately students offer both in abundance.

    I was part of the startup team for the University of Pennsylvania Students FCU (opened our doors in 1987) and am proud to say it’s still going strong. I recently re-engaged as a Board of Advisors member and it’s incredibly gratifying to witness the talent and passion of each successive set of leaders.

    I’ve been trying to determine when/why the broader student CU movement lost steam- do any readers have insights?

  3. Hello Chip,

    Thank you for provoking thought. As a University of Connecticut Alum and a CU advocate, I am sad to say that UConn’s CU was merged or liquidated long ago and no longer serves students – at least there is no presence on campus. This is especially sad because the campus CU model has many benefits for the sustainability of the movement when it is well executed and nurtured. One is awareness and knowledge of credit unions as a career option and another is learning about coops. Sadly, the UConn coop bookstore also went away about five years ago when the administration felt they would benefit more financially from a relationship with one of the national chains.

    The good news is that some student CUs have thrived – Georgetown for example has engaged student leadership that gives me hope!

    Joanne Todd, ICUDE
    President/CEO
    Northeast Family Federal Credit Union

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