Author: Chip Filson

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How Will Trump Administration Policies Affect NCUA?

In a full first day of pomp, circumstance and executive orders, a new regime took over the leadership of the U.S. government.  Among the new President’s many actions was appointing Kyle Hauptman as Chairman of NCUA.  What will this mean for the agency and credit unions?

Among the blizzard of Trump’s first day executive orders were a number directed at the administration of federal agency management.   These orders included:

  • The requirement for all employees to return to office five days per week;
  • A freeze on hiring;
  • The removal of civil service protection on senior positions.
  • Ending all DEI training and policy implementation.

There were also multiple references to eliminating regulations and sending the people’s money back to them via reduced spending, and maybe lower taxes.

Chairman Hauptman’s term expires in August of this year.  Will he follow these priorities of the new administration or assert independent agency status, and therefore not bound by these initiatives?

Hauptman has a number of initial decisions that will indicate what his governing practice will be including:

  • Who does he add to his team as appointees and what is their professional experience–credit unions or government employment? Or, purely political patronage?
  • What is his governing philosophy? Is the job a full-time leadership responsibility for the agency, or merely a policy setting role delegating to staff all interpretation and implementation?
  • What is his view of the role of the cooperative credit union system? Is the coop design unique, or just another form of financial choice in the marketplace?  How does he assess the major trends in the industry including merger-acquisitions, the buying of profitable banks and the suggestion that credit unions be taxed?

Preparing for the Role

Hauptman announced his intent to become chair posting “openings” on LinkedIn several weeks ago.   His view of credit unions and a governing agenda have never been spelled out.  His statements on policy have been in response to Harper proposals, which he has largely supported including the longest, most intrusive rule NCUA ever added to the books, Risk Based Capital.

What will be his leadership style as Chair?   How accessible will he be to the public, the press and to the credit union community?   Will he listen in conversations or deliver scripted positions?  Will he present objective and fact-based priorities or rely on general cliches about government’s role?

Can he articulate common purpose with the cooperative system founded on collaboration, or will he assert NCUA’s independence from credit union’s destiny or fate?

When problem events occur, will he respond with factual answers, send out staff to reply, or worse, just stay silent and avoid any comment as the press reports on credit union shortcomings?

People, especially those working in credit unions serving members, want to hear from their regulators.   The coop democratic structure is intended to give responsibility to the members and their chosen leaders.  Openness builds trust and confidence.  Distance undermines the collaborative advantage which is the foundation of two vital NCUA facilities: the CLF and the NCUSIF.

The Learning Challenge

For both individuals and organizations to succeed they must become learning entities.  Responding to change is more than just adding new technology or professional expertise.  It means sharing  a vision while responding to the constant changes which we all face.

The Shakespearean actor Patrick Page stated that it takes at least 30 years to become an effective performer.  Acting first requires knowing thyself, the motivations and awareness that comes from life’s experiences, relationships and multiple roles.  But just as important is understanding the same characteristics in others-especially if you intend to present their character to the public in plays.

Leaders are formed in the same way.   Leadership is not conferred by appointment to a role—no matter how deserving the individual interprets his or her selection.  It is formed in the challenges of life—the wins, the disappointments and the strivings.

Now Hauptman has the chance to show how he will learn and lead.   The fate of an industry may depend on how successful his growth can be.

 

 

 

 

 

 

 

 

 

 

 

 

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Thoughts on Inauguration Day 2025

Mark Twain was incisive when chronicling the contradictions in our public behaviors.   For example:

‘Truth is stranger than fiction, but it is because fiction is obliged to stick to possibilities; Truth isn’t.’ – Mark Twain

That irony reminded me of this fictional scene from The Newsroom, an American TV series, with actor Jeff Daniels as lead anchor Will McAvoy. The show chronicles the behind-the-scenes events at the fictional Atlantis Cable News (ACN) channel.  In this exchange he is asked by a student about America’s greatness.

(https://www.youtube.com/watch?v=wTjMqda19wk)

Twain also observed: ‘We have the best government that money can buy.’ 

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A Story That Must Be Told

This is a post from the Ukrainian based blog, The Counteroffensive published yesterday.  In simple, clear words and pictues, it tells of heroism and of sacrifice-the ultimate price of freedom-for Ukraine and every country that believes in government by the people.

He was killed in combat, while she was pregnant

by Myroslava Tanska-Vikulova

In a few weeks, Andrii Kuzmenko was supposed to hold his newborn daughter in his arms, but this will never happen. Like tens of thousands of other soldiers, he was killed by Russia.

He was killed in the Donetsk region on January 4. He was 33 years old.

Two Journalist Volunteers

Andrii was a journalist for the Ukrainian media outlet Novynarnya. But when the full-scale war began, he voluntarily joined the armed forces. He became an officer and a scout in the 2nd Marine Battalion.

Andrii is survived by his wife, also a Ukrainian journalist – the volunteer and author Anastasiia Fedchenko, who is nine months pregnant.

Anastasiia Fedchenko holds her head in her hands, crying for the now-lost future they had dreamed of together.  The pregnant wife kneels in front of the coffin of her husband who died in the war.

Watching the young wife grieve at his funeral last week, knowing he would never meet their unborn child, was one of the hardest things I have seen in this war so far.

Just last month, the happy couple did a photoshoot together, proudly holding Anastasiia’s bump, and staring into each other’s eyes. She posted this photo on her Facebook page on December 31, 2024, captioning it: “My main result of the year is love!”

Just several days later he would be dead during a combat mission.

At Andrii’s funeral, there are many people around, all carrying flowers, fresh, without plastic wrapping, as his wife had requested.

Most of them are holding roses, which is very unusual for a farewell; in Ukraine, since the Soviet Union, it has been a tradition to bring carnations to a funeral.

A motorcade of cars arrives at the cathedral.  Among them is a white Sprinter van.

When it stops, its doors are opened by a dozen soldiers. Inside, there are wreaths of flowers, and the coffin with Andrii’s body is behind them.

There is silence. No one dares to say a word, only the sound of clothes rustling and soldiers walking around can be heard.

But this silence is broken by a previously inconspicuous woman in a long blue coat, who begins to cry loudly. She covers her mouth with one hand to muffle her voice, her eyes fill with tears, and her other hand supports her already large belly.

This is Anastasiia, Andrii’s pregnant wife.

At this moment, it is most painful for me to think about how many families are like this. How many women have lost their husbands while pregnant? Often on social media, you can see videos of Ukrainian women organizing gender parties at the graves of their husbands.

The worst thing is to realize that these children were not abandoned by their fathers, who may have wanted them more than anything else in the world. Instead, Russia decided that it had the right to take away the most precious things from people – their lives and families.

Next to Anastasiia is an old woman of small stature who keeps looking into the coffin and saying softly, “Son…”. This is Andrii’s mother.

The atmosphere in the cathedral is heavy. All around, there is a powerful smell of burning wax candles. It seems that the cathedral itself is mourning all the fallen Ukrainian soldiers. It’s hard to breathe there, I want to get some fresh air. But the feeling prevails that praying for the repose of the soul of a fallen soldier who protects each of us is the least we can do.

The funeral ceremony in St. Michael’s Cathedral lasts about 40 minutes.

For me, this time seems like an eternity, but for his wife Anastasiia, it probably flies by. At the same time, this is only my assumption, because it is difficult to imagine what a wife who has lost her husband in the war feels.

All those who came to say goodbye to Andrii were divided into two camps: first, his family, friends, acquaintances, and colleagues.

Second, a bank of journalists, recording the ceremony.

They Want His Story Told

At some point, it seemed completely absurd to me: dozens of cameras shining on Andrii’s coffin, and photographers running around looking for a good shot. It seems that in such an intimate moment, when his family is already alienated from everyone they know, they cannot get the peace they want to say goodbye to Andrii on their own terms.

But Andrii’s family has allowed journalists to be here, because they want his story to be told. After the ceremony, I tried to speak to some of the guests to get a sense of Andrii’s life.

Many of those present are not used to such publicity and refuse to comment. But those who do speak have nothing but wonderful things to say about him.

His friend Tetiana said that Andrii was someone who enjoyed cooking liver cake – a savory Ukrainian delicacy – for his loved ones, and also someone who was so thoughtful that he cleaned up before his cleaning lady came, “because he was ashamed”.

She describes him as a sincere and kind man, and his death is a great loss for Ukraine.

Andrii’s coffin is taken out of the cathedral. His wife follows it, Kyiv, January 10, 2025

Before he died, Andrii was dreaming of a future of peace and tranquility when the war ended. He was planning a happy family life and waiting to finally spend more time with Anastasiia.

But in the end, Anastasiia and Andrii spent no more than two months together during the almost year and a half they were married – their wedding was in September 2023. All the time Andrii was at war.

After his funeral, Andrii Kuzmenko was buried in the Alley of Heroes in the forest cemetery in Kyiv.

 

 

 

 

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Honoring our Cooperative Heritage

A June 26, 1984 gathering of “Old Timers:” current NCUA board members, prior Administrators, past General Counsels and senior staff celebrate the 50th anniversary of the passage of the Federal Credit Union Act.

Seated  left to right: Deane Gannon, Joe Blomgren, Richard Walch and Bernard Snelick.

Standing left to right: Joe Bellenghi, Austin Montgomery, Fred Hayden, P.A. Mack, Ed Callahan, Elizabeth Burkhart, General Herman Nickerson and John Otsby.

A statement of cooperative enterprise from a church’s bulletin board

LEGACY

All of us are indebted to the past,

to those who precede us.

We drink from wells we have not dug.

We enjoy liberties that we have not won.

We share faith whose foundations we have not laid.

 

At the same time,

We are seeds of the future,

for those who succeed us.

 

We dream and envision

and set things in motion.

The fruition of our decisions

will be known only to others,

whom we wll not meet.

 

We are called to partner in faith

with those who have gone before us

and to offer the best

that we have to give

to those who will follow.

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One More Time: How Does $13.6 Million Vanish without a Trace?

The Creighton FCU insolvency resulted from the sudden discovery of a $13.6 million hole in this reportedly $67 million asset credit union.  The failure, NCUA’s largest in 2024, is apparently an unsolvable mystery.  One in which the only suspect has  died.  As I first posted, NCUA has provided not a single fact about where any of the money went.  Just speculation.

More incredible is the IG suggestion that there is no money missing, just a bunch of accounting errors. Moreover, no one seems very curious about finding out where money went. In the IG response to the Congressional inquiry he opens with the statement:  “my office was not required to perform a material loss review. Additionally, NCUA informed us that the agency was not required to conduct a post-mortem review.”  In other words, don’t look for any answers from us.

The one IG explanation is that the CFO, who died in April 2024 leading to the shortfall’s discovery. was covering up actual operating losses for up to 26 years. We’ll examine this idea later.  In the IG’s summary review, no one within the credit union or NCUA  examiners and external  CPA auditors apparently saw any indications of irregularity during  three decades.

The IG further assures Congress that an over “20 year review” of the CFO’s family records reveals no unusual credit union cash diversions. Yet this is still the person who carried out this cover up apparently alone, fooling every check and balance and division of duties for such an extended scheme.

Blaming a person no longer around, and who apparently took no funds, feels too convenient.  Let’s look at the plausibility of the IG’s theory and facts we do know.

The Cash Came In

We know the members deposited the cash and the funds which went missing.   When the $13.6 million shortfall was discovered, this hole was covered by underreporting shares by an almost equal amount.  Shares balances in the March 30, 2024 call report were $61 million.  Ninety days later the total reported by NCUA in their exam and the June call report  was $74 million.  This is the exact total change in net worth. And the same order of magnitude ($74 million) for Creighton members’ share liability when merged with Cobalt.

But where did the cash go?   Here is the IG’s “official explanation” after reviewing all the information he reviewed:

NCUA officials believe the credit union failed due to bad accounting and financial statement fraud. The large deficit was hidden by the former CFO who exploited Creighton’s weak accounting system that allowed back posting, forward posting, deleting transactions, and hiding general ledger accounts when generating reports. Because no money was found to have left the credit union through this, NCUA officials believe the former CFO committed the fraud not for personal financial gain, but to make the credit union appear to be thriving in the eyes of its Board and membership.  

The IG’s “Thriving by Hiding” CFO Motivation

Reread what the IG just asserted.  Although we know the $13 million member deposits came in, “no money was found to have left the credit union.”   This CFO was cooking the books just to hide operating losses for 26 years.  This is what the IG wants us to believe?

Cash shortfalls creating a cumulative deficit can only occur if the credit union pays out that cash in some form (hidden operating expenses, fraudulent loans, fake withdrawals, phoney investments etc) What were those payouts? Some entity or person received these cash diversions hidden by accounting coverups for decades.

A brief IG reference is made to the management of the credit union’s 150 ATM’s for which the accounting was difficult to reconcile.  This should have prompted questions such as, what accounts were used to fund the ATM operations?  Who managed the cash deliveries and cash drawer balancing when machines were serviced?  Was there an external servicing contract or were cu personnel responsible? The IG letter states:  Fraud auditors reviewed ATM and lease payment accounting transactions. The regional director stated that the ATM accounting was extremely complicated due to Creighton having over 150 ATMs and the multiple ways in which income and expenses could be divided.”    

The IG statement is an NCUA and auditor admission they could not figure out what was going on. Managing 150 cash receiving and paying ATM’s is similar to having to reconcile 150 teller cash drawers periodically.  Cash comes from deposits and checks, and cash is with withdrawn by members from their share accounts.

NCUA’s Regional Director is reported to find that “ATM accounting was extremely complicated.”   This is what should be expected from covering up a missing $13 million.  But not a single instance of imbalance or shortfall is cited.   Or even a reference to how the machines were managed.

And the closest we get to the smell of a smoking gun is not from NCUA or outside auditors, but from Cobalt which is quoted in the IG report:

“NCUA officials advised (note the passive voice) that in early October 2024, they learned from Cobalt that after the merger, Cobalt determined that the former CFO understated expenses related to the ATM network to artificially boost Creighton’s income statement to appear to achieve a steady net income.  The IG continues:

“Cobalt surmised that the former CFO was either not booking the monthly ATM expenses at all or was severely understating the expenses. Cobalt indicated the ATM costs alone should have been $255,000 each quarter. They determined the CFO booked around $120,000 per quarter to the office Operations account. Cobalt officials explained to NCUA officials that this would account for an approximate $500,000 to $550,000 reduction in net income per year if no other expenses were booked to the Office Operations account. 

Cobalt officials explained that over more than 26 years, such an understatement would easily account for the $12.5 million deficit.”

One can only say Wow! to this explanation from Cobalt.  NCUA did not make this finding. ATM expenses are for cash outlays for withdrawals and network operations.  The bottom line is that someone or some entity was paid the money.  Who wrote and signed the checks for these underreported expenses? The IG report makes it appear it was all just confusing bookkeeping.

Putting the Blame on a Fall Guy

Cash from members shares came in and $13 million cash ended up missing.  For 26 years it was all the “fault” of a person no longer living.   Which means that all of those who were simultaneously responsible for the safe and sound operation are let off the hook.

Among these listed in the IG letter are the CEO of 32 years, a senior accountant, the board, the supervisory committee, the outside auditor, special auditors and multiple NCUA officials from the supervisory examiner, problem case officers up to the RD’s office.

These were not just persons called in to observe a financial autopsy. They were directly responsible for this institution’s safe and sound operation  in their various  capacities in the many years before this failure came to light.   Yet we read not a word about their roles including the person who oversaw the CFO and his senior accountant staff this entire time.

The Reported and Reconstructed Net Income

Here is what we know from the most recent eleven yearend call reports prior to June 2024.

Creighton FCU’s Reported Financial Performance

OK performance, but certainly not world beating.  If one believes the IG’s theory, then the real result in this most recent eleven years was an operating loss of $5.5 million from ATM “expenses” plus false net income of $2.0 million. A $7.5 million difference somehow  hidden by creative accounting.

However if one presumes a steady cash diversion as the problem, then adding back the estimated $500,000 or more per year means the credit union actually made $7.5 million—most of which was “expensed away.”  This earnings  would equate to an average ROA of 1.2% or four times the net in the call report.  And a reasonable possibility.

The cash from member share growth came in. The cash went out the door as an “operating expense” somehow, somewhere.

A diversion of this magnitude for this long would seem to require several participants.  Presumably the ATM’s were not deployed all at once.  A system of diverting cash was initially set up and expanded as the network grew. Was some entity or person(s) servicing the machines somehow involved?  Other credit union employees had to balance the ATM total cash receipts and disbursements to the general ledger.  There had to be a system for quickly producing expense and suspense entries to cover up the missing cash for exams and auditors.  No one person could fill all these roles.

Since the share shortfall was quickly found suggesting a second set of books, there is probably a similar recurring system for diverting cash to sustain this activity for decades.

All the people listed in the IG reports were in the room when this happened.  But none of them was apparently asked for an explanation of how this could have occurred on their watch. For example how could the CFO have “managed” the expected net income without first talking to the CEO about the results?

After reviewing 20 years of the deceased CEO’s family records, and finding  “no improper transfer of credit union funds”, the IG’s simple explanation is that “that the CFO hid this $12 million deficit by exploiting the credit union’s weak accounting system.”   But how long had this “weak accounting system” been in place?

The lack of any IG mention of NCUA exam and CPA  responsibility for “weak accounting” suggests a reluctance to learn who is accountable for what in this failure.  Instead put the blame on the person no longer available, and who took nothing.

Questions the IG should have asked include: What were the examiners’ CAMEL ratings in the most recent years?   What did the supervisory committee do?   How did examiners record the problems of” back posting, forward posting, deleting transactions, and hiding general ledger accounts”  now offered to explain the inability to find the shortfall?  Did the CPA firm give a clean audit opinion?

The NCUA and IG’s failure to look at the standard processes for oversight and accountability reflects a flaw in the agency’s own structure. Handing problems over to another credit union to cover up NCUA’s supervisory failures, will only lead to more such failures.

Throwing a Credit Union Under the Bus

Cobalt FCU and their members are taking the hit for Creighton’s financial and supervisory failures. The immediate results of the Creighton merger in the September 2024 quarter include a share inflow of over $73 million; a reduction in undivided earnings of almost $7.0 million (from $115.6  to $106.5–( i.e. Creighton’s negative net worth); and an increase of 6,700 members versus declines in the immediate prior quarters.

Additionally, Cobalt’s net income from ongoing operations reported a $400,000 third quarter loss. The year to date net income is a negative $2.2 million. These combined changes resulted in Cobalt’s net worth falling to 8.1% from 9.2% at the September 2023 quarter end.

A Case Study of Failure-at All Levels

In the IG’s reply to Congress, he states one of the objectives was to report on:

the effectiveness of the National Credit Union Administration’s (NCUA) examination and oversight processes in detecting and preventing financial irregularities, and the role and performance of external auditors in this case.  The letter covers none of these issues. 

At this time no one yet knows where the missing cash has gone.  NCUA has not worked very hard to get critical information on the event. The IG mentions a possible explanation suggesting there is no missing money-just accounting confusion.   But the $13 million of member funds is gone.

NCUA seems to have distanced themselves from any further explanations, even citing Cobalt for the latest accounting examples.  Yet overseeing the safe and sound operations of credit unions is NCUA’s number one priority.   NCUA failed totally and quickly moved on  in this case.  They have literally closed the books, fended off queries and  said there is nothing more to see here.

If this sudden $13 million failure is not a wakeup call, when will the senior leaders of the agency step up to the mike and take responsibility?  The NCUA board is responsible for governing the agency, not staff.

The Board’s silence and turning over responses to the IG for a Congressional inquiry for its largest cu failure in 2024 is a leadership failing.  The agency’s no comment and the IG’s second and third hand reporting,  undermines pubic trust and confidence in NCUA’s administration.  Congress, credit unions  and the public want to hear from their leaders in a crisis, not the bureaucracy.

Perhaps it is time for a real change at the NCUA board.

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What is Credit Union’s Destiny: Capitalists or Cooperatists?

The following essay is by Ancin Cooley a credit union consultant, educator and strategic thinker.

As cooperatives enter the new year and new administration, he asks what kind of system will we become: An increasingly capitalistic driven or a member-centric one?

His analysis raises several questions that merit discussion within a credit union and in national forums:

Can credit unions, as capitalist enterprises, solve the problems caused by capitalism?

Who will organize the public dialogue to work through these issues of tactics and motivation?

If Credit Unions Are Leaning More Toward Capitalism, Which Version of Capitalism Is It Going to Be?

by Ancin Cooley

Credit unions once stood for the little guy. They were the warm, flannel blanket in a frigid financial climate: member-owned cooperatives dedicated to local communities, lower fees, and a sense of shared purpose. Lately, though, you’d be forgiven if you can’t spot the difference between your neighborhood credit union and the bank building down the street—right down to the slick marketing campaigns, steel-and-glass lobbies, and ballooning CEO compensation packages. It’s like spotting an old friend who has suddenly switched wardrobes, started drinking designer water, and embraced the virtues of “disruption” at all costs.

What happened to the sense of community?

Many people would argue that good old-fashioned capitalism got in the way. But here’s the key question: If credit unions have indeed started turning into miniature capitalist juggernauts, what version of capitalism are they embracing?

A Quick Tour of “-isms”

First, let’s zoom out for a moment. Think of economic systems like religions. In the United States, you can believe (or not believe) whatever you want, but a majority happen to identify as Christian. Similarly, the U.S. largely identifies as capitalist—again, not by official edict, but by cultural consensus. Communism has typically been deemed the boogeyman in American political discourse, evoking Cold War imagery of red flags and missile crises. Meanwhile, cooporatism—the idea that economic endeavors should be collectively owned and democratically managed—sprouted here as a folksy alternative to big banks and other monopolies, which is precisely how credit unions got their start in the early 1900s.

The Cooperative Spirit That Launched Credit Unions

Credit unions are essentially the love child of cooporatism. They’re not-for-profit, owned by their members, and ideally anchored in local communities. Picture townspeople pooling their money in a local fund, offering small loans to one another, and sharing in the success of their own modest financial institution. The whole idea was to stay small, neighborly, and member-focused—an ethos that resonates with the moral sentiments championed by Adam Smith (yes, that Adam Smith). Contrary to popular belief, the “father of capitalism” had a profound moral philosophy grounded in empathy, virtue, and social well-being. He believed self-interest guided by strong moral grounding could be beneficial for society at large.

Enter the Capitalist Invasion

But as in any good morality tale, the villain (or hero, depending on your perspective) storms in. Over the past few decades, many credit unions began embracing what looks suspiciously like Milton Friedman–style capitalism. Friedman, a famous 20th-century economist, asserted that a company’s sole responsibility was to maximize shareholder profit—no matter what. Translating that to a credit union context, the equivalent might be: “Grow the institution as large as possible, centralize power, and ensure the CEO and board benefit from the increased ‘scale.’”

Mergers, Mergers, Everywhere

We can see evidence of this in the recent wave of credit union mergers. From 2016 to 2021, the number of federally insured credit unions dropped from roughly 5,785 to around 4,900, according to the National Credit Union Administration (NCUA). That’s nearly 900 institutions gone or absorbed in five short years-most financially well capitalized. Sure, there are regulatory pressures, compliance costs, and technology demands that make it hard for smaller institutions to keep up. But it’s also true that once a credit union merges, the resulting entity can boast a bigger balance sheet, which often correlates with a higher profile and executive pay and perks.

Here’s the kicker: When two for-profit companies merge, shareholders typically cash out (or at least receive new stock that might increase in value). In a credit union merger, members get… nothing. No grand payouts, no bonus checks in the mail—just a letter telling them their local branch now has a different name and brand colors, plus perhaps a new CEO and board, not of their choosing. From a purely Milton Friedman perspective—where everything is about maximizing efficiency and returns for those at the top in control—this is entirely logical. From an Adam Smith lens—or even from a Bernard Harcourt–style argument for cooporatism—it’s ethically fishy: you’re sacrificing the well-being of the collective for the ambitions of a few.

Is It Ethical—Or Just Permissible?

But the capitalist incursion doesn’t stop at mergers. Increasingly, we see credit union leadership using member funds to influence lawmakers and regulators, effectively rewriting/interpreting the rules in a way that can benefit top executives over members.

One glaring example is how some CEOs and their associated “leagues” have lobbied for legislation or regulatory policies that dilute or obstruct succession planning rules. You’d think that ensuring a robust and transparent succession process would be an obvious good—central to the continuation of the cooperative charter—yet letters from CEOs to state leagues or directly to the NCUA often argue otherwise.

Why oppose a rule that fosters leadership continuity and protects the membership? Because lacking a formal succession plan effectively empowers incumbent individuals to shape the credit union’s future behind closed doors, sidelining the membership. Worse yet, this lobbying is paid for with member dues. The same phenomenon plays out at the league level, where executive leaders create a “league of leagues” with minimal or zero board director representation—a backroom labyrinth that often makes it easier for a small circle of CEOs and league presidents to dictate priorities.

Is this consistent with fiduciary responsibility and democratic governance?  Perhaps not. But as long as it remains legal and permissible within existing frameworks, the line between “member-owned cooperative” and “CEO-centric empire” only gets further distanced.

Another Example: Overdrafts

Let’s give another example: overdrafts. The overdraft conversation, from my perspective, is played out in ways that run counter to the benefit and wishes of the majority of members. Those advocating for overdrafts to be maintained at existing fee levels often don’t dare ask their membership an obvious question—not whether members want overdraft protection at all, but rather what the actual cost should be. Should it be $30? $20? $10? $5?

Instead, the debate is too often framed as a yes-or-no proposition: You either support overdraft fees at whatever rate is charged or you’ll be forced to take a payday loan. That’s an intentional—and frankly misleading—form of argument that aims to scare members into complacency.

Meanwhile, there are far more pressing matters that credit unions could devote their time and resources to—such as the corporate ownership of single-family homes in local communities, which undercuts the credit union’s ability to provide mortgages to ordinary families. But too often, leadership is out of touch, clinging to outdated fee structures or doubling down on rhetorical defenses that only serve to alienate the very members they claim to prioritize.

The CUSO “Merger Exchange”: How Far Have We Fallen?

Now, let’s talk about the creation of a so-called “merger exchange” by a CUSO. Funded by other credit unions, this platform essentially lets CEOs put a credit union on the market—before even bringing the idea to the board or membership. Picture your realtor listing your home for sale without telling you first, then strolling back after the fact to grant you a 90-day comment period. It’s beyond absurd.

It’s also a stark symbol of just how far we’ve drifted from the original cooperative ethos. And the gall of it all—seeing credit union leaders hobnobbing at national conferences, patting themselves on the back while effectively circumventing basic member rights—feels dishonest and untrustworthy.

If we’re willing to normalize this practice, we should at least own up to the fact that the credit union movement is starting to look more like a private club for a handful of insiders than a community-driven, member-owned institution.

A Call to Conversation

As we watch the quiet suffocation of the original cooperative ideal under the weight of ever-larger, CEO-constructed conglomerates, we should ask ourselves: Are we actually okay with this? Credit unions were meant to be an alernative to the profit-at-all-costs and institutional-hubris  of the banking establishment. Is it a betrayal of their founding principles to adopt the very model they were created to disrupt, or merely the inevitable seduction of capitalistic motivation and methods?

Why don’t we ever see a CEO get on camera 90 or 100 days before the NCUA deadline and announce, “We’re merging our credit union into another one, and here’s why we’re doing it”? Why isn’t there an open town-hall discussion to engage the membership?

The answer is painfully simple: They do not want to give members the time or the platform to mobilize against a decision they’ve already made. It’s an unscrupulous reprehensible practice, and we all know it—and yet we allow it to happen on our watch.

A Time for Public Discourse

It’s worth having an open, unvarnished dialogue—among credit union members, boards, regulators, and even the broader public—about the future of institutions looking to give up their legacy purpose. Do we want them to remain true cooperatives, a vestige of “caring capitalism”  that Adam Smith might actually applaud? Or is the tide so strong that they’re destined to drift ever further toward a Milton Friedman–style corporate destiny?

One thing’s for sure: if credit unions are going to adopt more capitalist practices, they should be upfront about which version of capitalism they’re championing—and what that means for the very members they were created to serve.

Contact Information for Cooley:

Ancin R. Cooley, CIA, CISA. Principal                      Phone: 224-475-7551                                                        Email: acooley@syncuc.com

 

 

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Reflections Entering 2025

Some individuals believe leadership is about the spirit of the poem Invictus:  that I am the master of my fate and the captain of my soul. 

The majority, I believe, understand our future will more likely be shaped by communities and groups with which we participate, professionally and voluntarily.

The following is a selection of issues that we will  encounter in the year at hand. In contrast to the certainty of Invictus, management guru Peter Drucker cautions:  “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. ”

Success May Look Boring

I start with an observation by banking consultant John Maxfield:  Banking is a sport of unforced error. The harder one tries the worse one performs.

Tennis.

Ping pong.

Don’t be too ambitious.

Credit Union Leaders Out of Touch?

Outlining vital missions is the job of leadership.   But this skill does not necessarily come with those in positions of authority.  Consultant Ancin Cooley described one industry challenge:

A core question is about advocacy in our movement: Who are we really advocating for? If we claim to represent the interests of members, why does it so often feel like so much public energy is spent protecting interests that don’t align with members’?

So, should we be out in front of the overdraft fight or supporting legislation that limits corporate ownership of single-family homes? The response you get from some folks is often very telling. I often wonder who is actually making these decisions for the credit union movement because the direction we are going seems out of touch with our members and the communities we serve.

A good example to understand Cooley’s concern is the debate on credit card fees.  This article clearly outlines the conflicting positions credit unions must balance for members.  One of the author’s observations:  “Nobody ever got rich through credit-card rewards, yet lives have been ruined due to credit-card debt.”

Innovative ideas and compliance mandates cannot create the kind of priorities that clearly define credit union’s unique role in the American economy.  That can only come from persons who care deeply about their members’ future and financial lives.  When leaders combine both mind and heart in their roles, it may be possible for coops to discover possibilities  never imagined before,

The Loosening of Social Norms-Culturally and Politically  (by David  Kaiser, American Historian)

“From Shakespeare: “The fault, dear Brutus, was not in our stars, but in ourselves.”  So it is again.  What my generation has done was only human.  The self-restraint which, as the Founders realized, was essential to make the American experiment work, had weighed upon too many generations for too long. 

“It could not, human nature being what it is, endure indefinitely, and it didn’t.  It had indeed gone too far in some ways, and humanity has benefited from loosening some of those restraints. 

“Now it will fall to future generations to re-establish some of those restraints and enable us to live together and solve new problems in the large, cooperative communities which their vast numbers now need to survive.” 

The Proper Use of Artificial Intelligence (AI)

What if AI is unleashed and never quite controlled — not in the sense of a robotic takeover but, as Harvard law professor Jonathan Zittrain puts it, as a new form of asbestos: dangerous, everywhere and hard to get rid of.  

Trump Administration: Uncertainty about Everything

( Analysis from  Kellogg Insight, Northwestern University)

Two months have passed since the election and the policy landscape under a second Trump presidency remains as uncertain as ever. We suspect that the Republican-controlled Congress will squeeze some savings out of the budget, but not enough to have a material impact on economic growth 

Economists generally view innovation as the main long-term contributor to living standards, as new ideas make people more productive and richer, freeing up time to innovate anew. But there is a second strand of thinking in the economic growth literature, and it holds that political institutions matter most of all.

Peter Thiel famously said, “We were promised flying cars; we got 140 characters.” With crypto we were promised DAOs and smart contracts; we got $100,000 Bitcoin.  

Technical progress desperately needs to be matched by social progress that increases trust and delivers better decision-making — from neighborhoods to boardrooms to relations between heads of state.

The Outlook for Interest Rates

How will markets perceive the growing burden of national deficits and debt?

From the Rising Burden of US Government  Debt

Federal Debt as a Percentage of Gross Domestic Product

From Bloomberg Forecasts:  Hopes that the Federal Reserve would keep up a swift pace of interest-rate cuts have dwindled. That means stocks and US consumers could face mounting pressure, and borrowing costs could remain higher for longer.

An Environmental Change That Aligns with Credit Unions?

From: Addison Del Mastro on Bringing Back America’s Small Cities and Towns

In last year’s predictions roundup, I predicted that 2024 would see the housing crisis, and urban policy more generally, become more of a mainstream issue. Of course, that didn’t happen all at once, but I feel pretty good about the trajectory of these issues’ salience.

This year, I’m thinking about a laterally related issue that may have the wind at its back: the question of economic revitalization in small cities and towns.

However much (or little) the incoming administration may do in terms of housing affordability or lifting the fortunes of deindustrialized or “forgotten” places, the hope that they might do something about it was certainly a factor in Donald Trump’s victory. And a lot of small cities and towns are seeing new construction in their old downtowns for the first time in decades.  

The eye-watering expense of housing in the biggest metro areas, the rising appreciation for classic urban patterns and the sense that perhaps we owe something to places that have lost out to globalization, may all combine to create a real movement or effort behind bringing back America’s intact but battered small old cities and towns.

(From Discourse)

 

 

 

 

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Friday’s Shorts & a New Movie Release

Bank of Dave, part 2 was released on Netflix today. In this sequel to Bank of Dave, Dave Fishwick takes on a new and more dangerous adversary: the Payday Lenders.  A trailer.

(https://www.youtube.com/watch?v=sled6bgiK78)

Brief Comments on the Week’s Events

From George Bernard Shaw:

On elections:  Democracy substitutes election by the incompetent many for appointment by the corrupt few. 

On due process:  The theory of legal procedure is that if you set two liars to expose one another, the truth will emerge.

The more things a man is ashamed of, the more respectable he is. 

On the outlook for 2025 by J. K. Galbraith, Harvard economist: The primary function of economic forecasts is to make astrology look respectable.

The American economy’s challenge:  Can capitalism solve the problems created by capitalism? 

Mark Twain: “Whenever you find yourself on the side of the majority, it is time to reform (or pause and reflect).”
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A Plea for Patelco:  Seek Member Paraticipation, Not Proxies

Yesterday I received the following email signed by Patelco’s CEO Erin Mendez.  It read in part:

Dear Charles,

As part of a member-owned credit union, you benefit from our commitment to your financial wellness. Our volunteer Board of Directors helps guide the credit union – and you can allow them to vote on your behalf, making decisions to benefit you. Our Board of Directors and senior leadership work together to guide Patelco and provide the best service and benefits for you.

To help things run smoothly, we use proxies, which give authority for the Board to represent your interests when they vote. (A proxy is a person you designate to vote for you at meetings. By designating a proxy, you allow that person – in this case, a qualified member of our Board of Directors – to cast votes on your behalf.)

Update Your Proxy Today  

Clicking the update proxy link brings the following instructions:

Updating your proxy only takes a few seconds and remains in effect for three years. By updating, you will:

  • Have your vote represented with no need to attend meetings
  • Provide authority to our member-centric Board of Directors
  • Allow qualified business people to look out for your financial interests, and those of all members

Your current proxy expiration date is 10/11/2023

My Concern with This Request

The email was sent from  a no-reply@email.patelco address. This is a one-way message and recipients could not respond to the CEO’s signed request.  Therefore I am taking this public route to voice my concerns about members transferring their basic franchise responsibility to incumbent directors.

Proxy voting is prohibited for federal credit unions.  It eliminates the concept of the member-owners democratically (one-member, one-vote) electing their representatives.  While a small number of states, like California, permit proxy voting in board elections, these statutes were passed before the 1934 Federal Credit union Act was in place.  These initial coop governance models were lifted from existing mutual savings statutes that permitted proxies.

Proxies give existing leadership who already control the nomination process and the candidates selected, absolute control over director choice. Instead of empowering members, proxies further entrench existing directors. The process removes  member-owners from any meaningful role in choosing their leaders.  The unique democratic design of credit unions is rendered meaningless. Proxies shield directors from accountability to the coop’s owners via elections.

The Opportunity of the Annual Member Meeting

The annual meeting should be a celebration of member-ownership and institutional progress.  Owner participation should be encouraged.  Member voting is one of the ways this engagement is meaningful, not just a coronation. The second largest credit union in the country SECU NC has demonstrated that individual member voting is feasible in even in the largest coops.

Voting is a fundamental right of ownership.  Credit unions should be leading examples of democratic governance.  As the general public feels increasingly distrustful of elections and democratic processes for public institutions, credit unions should be an example of how this form of governance works. It can function well even when it comes to the management of their most critical matters of personal finance.

In the last several years Patelco has expanded aspects of its annual meeting agenda to encourage member engagement. Last year there was an extended Q&A with the Chair and staff responding to pre-submitted questions.  The prior year CEO Mendez prepared a lengthy live presentation distinguishing Patelco’s liquidity and funding strategies from the recent Silicon Valley and other bank failures.

In 2024 Patelco suffered a major cyber attack. Some member services were limited for weeks. Much time and resources were required to stabilize the situation.  Direct, open conversations with members at the Annual Meeting about this and other performance challenges are a way of sustaining member-owner confidence.

More importantly member enthusiasm for their coop is enhanced if the meeting includes both business and celebratory events. This gives directors the chance to connect with and be seen by members—not just spectators watching scripted formalities by the Chair presiding over a required agenda.

An Alternative Communication Approach

Rather than requesting members hand over their most important ownership role to the existing board, why not instead survey members about their experiences at the credit union?   Give them the opportunity to become involved, to raise their issues (e.g.why is my HSA account dividend only .25%) and to encourage thoughtful engagement and attendance at the meeting.

A brief survey would show respect for members’ opinions, create interest in the upcoming meeting, and promote the cooperative difference of member-ownership.

The credit union advantage is the capacity to create long standing member ties. Credit unions should welcome participation. It would educate the owners about the credit union’s performance and their critical role in its success.

In brief: Drop the proxy solicitation.  Seek member input.  Demonstrate the credit union democratic governance model in action.

A closing suggestion: Please include your direct contact information in these kinds of member communications to show your openness to hearing our point of view to your message.