Author: Chip Filson

It is common to describe credit unions as family. Sometimes the description is indeed accurate as father or mother passes the profession down to sons and daughters.

But rarely would one expect a regulator, and especially the Chairman of NCUA, to embrace the concept.

On April 9, 1984, the American Banker published a story on credit unions based on an interview with the Chairman: “Callahan mans the credit union helm through the seas of deregulation.”

The article closed with this description:

Mr. Callahan, who once held three jobs at the same time and who says he is “used to hustling,” has a varied background. It includes positions as Illinois Deputy Secretary of State, a math teacher and part-time football coach, and a school principal.

He now boasts of having two families, one with over 40 million credit union members and one that includes eight children.

“Just keeping up with a family of eight has kept me running,” he jests.

Two families. That is a regulator who knew where his responsibilities were truly owed.

One of the most famous trademarks of the 20th century is of a dog, perhaps a terrier mix, looking at a gramophone horn, head tilted quizzically. It’s from an 1898 painting called “His Master’s Voice.” Whenever I recall it, I think of the Coop belief in owner democracy, the vital role of the Member’s Voice.

This branding image was based on an original painting by Francis Barraud of Nipper, a dog he inherited from his brother Mark.

https://www.startribune.com/the-hidden-history-behind-nipper-one-of-the-most-famous-dogs-in-the-world/506221042/

The painting was sold to HMV, an early English recording company. Later the portrayal became a logo for the RCA Company in the United States. The picture was marketed in such a way to suggest that RCA recordings were so lifelike that the dog could not distinguish between the sound of his master’s voice on records versus real life. Years later, the Memorex cassette tape company used this idea with their, “Is it real or is it Memorex?” campaign.

But there is another connotation in the phrase “His Master’s Voice” suggesting a deeply ingrained master-servant loyalty relationship.

Unfortunately that interpretation seems more appropriate when reviewing how the “Member’s Voice” is seen today by many CEOs and boards in credit union mergers. That voice is unwanted and unheard. The relationship is not member-owner, but master-servant. Loyalty expected, but not requited.

A Member’s Voice In High Fidelity

Following is one member’s continuing frustration with his post-merger experience in an email shared with his peers:

“Then there is our favorite subject of the credit union merger. The bill pay system they use — to put it bluntly — really sucks. This system requires you to set the date the payment will be issued, leaving you to guess when the payment might be delivered. There is no unique tracking number to trace individual transactions via bill pay as there had been in my former credit union. I cannot think of *any* system I have ever used involving financial transactions that did not afford some way to distinguish one payment from another to the same payee.

“Considering that this merger was not necessary or advantageous to members, I see this as one major reason it would be best to leave smaller credit unions the hell alone and let them do what they were chartered to do and what members expect them to do. Again, if individuals think their institutional management skills are such they wish to enjoy the perquisites their commercial peers receive, then they should go find a for-profit outfit to destroy and live the life of Riley (or maybe Jamie Dimon).”

I wonder if anyone hears these howls? Maybe it’s  time for a cooperative Roaring Kitty!

There are three on-going challenges facing the credit union system:

1. Attracting the next generation of passionate co-op entrepreneurs
2. Planting new charters to spark innovation and relevance
3. Enhancing opportunities for those left behind by current financial choices

Credit unions are can now tackle all three with an initiative started by a CEO in California. If successful, the result could usher in a new era in this three-fold challenge.

The Rise of the College-University Innovation Incubators

During the past decade, institutions of higher learning have embraced student interest in starting new businesses by offering courses and funding innovation competitions.

A web newsletter the Times of Entrepreneurship recently published a list of the top 20 US university new venture competitions. Out of a total of 65 collegiate contests, MIT was ranked #1 based on total cash granted, in-kind support and number of participants.

The third ranked institution was George Washington University in DC which listed 423 participants in its most recent premier event.

The irony of this ranking is that four years earlier one of the top ten winners was a group of students seeking to charter a credit union for the GW community. More than three dozen undergrads, several faculty and numerous credit union advisors have worked voluntarily on the project to fulfill this student led ambition. Almost $100,000 capital has been donated.

Yet four years later, after numerous submissions, and receiving a “shout out” from NCUA Chairman Hood at his 2020 CUNA GAC speech, this student startup still waits for NCUA approval.

The Drought of New Cooperative Charters

Students, innovators, and persons passionate about a business idea will not wait four years or longer to receive a governmental OK to launch an idea.

NCUA’s chartering process is one of attrition stifling efforts for new credit unions. In 2020 NCUA issued one new charter. The agency’s performance plan for 2021 has a goal of 2.

With this option largely shut down, the energy, curiosity and passions of the next generation of leaders and innovators will go elsewhere. In a generation in which many seek to address vexing social problems with business solutions, the credit union door is closed.

As a result,  students interested in finance opportunities are looking elsewhere-traditional wall street options, hedge funds, venture capital firms and even banks.

Colleges and universities across the country are teaching and encouraging student and faculty interest to undertake innovative business solutions. To compete in the future, cooperatives must be an option for this creative energy.

The Inclusion Challenge

Today’s $1.8 trillion credit union movement was founded on the belief that ordinary citizens could own and control their own financial institution.

This was especially important for those left out of existing financial options. In North Carolina, for example, at one time over 55 credit unions were serving the black communities cut off by Jim Crow laws and practices from banks serving only whites.

As described in UNC’s Southern Oral History Program: https://sohp.org/research/african-american-credit-unions/

“The first credit union in North Carolina was founded in 1916 in a rural community in Durham County, most likely for white farmers, while the first credit union established by black North Carolinians was founded two years later in Rowan County. Black citizens had set up another eight credit unions by 1920. During the 1940s, the number of black credit unions rose to fifty-five, giving North Carolina nearly as many as all other states combined.”

One example of this from an oral recording:

“St. Luke Credit Union in Bertie County was established in 1944 by a group of about twelve African American men with $500. James T. Mountain remembers his father, James T. Mountain Sr., as part of that founding group, explaining why they felt it was necessary because the white-owned local bank would not deal with African Americans.”

Today only one of these black sponsored credit unions remains.

The Trifecta Opportunity

However, a California credit union CEO is trying to do something about engaging this generation of collegiate entrepreneurs, bring new charters to life and enable groups left behind in pursuit of the American dream.

Gary Perez, the CEO of USC FCU launched a project in the post George Floyd awakening to bring credit union services to the historically black colleges and universities (HBCU’s) in America.

There are 107 HBCU’s in 19 states plus DC and the Virgin Islands (http://www.thehundred-seven.org/hbculist.html). Vice President Harris graduated from Howard University in DC which has a credit union, but according to its web site, does not serve students.

Gary brought together a group of nine young leaders (from Filene, CUNA, CUES, the CCUL and several natural person CUs), many of whom are HBCU graduates, to do the critical concept research. His five-page paper describes the need, the opportunity and questions to be answered. (contact information: gperez@usccreditunion.org and direct line is 213-821-7122)

Several of Gary’s young leaders expressed interest in migrating to a new venture startup, just as the GW students have undertaken.

This effort may be furthered by another group of leaders trying to promote credit union solutions for new generations of member owners. De novo charters is one of NACUSO’s “challenge” goals—to mobilize support for new coop startups within the CUSO community.

The Stars Align for a Credit Union Renaissance

College campuses are a vital source for the next generation of credit union leaders should the movement embrace these new venture competitions. Think of the appeal of Start Your Own Credit Union! The self-help model is the ideal path for inclusion for those seeking to realize America’s promise of opportunity.

Credit union leaders, CUSO’s and trade groups recognize these three enduring movement challenges. NCUA’s 1983 Annual Report (pg. 8) “Student Credit Unions Welcomed” demonstrated the regulator’s willingness to support student charters. It described new credit unions at Georgetown, Skidmore, and the University of Chicago promoted by designating them as low income, thereby enabling nonmember alumni deposits to fund low-cost student loans.

That regulatory support today seems to be the only missing piece to launch a new, more diverse and noteworthy era of credit union relevance. This effort could be a winning bet for all three races the movement is in–if NCUA would only step up to the window!

Collaboration is the unique cooperative advantage. What one credit union would be unable to do, several working together can accomplish.

This latest example, a cooperative community park adjacent to Los Alamos Schools Credit Union’s new head office, was enabled by seeds planted almost a decade earlier.

In 2012 Del Norte CU learned that members believed their cooperative structure mattered. Their Net Promoter Score surveys revealed that “promoters” valued service and that the credit union was locally owned–a co-op not a bank.

Their marketing department used that finding to differentiate themselves. In Los Alamos, New Mexico where DNCU in 1954 began serving the Los Alamos National Lab employees, they discovered three other co-ops: Little Forest Playschool, founded in 1951 by the wives of the Los Alamos National “Labbers,” Los Alamos CO-OP Market and the newly formed Bathtub Row Brewery CO-OP.

In just one meeting in a coffee shop, adding Zia and Los Alamos Schools Credit Unions, all agreed that co-ops should support each other. Over the years they worked together to invest in their communities, serve their members and educate the public about the cooperative difference. https://www.keepitcoop.com

Building a Cooperative “Commons”

Matt Schmidt, CEO of $23M Los Alamos Schools CU purchased land in the town’s center to build out a new main office. The site included adjacent space that Matt believed could be converted to a CO-OP Park and community gathering place.

The concept was reinforced by the pandemic. “Isolation, he stated, had led to a craving for connection.”

The two-phase plan includes a community gathering space, outdoor concert stage and room for a beer garden. It was a bigger concept than his credit union alone could realize, so Matt approached the Keep It CO-OP group. They gave their immediate support.

Cooperative Education

Each contributing organization believes cooperation among cooperatives is vital. Matt said the group and this project are like planting seeds. “We trust they will grow, for these projects show our belief in each other and the community.”

Matt believes his credit union’s focus on educational employees and students makes its role in informing the community about cooperative design even more appropriate. “This shared space allows us to tell the story of why you should join a co-op; the value we bring together. It is a concept that could be adapted to any community in America.”

A gathering place in the wake of a pandemic that drove us apart.

*The six cooperatives in Los Alamos that make up the Keep It Co-Op movement have deep roots in the history of Los Alamos, New Mexico. They are:

Little Forest Playschool. Founded in 1951 by a group of local moms in the American Association of University Women. The first playgroup was composed of 15 children and cost 10 cents for juice and supplies. Little Forest is a cooperatively managed preschool for children aged two to five. Children are given the opportunity to learn the same way they do naturally, through exploration and play.

Del Norte Credit Union. Founded in 1954 as Los Alamos Scientific Lab Credit Union and serving as the first financial institution in Los Alamos. The organization became a community charter in 1981 and expanded financial services and offerings to surrounding communities.

Los Alamos Schools Credit Union. In January of 1955, Ruby Meaders founded the Los Alamos Schools Credit Union out of her home just after the unveiling of the “Secret City” of Los Alamos. She was more than glad to help with the need for non-governmental businesses like grocery stores and financial institutions.

Zia Credit Union: In 1955, a group of approximately 200 individuals from Zia Company, support contractors for the Los Alamos National Laboratory, organized and founded Zia Credit Union as a special interest group, a common practice for that time in the credit union movement. The contractors felt they needed their own financial institution. In 1975, management at Zia CU decided to expand its field of membership by serving the entire community.

Los Alamos CO-OP Market. Opened in 2011, their mission is to serve Los Alamos County and surrounding communities by providing fairly priced, wholesome foods and other goods in an ecologically sustainable, socially responsible and economically appropriate manner.

Bathtub Row Brewing CO-OP. Thanks to three years of hard work and the investment of its membership, Bathtub Row Brewery CO-OP was up and running in 2015 as Los Alamos’ first craft brewery and the fourth cooperatively run brewery in the United States.

Note: Thanks to Denise Wymore who alerted me to this project.