Author: Chip Filson

At the January NCUA board meeting staff presented the Agency’s 2023 Annual Performance Plan.  It is 43 pages.  With many  outcomes.  As stated in the Chairman Harper’s introduction:  We have identified three strategic goals supported by ten strategic objectives and 19 performance goals. To meet these goals and objectives, the NCUA has also identified 45 indicators to measure performance.

Even with these many details,  the document has a significant omission.  The oversight  was not  mentioned by any board member. The absence may explain why the agency has been so ineffective in overseeing the most vital component of cooperative design.

The Missing Concept:  “Member-owner”

The term member-owner is used once, in the Mission Statement:  Protecting the system of cooperative credit and its member-owners through effective chartering, supervision, regulation, and insurance.

The term is never referred to again.  Where one might expect to see the concept, instead the words “consumer “and “individual” are inserted.  The word member does not even appear in the two highest strategic goals:

Goal 1: Ensure a safe, sound, and viable system of cooperative credit that protects consumers.

Goal 2: Improve the financial well-being of individuals and communities through access to affordable and equitable financial products and services.

Standard Plan Descriptions

The agency self description affirms that “the NCUA is an independent federal agency that insures deposits at federally insured credit unions, protects the members who own credit unions. . .   But the protection throughout is interpreted only as consumer compliance. Nowhere is there reference to member-owner rights, interests, responsibilities or even education.

Here are examples of how the agency describes its responsibilities in various sections of the plan:

The NCUA protects consumers through effective supervision and enforcement of federal consumer financial protection laws, regulations, and requirements.

Throughout the year, the NCUA will continue to adjust its examination program and operations to maintain safety and soundness, protect consumers, and ensure compliance with anti-money laundering laws.

Provide timely guidance to the credit union system and examiners related to changes in regulations established to protect consumers.

Monitor consumer complaints and fair lending examination and offsite supervision contact results to guide consumer compliance program development.

Continue to provide a responsive and efficient consumer complaint handling process in the Consumer Assistance Center.

The NCUA will enhance consumer access to affordable, fair, and federally insured financial products and services through the following strategies and initiatives:

Performance Goal 2.1.2 Empower consumers with financial education information.

No Ownership Role or Protection

Those who originally organized the coop and their heirs who today own the institution, at least in design, are now nothing more than consumers.

Owners’ rights are not part of  NCUA’s oversight.  The agency  protects “consumers” not owners, and safeguards “individual” not owners’ assets.  The agency is nothing more than  a cooperative CFPB with a safety and soundness function.

The Most Critical Function of Owners

In NCUA’s plan, member-owners have no standing, no rights and most of all, no regulatory attention.  This significant regulatory omission is why some credit unions feel empowered to push all of the boundaries of self-interest and business enterprise with actions disconnected from owners’ well-being and value.

Democratic coop design was intended to be a check and balance, the all important governance process that every organization requires to remain accountable, safe and sound.

Even NCUA asserts it has a governance process:  To ensure sound corporate governance, the NCUA will use the following strategies and initiatives: pg 29

The Consequences of No Member Ownership Role

Because of this regulatory omission, intended or otherwise, few credit unions  today  have any meaningful ownership participation.  The organization’s aspirations are only those of the  CEOs’ and boards’ ambitions. That often means business enterprise priorities over member welfare.

Credit unions are not subject to their peer’s competitive reviews as would be the case with a publicly traded bank stock. The institutional practices of mergers, sales and buyouts are not subject to any competitive process. Instead these executive transactions are private deals devoid of member input, meaningful public disclosures, no objective benefit and often lacking any economic rationality.

Just as NCUA has eliminated the ownership role of the member from its purview, so have many credit unions.  Without owners, just consumers, there is no accountability for institutional performance in theory or practice.

A Dangerous Design

That is a dangerous model.  Credit unions increasingly control billions in member funds and their collective savings (equity) in the hundreds of millions of dollars.  They increasingly commit to long term projects such as  subdebt borrowings, 20-year leases, and long term commercial real estate loans. The final outcomes of these decades’ length transactions may not be known until long past the tenure of the CEO who made the decisions.

Today most credit unions provide little to no transparency of their plans, priorities or projects to members.   There are plenty of product and service marketing messages.   But rarely are members informed about management’s goals.

The election of directors at the required annual meeting is fixed.  There is neither a choice for directors nor director statements of their reasons for serving.  Voting is by acclamation.

Without governance and a recognition of the owners’ role, the moral hazard of management decisions using the credit union’s resources increases.   Upside risks all benefit the incumbents; but the downside possibility of failure from a bank purchase, national expansion or fintech investment, means the members or NCUSIF will pay the price.

If one believes CEO/Board self restraint is sufficient to ensure members’ best interests, then they have not paid attention to practices such as; the $1.0 million dollar bonus to the manager of a merging credit union; the $10 million transfer of equity to a private foundation; or the change-of-control payments inserted in senior management contracts.

The list of self-serving actions grows daily.  Where money management for others is required, greed always lurks.

As just “consumers” or “individuals” member-owners no longer benefit from the most important reason for joining a financial cooperative.

Unless or until there is a meaningful acknowledgment  of member ownership and management’s obligations thereto,  the credit union system’s uniqueness, not to mention its soundness, will increasingly be at risk.

The headline tells it all:  This Black Barber Opened The First Credit Union In Arkansas Since 1996.

It is the story of Arlo Washington’s journey to create People Trust Community FCU chartered in  September 2022.   The article in Next City describes Arlo’s journey after his mother died in 1995.  He followed a mentor’s model and became a barber.  His business instincts led him to open multiple shops and organize a barber college.

At the barber college he set aside $1,000 per month from profits to make small loans to the community.  This micro lending service grew until  the lending program was converted into a CDFI.  People Trust Community Loan Fund, the government recognized non-profit, then became the basis for his credit union charter application.

The Story within the Story

The author, Oscar Abello,  also weaves in another, longer tale, of the decline in new credit union charters.  Several of his observations follow:

It’s never been very easy to start a credit union, but it used to be easier and much more frequent than it has been in recent years. Prior to 1970, it was common to see 500 or 600 new credit unions chartered every year across the entire country.

People Trust was one of four new credit unions chartered in 2022; just 25 new credit unions have been chartered over the past 10 years. . .

There are almost always more interested groups looking to establish new credit unions, says Monica Copeland, MDI network director at Inclusiv, a trade group for credit unions focused on low-to-moderate income communities, “but it’s hard to track until they actually get through the process. It takes organizing groups years.”. . .

Or take Everest Federal Credit Union, which is based in Queens, New York and serving Nepali immigrants across the country. Its organizers started their work in 2015 and only recently opened for business. Part of their challenge was the startup capital they had to raise, from donations they ultimately gathered over the past seven years from hundreds of donors across the country.

Each of these efforts has had to go through the National Credit Union Administration – the federal agency that charters, regulates and insures deposits held at U.S. credit unions.  . .

There are multiple reasons for the dramatic falloff in new credit unions since 1970. Now a credit union consultant, Brian Gately worked as a credit union examiner at the NCUA in the ‘70s and ‘80s. According to Gately, the agency gradually lost touch with its purpose over the course of his tenure.

He started out winning awards for helping new credit unions get chartered to serve vulnerable communities in Puerto Rico and the U.S. Virgin Islands, but eventually left after refusing orders from higher-ups to shut down a new credit union serving a largely Puerto Rican migrant community on Manhattan’s Lower East Side.”

The article presents further examples of the chartering hurdles.  These challenges help a reader understand the miracle that any new credit union charter represents today.

Missing the Next Generation of Entrepreneurs

According to the Commerce Institute over 5.0 million new small businesses were started in 2022.  Only 4 new credit union charters were issued last year.  During the year credit unions announced or completed four to five times that number of whole bank purchases.

Credit unions are not tapping into  America’s inherent entrepreneurial market-based culture.  A system that fails to attract new entrants will slowly mature, consolidate and lose relevance. Other startups will arise  intent on  taking away a declining industry’s  current and future customers.

The article is an engaging description of one person’s efforts to pursue the possibilities of a credit union charter.   It also documents how difficult that process is, especially as it depicts NCUA’s role.

If a reporter who does not follow credit unions as a regular beat can so thoroughly document the new charter failings of the movement, why can’t credit unions see this challenge?

It raises the question as well of how many interested charter groups give up in frustration and look elsewhere for financial services?

This slide is from a November 2021 speech on credit union history at the Credit UnionLeadership Institute.  Facilitator:  Gary Regoli, CEO Achieva Credit Union.

It is a statement of the existential choice every credit union makes, often on a daily basis.

“Credit unions continue to lose ground with consumers, according to the American Customer Satisfaction Index’s most recent finance study. Credit unions’ score has dropped by one point to 75—falling behind banks for the fourth consecutive year.

Banks now surpass credit unions in nearly every service category as rated by U.S. consumers, according to this year’s survey. On the ACSI’s 100-point scale, credit unions now trail banks by three percentage points. Banks’ overall score (78) has remained relatively unchanged over the last four ACSI reports.

“The 2021-2022 study, which was based on more than 13,500 customer interviews, covers banks, credit unions, financial advisers and online investment. According to researchers, rapid membership growth fueled by the pandemic and ongoing industry consolidation could be affecting credit union customers, though the credit union industry’s traditional area of strength in the annual survey—in-person service—has remained consistent.

“Credit unions continue a long, slow decline in member satisfaction that is now in its fifth consecutive year,” said Forrest Morgeson, assistant professor of marketing at Michigan State University and director of research emeritus at ACSI.”

Source: ABA Banking Journal, November 16, 2022

Last week I quoted New York Times columnist David Brooks’ philosophy in which he distinguished resume virtues from eulogy ones.

Résumé virtues are what people bring to the marketplace: Are they clever, devoted, and ambitious employees? Eulogy virtues are what they bring to relationships not governed by the market: Are they kind, honest, and faithful partners and friends?

This past weekend I received a copy of a funeral message from a friend I have known since college. His wife of 28 years had died in January.  She had been chronically ill their entire marriage–some of the times were good, but others in and out of hospital.

He celebrated her spirit with these words:

She was the most selfless person I have ever known. I really believe she hung onto life all these years for us, and I hope the rest of my life will be worthy of her sacrifice, because it was not easy for her to stay with us. She gave her life for her friends and family.

Organizations Do Not Have Souls

In the life witness of Jan Karski which I described last week, I quoted his observation that “Governments do not have souls. Only people do.”  I believe his words are applicable to any organization not just “governments” which was the focus of Karski’s anti-Nazi Polish underground activities.

Doing the right thing is sometimes very hard.   Especially when one’s views set them apart from the prevailing practice or beliefs of the organizations in which they work or are members.

Puritan John Winthrop in this lecture (A Model of Christian Charity) prior to sailing for the new world, warned his fellow Puritans that their new community would be “as a city upon a hill, the eyes of all people are upon us”, meaning, if the Puritans failed to uphold their covenant with God, then their sins and errors would be exposed for all the world to see.

That biblical reference of “a city upon a hill” has been later used by four Presidents to describe their vision for America.

Cooperatives were endowed with the hope of being  “a city on the hill” in a country where individuals were often taken advantage of by the prevailing economic system. That system still exists today.

What the above examples suggest is that credit union design is not what makes the difference.  Rather it is the quality of leaders chosen to continue a firm’s legacy.

Being in the minority, such as living at the boundary between health and illness in the circumstance referred to in the funeral, is never easy.  But examples of resolution and spirit should remind us of the aspirations of our own better selves.

In America, the public has traditionally associated prophecy with forecasts about the future.

However their religious and political context  is quite different.  In past and present  societies, they are seen as troublemakers.  Richard Rohr, a Franciscan priest and founder of the Center for Action and Contemplation describes how this “truth-telling” might be viewed today.

After reading his understanding of prophets, I wonder if the credit union movement could benefit from this voice today?  Or is each credit union’s current profit more than sufficient?

The Prophet from Richard Rohr

“One of the gifts of the prophets is that they evoke a crisis where one did not appear to exist before their truth-telling.

“Prophets always talk about the untalkable and open a huge new area of “talkability.” For those who are willing to go there, it helps us see what we didn’t know how to see until they helped us to see it.

“It’s the nature of culture to have its agreed-upon lies. Culture holds itself together by projecting its shadow side elsewhere. That’s called the “scapegoat mechanism.”

“It seems the prophet’s job is first to deconstruct current illusions, which is the status quo, and then reconstruct on a new and honest foundation. That is why the prophet is never popular with the comfortable or with those in power. 

“Prophets are difficult to have around. No one wants to claim the title or do the work because of it. In this postmodern age, everybody is uncomfortable with prophets. They yell when you don’t want them to. They ask for trouble when you could avoid it. They don’t have a politically correct bone in their bodies….

“Prophets are leaders, but not leaders of their own choosing. Inevitably, they have some sort of . . . encounter. . .They’re quirky and more than a little weird. “

Please share any experience with credit union prophets which you have seen currently.  I would like to share their message.

At the beginning of the year, business firms, families and individuals take stock of their financial situation.  The results of last year are known. January brings the credit card bills from the holiday.  Taxes come due.

This year all segments  are reassessing their liquidity situation amidst rising interest rates and growing layoffs.

A Financial Disneyland

Since 2008’s financial crisis erupted, credit unions and members have been living in a financial Disneyland.  Interest rates were kept at historical lows.  The recent Covid response resulted in two years  of short term rates at or near zero.

The Fed’s monetary policy of quantitative easing flooded financial markets.  When capital no longer costs anything, most investments look safe. Returns on short term government securities or insured savings were most recently in single basis points. People and organizations tried new or speculative assets  such as meme stocks or crypto solutions.

The disciplines of long-term investing were overlooked. The risk-reward calculus became warped. Market and housing returns suggested only upside.  Everyone could become a winner.

What We Believe About Money

Call FCU has an unusual member financial education program.  It begins with a questionnaire.  The purpose is to learn your personality type, or in their words, “the strengths and weakness of your relationship with money.”

Everyone has a different approach and individual situations when the talk is about savings, spending and financial goals.   We live in an economy in which consumer spending drives 70% of the output.  Wealth, fame and power are the trinity of individual success for many in a capitalist economy.  Moreover if one achieves the first, the other two can be bought.

How a person or firms manage their finances express our values and ambitions.  So I think Call’s approach is an important first step in any person or organization’s approach to 2023.

One Organization’s Statement of its Financial Philosophy

Non profit organizations have a unique relationship to finances.  They are not in business to build wealth, but they must demonstrate stewardship to donors, or like private business, they can cease to exist.

The Center for Contemplation is a 501 C 3 founded by Franciscan Richard Rohr to put spiritual unity  as the center of religious practice.

The organization has published its organizational financial approach.  It defines this as a “complex process that codifies their relationship with money: how they  raise it, manage it, and spend it. Our financial philosophy centers on values concerning donations and the stewardship of resources. Those financial principles are:

• We operate from a clear definition of “enough.”
• We practice transparency.
• We seek for money to never be the barrier to participation.
• We understand exchanges of money first and foremost as vehicles for advancing our mission and message.
• We commit to spend simply, equitably, and sustainably.
• We lead with giving and generosity.

Should credit unions create their own statement of financial philosophy?  Is a business plan a sufficient roadmap?  Does operating in the context of cooperative design and values provide a complete picture?

Might a credit union’s leaders consider the CAC’s principles above and ask whether they describe their financial philosophy? I believe the exercise could be as revealing as Call FCU’s individual assessment.  For example, when has a credit union ever defined what “enough” might mean?

Amahl and the Night Visitors-How the Story Ends

In an earlier post about credit union’s most essential members, I quoted an aria from the short opera Amahl and the Night Visitors, Do Rich People Know?  The  mother lives with her crippled son. The three kings spend the night before continuing their journey.  The mother tries to take one small nugget and is caught stealing by the King’s page.

Here is how that confrontation works out in the opera’s final lyrics:

MELCHIOR (seeing what has erupted) Oh, good woman, you may keep the gold. The child we seek doesn’t need our gold. On love, on love alone he will build his kingdom. His pierced hand will hold no scepter. His haloed head will wear no crown. His might will not be built on your toil. Swifter than lightning, he will soon walk among us. He will bring us new life, and receive our death, and the keys to his city belong to the poor. Let us leave, my friends.

MOTHER Oh, no! Wait! Take back your gold! For such a king I’ve waited all my life… and if I weren’t so poor I would send a gift of my own to such a child.

AMAHL (pipes up) But, Mother, let me send him my crutch. Who knows, he may need one, and this, I made myself.

MOTHER (drawing in a breath sharply) But that you can’t, you can’t! Suddenly, Amahl begins to walk without his crutch.

AMAHL I walk, Mother. I walk, Mother.

First Things, First

As we enter a new year with both individual and corporate financial challenges, should we first ask what our relationship to  money is?  What “crutches” do we lean on to get us by?  What if we risked giving them away to find out who we really are, as a person and leader of a financial service?

Where does moral courage come from?  How do we learn it?

That was the question asked of the actor in the one-man play about Jan Karski.  His character was a  soldier, member of the Polish resistance, and diplomat during  the most extreme conditions of WW II.

Karski had a photographic memory and made detailed reports of conditions as a courier in 1940–1943 to the Polish government-in-exile.  Jewish leaders in  Warsaw requested he visit the city’s Ghetto and Belzec death camp.  They asked him to report what he had seen of the Nazi efforts to exterminate the Jewish people to the Allies.   He did.

He was captured, tortured by the Gestapo who sent him to a hospital. His SS captors hoped to break him to learn the details of the Polish underground movement.  He escaped from the hospital.  The Nazis killed all of 32 hospital doctors and nurses where he had been treated.

He spoke directly with Churchill and Anthony Eden, the British Foreign minister.   In the US he met with FDR plus national political, press, and Jewish leaders including Supreme Court Justice Felix Frankfurter.  In all his meetings he gave great detail of what he had seen. He  asked Allied political leaders in both countries to act, to stop the Nazi’s genocide.

His wartime efforts are presented in a film Remember This of this one-man play.   It has just been released in heaters and will be shown on PBS Great Performances in March.

Why Remember?

Karski’s story is about more than the Holocaust.  It is about human nature in all its greatness and horror.

His words, not just his personal example, live on as timeless and timely insights into human character.

In the film he observes, “Humans have an infinite capacity to ignore things that are not convenient.”

This looking away occurs beyond  the horrors of war;  it is true of everyday life.

He commented that “Governments do not have souls.  Only people do.”  Caring for fellow humans is not done by organizations, policies or even regulation.  That is the responsibility of the leaders and members of an organization. There are no market “invisible hands” doing humane work.

When he briefed  Justice Felix Frankfurter, the first person of Jewish faith on the Court, Frankfurter replied, “I don’t believe it.”   He was not calling Karski a liar; rather he could not comprehend how humans could possibly be implementing a plan to eliminate an entire people.

A “Living Relationship”

Karksi stayed in the US following the war.  Poland was occupied by the Soviet Union.  He could not return.   For 40 yeas he was a professor of International Studies and Polish history at Georgetown  University.

He was awarded the Presidential Medal of Freedom by Obama a decade after his death in 2000.

Even with this heroic story, one of the co-writers of the script on the faculty at Georgetown, confessed he had walked by Karski’s campus statue for four years and paid no attention to it.

That typical oversight is why stories need be told.  And for their relevance to today’s and future generations.

The actor in the film stated he has “living relationship” with his character.  Karski’s life resonates still.   It is more than a remembrance of an extraordinary person.  It is an example that inspires, even compels us, to ask about  at our own lives.

Our Witness Today

In the Q&A following the film’s showing at the Shakespeare Theatre in DC, the question was asked of the actor: How did Karski develop the moral courage to act in these extreme circumstances?

The actor replied that he thought it was from his mother, a devout catholic.

I believe that people learn their values from watching others.  Whether in extraordinary acts of courage or lives long lived in service to people, we select those qualities we want to express in own professions.

Karski’s example is helpful for those working in the cooperatives.  One of our distinguishing features is an organizational design based on values and collaboration. We are called to a higher standard than might be practiced in other firms.

Credit unions were intended to protect and serve those who are exploited by others.  Our meme is the little guy with the umbrella.  But how easy is it to ignore our cooperative roots and imitate institutions for which credit unions were intended as an alternative?

Do we transfer responsibility for outcomes onto the organization in which we work?   Karski reminds that only persons have “soul,” that is the capacity to do the right thing.

It is not the cooperative model that fails.  Human agency matters whether consequences seem trivial or of utmost concern.

What I find compelling about his example is that after Allied leaders failed to respond to the Holocaust tragedy he reported, he never blamed others for inaction.

His witness of moral courage was not a basis for faulting others.   He did the best he could so that future generations could benefit from his example.

That’s why the film is called Remember This.