Author: Chip Filson

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Friday Thoughts

Looking for deposits?

A bank takes a tactic from credit unions’ playbook:

Feb 8 (Reuters) – Bank of America has brought in $10.5 billion in deposits and investments in the last four years after making deals with companies to provide financial services to their employees, the lender said on Thursday.

On Immigration

In 2015, when the migrant and refugee influx from war-torn countries was considered of epic proportions in central Europe, one world leader stood out — German Chancellor Angela Merkel, a devout Lutheran.

During a public forum at the time, Chancellor Merkel was asked a question by a woman in the audience saying, What does that mean for us, what does that mean for our country and our identity? I’m afraid that it will mean more terrorist acts in our country by militants like ISIS.

Chancellor Merkel took a long breath before responding, and said, “Fear has never been a good advisor for us as individuals or for societies. Cultures and societies that are shaped by fear can’t grip the future.”

Effective Leadership

“Intellectuals solve problems, geniuses prevent them.”  (source unknown)

How Bureaucracy Works

I recently became involved in a restoration project of a local church first built in 1829 and  designated an historical site.   One person’s observation on getting work approvals  to preserve this property:

Once I started dealing with County personnel and permitting and approvals, I found out another truism that everyone has to remember, IF YOU ASK FOR APPROVAL in Montgomery County, usually there isn’t anyone that knows enough to answer and they will have to check.

No one wants their neck on the line and no one wants to give an approval without someone else from the county involved.

Postscript

I’ve done what is mine to do, now you do what is yours to do.

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Charter Conversions: What Is the State of Credit Union’s  Dual Chartering System?

One of the extraordinary advantages of a credit union charter is the choice of either a state or federal license.   This choice has been a critical aspect in credit union’s expanding role in the economy and responding to changing market conditions.

So when I recently received a letter from the CEO of Harvard University Employees Credit Union (HUECU) announcing a members’ special meeting to approve a conversion to a federal charter, I was very interested in why the change.

Was this a one-off situation or an indicator of an imbalance in charter choice in Massachusetts?

A Current Study

HUECU reported $1.2 billion in assets and loans of almost $1.1 billion, serving 55,000 members at December 2023.   Most operating ratios are in a stable to strong range:  Net worth 8.5% Delinquency .65%, ROA .28 and operating expenses of 2.74% of average assets.

The loan portfolio continues its healthy growth in three distinct components:  an alumni credit card with $44 million in balances, a $252 million student loan portfolio and $721 million real estate loans.

The CEO’s cover letter included five pages summarizing the pros and cons for the action:

Advantages:

  • Reduces multiple credit union exam and compliance requirements;
  • Potential flexibility with various initiatives, especially branching and CUSO investments;
  • MSIC insurance for all deposits above $250,000 will be continued, but is no longer required;
  • Easier to open branches outside the state;
  • A redefined and broader field of membership with a multiple FCU common bond to seek growth outside Massachusetts:
  • No state sales tax, lower supervisory fees, and elimination of state CRA compliance.

Disadvantages:

  • The costs of conversion including signage, changes in legal documents, and consultant’s fees totaling as much as $600,000;
  • Loss of local regulator accessibility and responsiveness;
  • Limited ability to influence national regulation and issues;
  • State law offers greater interest rate loan flexibility and longer maturities on other loans.

The special meeting requires a quorum of 18 members and a majority of votes by ballot or in person in favor to approve the conversion.

The CEO’s cover letter states the members will see no operational differences after the conversion.

In addition to my membership in the credit union, the CEO Craig Leonard encouraged members to call in with questions.   I was given his email, and we talked for an hour this past Monday.

He outlined three priorities which he hoped to accelerate with this step.

  • Faster growth,  beyond the Harvard community into other New England states and perhaps Florida;
  • Immediately draw in more savings especially as loan demand has always been plentiful—with an initial focus on the small business market;
  • Retain the Harvard name (Harvard Federal Credit Union), its strong brand and the relationship of its employees to the University and its benefit plans.

Craig said this topic had been raised several times as he perceived a lack of a “level playing field between state and federal” charters in Massachusetts.

The state is home to approximately 135 credit unions that rank it as the 12th largest in total credit union assets.   Of this total, 50 are state charters.

Both regulators have approved the credit union’s business plan forecast.   It is now up to the members.  Craig holds periodic town hall meetings with members because he believes “I work for you.”   This Special  meeting is March 26 at the Harvard Faculty Club.

While this may be a unique event, the balance and perceptions of charter advantages are an important metric on the soundness of the credit union system.

Whenever state or federal regulations become less responsive to their credit unions, charter change is a real option for many. It is one means of keeping regulatory accountability.  It is also a spur to keep the multiple state regulatory systems, individually  much smaller than NCUA. responsive to their local charters.

The State of Dual Chartering

The ability to convert from a state to a federal charter and vice versa remains a uniquely cooperative option.

In 2023 there were twelve charter conversions.  Nine state credit unions (from seven different states) converted to FCU’s, two federal charters went to state and one state chose ASI insurance versus the NCSIF.   The longest serving state charter was Mississippi’s Mutual Credit Union, founded in 1931. Two other Mississippi credit unions also converted to federal.

A choice of share insurance is also permitted in ten states which allow their charters to choose between ASI cooperative insurance or the NCUSIF.  This option remains central to a real choice as well as validating the underlying the 1% deposit design of the NCUSIF.

Dual chartering option creates a check and balance, even positive competition, among regulators.  It provides an opportunity for a credit union program as some states still do not have a charter option. However,  the state system can often change more quickly to meet new market and member needs when response by NCUA may take years or in some situations, never happen.

The dual system is a critical aspect of credit union history. The first credit union charter was in 1909 for St. Mary’s Bank.   Until the federal credit union act was passed in 1934, only state charters were available, and then limited to about two thirds of the states.

These state “startups” created multiple charter variations and operating authority.  As there was no single example, charter details and oversight were sometimes drawn from already operating financial examples.  For example, proxy voting is authorized by nine states, drawn from mutual S&L practice, but not an option for federal charters.

The Turning Point in Dual Chartering: The creation of the NCUSIF

The choice of either a fed or state charter from 1934 onward led to a 30-year period of rapid chartering across America.   The states were often the laboratories for change, innovation and system leadership with local leagues and chapters forming potent political state-wide organizations.  CUNA itself was an organization of state leagues, not individual credit unions.

The introduction of the NCUSIF in 1970 was led by a group of federal charters in the newly formed direct-member organization NAFCU in the late 1960’s. CUNA opposed this mandatory insurance requirement and supported multiple state-chartered alternatives to the federal program.

CUNA’s fundamental concern was that mandating federal  insurance would inevitably create a single regulatory system for all charters.  The diversity and choice created by dual chartering would be negated, if not lost all together.

The NCUSIF Override of State Options

This concern that the insurer could become a single regulator had a very quick example.  Bob Bianchini, who was simultaneously President of the Rhode Island League and a member of the state legislature, encountered  such an issue in the mid 1970’s.

NCUA refused to insure the NOW/checking accounts authorized for Rhode Island state charters.  In response, the credit unions formed their own state chartered deposit insurance corporation.  In Bob’s words:

The NCUA’s decision refusing to insure Rhode Island credit unions that offered checking account services to its members led to the creation of the private insurer RISDIC .. Seems to me there was never any specific law that would have led to that decision, but rather simply pandering to the commercial banking industry which claimed checking accounts fell strictly under their purview .. 

RISDIC would have never gotten off the ground if Rhode Island credit unions that provided checking accounts to its members, could have obtained NCUA insurance. 

The other RISDIC insured institutions were Loan & Investment companies. privately owned for profit financial institutions and it was one of those organization’s demise that led to RISDIC’s failure.

NCUA’s insurance power has led to other differences in regulatory interpretations. The insuring requirement has also been a major hurdle for groups seeking new charters.

Ultimately the major advantages of state charters continue to be their more accessible local regulatory oversight and the capacity to respond faster to changing market conditions.

The Final Word

The S&L crisis in the mid 1980’s resulted in that system’s failure of its state sponsored insurance options.  It led some credit union leaders to back away from the credit unions’ insurance choice.

In a 1986 speech to the credit union league xecutives (ACULE), former NCUA Chair  Ed Callahan, now  CEO of Callahan and Associates spoke to the group.  He described the importance of choice  saying that “the insurer is the regulator.”  His words are just as true today.  Scroll down to the video.

“The Best Damned System in the Country”

 

 

 

 

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A Baseball Story about Character: An Example for Credit Unions?

Opening Day of the 2024 baseball season is eight days away. Players are being assigned to AAA from spring training or gaining limited roster spots on the major league varsity.

The sporting press is full of hope and enthusiasm. Every team’s ambitions are equal at this starting line. Accompanying these renewed expectations is the ever present realities of enormous player contracts, team moves to save money and whether multi-million dollar veterans will  live up to their salaries and/or overcome temporary injury.

Baseball has become a game as much about money as competitive athletics.  “Winners” are those with record contracts but not necessarily leading their teams to greater success.

However there is a counter story.  It is about a player who stayed true to  the  game of baseball and his own values as told in the Imaginative Conservative:

The Baseball Hero Nobody Knows

By Stephen M. Klugewicz

His career stats indicate that he was a mediocre baseball pitcher—perhaps the epitome of mediocrity: 84 wins; 83 losses; a 4.49 Earned Run Average; a Walks-plus-Hits-to-Innings-Pitched ratio of 1.42.

Yet Gil Meche, who played for the Seattle Mariners and Kansas City Royals, was responsible for one of the most astounding, yet almost unnoticed, acts of virtue ever committed by a sports figure. In the winter of 2011, Mr. Meche, then with the Royals, voluntarily retired from the game, foregoing the final $12 million on his multi-year contract.

Mr. Meche was injured and would have sat out the 2012 season while receiving paychecks. “When I signed my contract, Mr. Meche explained, “my main goal was to earn it. Once I started to realize I wasn’t earning my money, I felt bad. I was making a crazy amount of money for not even pitching. Honestly, I didn’t feel like I deserved it.”

Mr. Meche’s decision is nearly unprecedented in professional sports; countless other injured players have gleefully accepted paychecks while they sat out entire seasons with injuries. “This isn’t about being a hero — that’s not even close to what it’s about,” Mr. Meche insisted. “Making that amount of money from a team that’s already given me over $40 million for my life and for my kids, it just wasn’t the right thing to do.”

Though a small event in the great arc of American history, Mr. Meche’s action would constitute an example of good character in any age, but it is especially noteworthy in the America of the early twenty-first century, an era of dishonesty, self-absorption, and greed. It should not go unnoticed, nor should it be forgotten.

Lost Virtues in Credit Unions

Today the opportunity to cash out one’s credit union tenure and leadership position is advertised in direct marketing appeals.

One headline reads:

1,200 Credit Union Mergers by 2030 –
How Are You Positioned?The YOU refers to the CEO ‘s who are being solicited.   Either give up and join the merger-sales endgame and /or join in the bidding to secure another credit union’s  resources. The need is urgent.  Here’s why:

With regulations set to zap fee income, interest rates slowing mortgage action, compliance burden increasing costs and the need for scale driving strategic decisions. . . predictions say there may be as many as 1,200 credit union mergers by end of year 2030.

·  Do your financials put your credit union in the position to be a merger or merge?

There is no pretense or subtlety here.  Your future is full of threats, give up now and we’ll help you cash out.  No mention of members’ best interests.  No recognition that virtually every credit union operating today has a charter that has served at least three generations of members and created meaningful reserves of collective wealth and service legacy.

The bottom line in this strategic outlook is that prospective failure can become a CEO’s present  success story.  So get out while the getting is good!

Instead of character and values being triumphant, some coop leaders and their consultant allies are directing the industry into an America of the early twenty-first century, an era of dishonesty, self-absorption, and greed.

These actions dishonor the character of hundreds of Co-op “Gil Meches” who retire each year and loyally pass the credit union’s torch to their successors.

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A Valuable Library Resource from NCUA

In following up an article by David Bauman in which he referenced his FOIA request to NCUA, I was directed to  NCUA’s FOIA Library.

Under the Frequently Requested Information section was what I had asked for:  NCUA’s response to Congressman French Hill on December 14, 2023.   Other items in this section included previous multiple requests that can be accessed by just clicking on the link.

Another section of the Library was the FOIA Request Logs  which include 474 requests going back to 2019.  I scanned the requests that were open and closed for 2023 to see what information had been asked for.

The log table has the date of the request, sometimes the organization, a description of the information sought and final disposition: granted-partial or full, denied, or “no records” responsive to the request.

I have reached out to NCUA to ask if anyone can use the FOIA log number to review previous responses without having to submit a whole new request—just to learn about the agency’s response.  When the reply is received, I will add to this blog.

In the meantime here are some of the more intriguing request descriptions, all of which were filled in whole or in part.

Selected Titles In the FOIA Library from 2023

Copies of all FOIA appeal logs by year from 2010

Records sufficient to identify all employees who entered into a position at the agency as a Political Appointee since January 20, 2021, to the date this records request is processed, to include a list of enumerated parameters to include resumes and waivers.

Documents and data sufficient to account for the monthly occupancy or vacancy rates for the agency’s five largest buildings (measured by square footage) from January 1, 2020, to December 31, 2022. 

A list of federally insured credit unions with agricultural loan portfolios greater than $100 million.

The application, approval, and any attached materials from the most recent field of membership change by Thrivent Federal Credit Union, headquartered in Appleton, WI.

A copy of the charter for NBC (N.Y.) Employees Federal Credit Union, charter 22351, prior to its merger into XCEL Federal Credit Union, charter 16218. 

A list of nationally insured credit unions that have failed and/or been acquired since January 2001 to include credit union name, charter number, opening date, failure date, and acquiring institution. 

The most recent NCUA salary data.

1)The number of federal credit union mergers completed each year between 1980 to 2020; and 2) The number of active federal credit union charters each year from 1980 to 2020 (as of 12/31 or other uniform date for each year). Note: If information is not available going back to 1980, please provide information going back as far as NCUA records allow. 

A list of all credit union CEOs and volunteers as of March 31, 2023.

NCUA salary data specifically under the category of political appointee.

Quarterly lists of all credit union board members for each quarter from Q42012 through Q42022.

1)Field of membership (“FOM”) criteria and approval documentation for FirefightersFirst Federal Credit Union (“Firefighters”); 2) Firefighters’ application and documents related to add “employees of non-profit foundations authorized by their organizing documents to be for the benefit and support of firefighters” (“Foundation”) to its FOM; 3) OGC’s legal opinion and analysis that supports the addition of the Foundation to Firefighters’ FOM; 4) CURE’s office summary that supports the addition of the Foundation to Firefighters’ FOM; 5) CURE’s approval letter and GENISIS worksheets reflecting approval of the Foundation to Firefighters’ FOM. 

Entire consumer complaint file from 2013.

An Important Resource

This is a partial 2023 listing.  In addition to some interesting reading, it also shows the agency as a resource for names of CEO’s and volunteers (including even CUNA and NAFCU) and for credit union data or other files going back years.

There might even be some valuable credit union press stories in following up some of these past requests.

 

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Peak Bloom-A Trifecta

Weather in the 70’s over the weekend caused the flowering trees to peak early this year.

Below are a star and loebner magnolias with a large cherry tree in the background.  Circled by daffodils.

Star magnolia up close.

Loebner surrounded by colorful friends.

A spring camellia in bloom.

Spring warms the soul, recovers hidden beauty and brings hope to life.

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One State, a Credit Union CEO and Financial Literacy

According to the December 2023 Lane Report, a Kentucky Business Journal, there is change coming to the teaching of financial skills to students in the state:

Kentucky high schools maintain a C grade in a national report card on how well they teach personal finance, but by next year their grade may climb to a B.

Given a C in 2017, Kentucky maintains this grade in the updated 2023 National Report Card on State Efforts to Improve Financial Literacy in High Schools, issued by The Center for Financial Literacy at Champlain College in Burlington, Vt. . . 

John Pelletier, director of the Center for Financial Literacy, says that by 2028, 23 states are projected to have an A grade. . .

“Kentucky requires high school students to take vocational instruction, which includes personal finance concepts,” says Pelletier. “The Class of 2024 will be required to take one or more courses or programs with financial literacy content, but implementation will be up to school districts.”

Pelletier says state policy makers are responding to families without financial safety nets during the pandemic, as well as to advocacy by educators, administrators, parents and students. 

Prior to the passage of this bill in 2018, there was no specific financial literacy instruction requirement for high school graduation.

The Kentucky Department of Education now lists financial literacy resources on its website to assist schools implementing this requirement beginning in 2024.

The Advocacy Role by Credit Unions

At the recent GAC I spoke with a Kentucky credit union leader, a CEO for just ten years, who has put financial education at the center of the organization.

The credit union offers classes at  local high schools, for military retirees and veterans, and for employees of groups the credit union serves.

The CEO has taught some of these classes.  As a member and leader of the Kentucky league, the credit union community became advocates for this educational  priority in Kentucky schools.

This financial education concern was but one of  many initiatives this CEO shared about his short tenure.  What impressed me was his focus on “connecting” with the many constituents the credit union reaches.  He meets with the leaders of government and private organizations they serve, supports community and other credit unions in the state, and advocates for members’ financial well-being.

The History of Financial Education

His efforts are an example of a generation changing event.  His role is more than managing the financial trends of a credit union, but uplifting possibilities for all across the state.

What I didn’t realize was how difficult this education priority was until seeing this brief, five minute history of financial education in America.  It shows how educational priorities have changed since the Eisenhower era’s  focus on math and science. Today the emphasis on teaching financial life skills is one area of strong bipartisan support.

(https://www.youtube.com/watch?v=0uvurQcj0fs)

This is how one CEO has provided leadership far beyond his membership.  Yet without his credit union’s example and the practice of what he was seeking, the effort might not have been as successful.

Now all Kentucky students, and their parents, have the prospect of a “B” or even an “A” in this most important understanding of  financial responsibilities throughout life.

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“We are Creatures of Constant Awe”

In Praise of Mystery: A Poem for Europa* (2024)

Ada Limón (United States Poet Laurette since 2022)

Arching under the night sky inky
with black expansiveness, we point
to the planets we know, we

pin quick wishes on stars. From earth,
we read the sky as if it is an unerring book
of the universe, expert and evident.

Still, there are mysteries below our sky:
the whale song, the songbird singing
its call in the bough of a wind-shaken tree.

We are creatures of constant awe,
curious at beauty, at leaf and blossom,
at grief and pleasure, sun and shadow.

And it is not darkness that unites us,
not the cold distance of space, but
the offering of water, each drop of rain,

each rivulet, each pulse, each vein.
O second moon, we, too, are made
of water, of vast and beckoning seas.

We, too, are made of wonders, of great
and ordinary loves, of small invisible worlds,
of a need to call out through the dark.

*One of the largest of Jupiter’s 90 moons.

(This poem is in the public domain.)

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The Oscar Nominated Film Every Credit Union Should See

Nominated as best documentary for this year’s Oscar awards, The Barber of Little Rock is a must see for every credit union believer.

The film is the story of Arlo Washington’s personal commitment  to bring financial services and hope to the black community of Little Rock, Arkansas.

The film produced by the New Yorker magazine is 35 minutes and can be watched online any time.

(https://www.youtube.com/watch?v=1amOPUn49aM)

Story upon Story

Arlo is a barber who converts his basic role in the black community to one of broader service.  This story is told in this Next City article The Black Barber Opened the First Credit Union In Arkansas Since 1996. 

The film is Arlo’s first person account filled with dozens of examples of hardship. hope, and grant making through the CDFI he organized to make loans.

There are numerous examples of what it means “to be banking while black” and why there is little trust in the existing banking system. The film provides a brief history of black efforts for economic equality from the post civil war promise of “forty acres and a mule”  to modern day red lining in Little Rock-a city divided by inequality and a highway.

The film even shows learning empathy in the “two minute drill”  where two former incarcerated men learn to “see” each other’s hurts.

A Potential for Every Credit Union: Economic Justice Rights Wrongs

The film is a study in self-help.  It shows the need and power of putting money back into the community.  “A tree is known by the fruit it bears,” says Arlo. “If you have all the money and wealth you want, and don’t make an impact, what do you have?”

The film’s many residents assert multiple times  that economic opportunity brings freedom.  One says that if this (model) catches on, it will become a threat because people can see what they can do to be free.  There will be no more excuses for economic injustice.

People Trust Community FCU

The film’s story of Arlo’s efforts ends before the credit union he chartered is up and running.  There is a picture of the building and sign, but no recognition.

At December 2023, the credit union reported total assets of $4.4 million, loans of $326,410 and 445 members.  It has capital of 11% or $482,000.

The film was released just two months ago and has been viewed 352,000 times with 433 comments posted afterwards.

The impact of this enterprising person’s example  is extending far beyond the borders of Little Rock. It is a wakeup reminder for every existing credit union of the potential to change people’s lives and the trajectory of their community.

Viewing this current effort should be a catalyst for conversations in every credit union  trying to make a difference in their members’ lives.

 

 

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Spring’s Glory and Daylight Savings

On the Potomac, early morning rowers enjoy the sunrise, if not the workout.  From DC’s Jackson Reed High School boys and girls teams.

Sun appears.

Taking a break.

Cherry Trees will soon be near peak bloom.

Plus spring camellia and two lenten rose.

 

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Who Is responsible for Cooperative Democracy?

Tonight, I will attend a special meeting of the members of a coop in which I participate.  The purpose is to approve a change in the bylaws prior to the Annual Meeting.  The change will reduce the number of board members from 15 to 12.

The bylaws have not been updated in 20 years. All changes must be approved by the members. Some background for the change was sent in advance:

While there’s no fixed rule on the number of Directors a Board should have for a group like ours, what makes sense is to have a size that’s both large enough to bring sufficiently diverse viewpoints and skills to bear on accomplishing the work of developing, guiding, and managing the organization, and also small enough to function effectively.

Given that Board service is a three-year commitment, it has also become more difficult to find members willing to stand for election each year. Twelve members will still assure that the Board is flexible and diverse, and provide enough hands to do the work required, while not overtaxing our use of member volunteers.

All members are encouraged to attend.

Sound familiar?  Recruiting volunteer directors is a challenge for many organizations. What is different from credit union practice is that this bylaw change is being discussed and voted on by members.   One person, one vote,  A special meeting notice sent 60 days in advance.

Credit Union Democratic Practice

In almost all credit unions, bylaw changes are not voted on by members.  This is the purview of the Board, which then submits changes for regulatory approval.

Members may not know of changes, even when it affects their fundamental role as owners in  elections procedures or even the number of board members.

In a recent post I outlined how these non-public changes can go to the heart of member governance.

The two largest FCU’s quietly changed the required number of signatures for member nominations for the board.  In both situations the change removed the 500-signature standard bylaw and replaced it with a percentage of members.  For Navy this new signature requirement was 26,000 and for PenFed 5,800 based on their latest reported member counts.

Regional Director John Kutchey quoted in another context stated, the NCUA considers the right to participate in the director election process a fundamental, material right for members of a federally chartered credit union. 

However, this fundamental change in these two federal credit unions was done without member involvement or  any public discussion.

Democracy Depends on Participation

These behind the scenes reductions in member rights  is how coop democracy dies, one small step at a time.

Without member governance, boards act like self-perpetuating trustees, subject only to their own sense of duty, versus accountability to member-owners.

Democratic practice is hard, requires patience and can be frustrating.  But without it, the required annual board elections become a mere administrative re-appointment of self-selected nominees.

Governance is more than a democratic formality.  It is fundamental to safe and sound oversight.   By eliminating member involvement in these fundamental bylaw changes. NCUA is sowing seeds of future member discontent and failures of accountability.

The Annual Meeting Season

As credit unions enter this season of annual meetings and board elections, it is doing so in a political environment in which both camps claim the future of democracy is at stake.

What better way to remind members of our fundamental democratic belief for how we work together in society, than in our own credit union’s political process?