Category: Co-ops in Capitalism

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On Mergers: Everyone is Doing it-Why Shouldn’t My Credit Union?

I received a communication from an experienced, throughtful and committed credit union leader last week.   He believes in the unique role of  cooperatives in the American financial system.

But he is throwing in the towel, so to speak.  He has been an advocate for member value, especially in merger situations.  That strategic choice, he believes,  should be especially well-documented with data and plans.  Because it ends the independence and member choice of a long serving institution.

Most importantly he supports the position that owners, whose loyalty created the credit union’s mutual equity, should benefit from such combinations.

No more though.  For his stance for cooperative integrity has resulted in an anti-merger reputation.  In his words: We live in a capitalist society, and we have a cooperative movement that often co-opts cooperativism while fully embracing capitalism. . .  So rather than spending my energy in opposition to that current, I’m shifting toward supporting the institutions that actually want to grow strategically and maintain themselves — the ones who want to remain independent, sharpen their execution, and live more fully into their cooperative identity.

He will find that there are plenty of cooperative leaders who still embrace that approach.

Moral Relativism and the Erosion of Public Trust

But there is another rationale I hear repeatedly from credit union leaders defending the growing merger frenzy. This logic asserts: Mergers are the wave of the future; everyone is doing it; so let’s not be left out of this treasure-scavenger hunt now going on.

This defense, everyone is doing it, is common in many areas of life, not just in business.  It quickly leads to moral relativism.  That is, some asset,  cooperative values must keep up with the times and current practices.

Last week the Wall Street Journal published an opinion piece of this frequently stated defense for leaders’ actions. Here are excerpts from that article by Gerard Baker: (link)

Moral relativism is enticing. It enables me to establish the moral value of everything I do by reference to the behavior of others. It allows me to avoid censure by judging my intentions, choices and actions not on the basis of whether they are intrinsically right or wrong, but by the lesser standard of whether someone in a similar position might have done something similar.

It is deeply corrosive of personal mores and social trust. Over time it dulls the conscience to any moral hierarchy. It is never a legal defense and shouldn’t be a moral one.

Moral relativism is hardly new in public life. Self-exoneration through false moral equivalence by public figures is as old as time itself. But when it becomes the controlling ethical architecture of public behavior, we are in serious trouble. Its effect is to give leaders permission to do just about anything they want, unconstrained by guilt, shame or political sanction.

Moral relativism and the ratchet effect will ensure that there is always some precedent close enough to persuade people to shrug even when confronted with some evidence of genuine turpitude on their own side.

The Questions for Coop Mergers

Isn’t it time for credit unions who believe in the special role of cooperatives to ask whether this increasing frenzy is really serving members or merely the acquisitive ambitions of CEO’s and passive boards?

Only about 3-4% of  of credit unions will  complete a merger in any one year.  Yet the vast majority remain silent as some of their peers become coop predators.

Are leader’s  uncritical acceptance of this restructuring a sign of the system’s strength or a fundamental weakness?

There are many more questions that should be asked. (link)  But the most important one is Qui bono, Latin for who benefits?

Required disclosures in the NCUA approved Member Notices suggest it is rarely the members.

 

 

 

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The Fallacies of a 50 Year Mortgage for Consumers

Last week the Trump team floated the concept of a fifty year mortgage as a means of improving housing affordability.

It is a dubious financial proposal that would bascially turn a new home owner into a “long term renter with a mortgage.”  It gives the appearance of building wealth without any substance.

Home ownership is key to longer term  personal financial well being.   But a twenty year  extension of the 30 year standard mortagage means that almost all of the initial decade of  payments are for interest only.  Little equity is being built.

The average life of an initial home purchase, before moving up or on,  is generally under ten years.  Equity accumulation would most likely come from a gain in market value on sale versus any paydown on the mortgage  loan itself.

Most first time home owners are in their late 20’s or early 30’s. The idea of paying on a mortgage till age 80 would not appear to be a realistic financial plan-unless one hopes to refinance with a shorter term when higher income permits.

In the short term, a 50-year mortgage may appear cheaper.  The payment on a 50-year mortgage, for instance, for a $200,000 loan at 6% would be about $1,052, where a 30-year loan would have a payment of $1,199.

However, a long term mortgage is always likely to have a higher rate than a shorter term or an adjustable rate loan.

Finally if for reasons not otherwise obvious at this time, if a 50 year mortgage did increase purchaser’s buying power, it would likely increase demand for homes.  When demand goes up, so do prices.

More Creativity Not Impractical Ideas

The 50 year mortgage  is not a solution for housing affordability.  Rather other creative innovations such asf coop ownership, shared equity or creative financial terms would appear more in the member’s best interest.

Housing  affordability is a fertile area for credit unions’ ingenuity.  Because they still portfolio mortgages they can  invent new financial approaches to home ownership and not merely conform to secondary market requirements.

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Two Credit Union Initiatives Challenged by Current Events

Credit unions are stewards for vital member owned assets:  shares and their loan IOU’s.  Both are critical in any member’s financial life.   Wise deployment of members’  funds is critical to their confidence and an institution’s reptation.

Cooperative stewardship has many aspects beyond financial soundness. A failure in any of these responsibilities, whether big or small, can create cracks in the foundation of member-owner trust.

Market events this past week raise important questions on two initiatives that are central to some credit unions’ strategic priorities.  The first is out of market mergers/acquisitions for growth.  The second is offering to assist members  purchase of digital assets, for a fee,  as an extension of the credit union’s service profile.

Entering Far Away Markets

As local merger opportunities become less available, credit unions have increasingly sought acquisitions far beyond their core markets.  These involve out of state mergers where there is no prior  connection by occupation, sponsor or other affinity. The continuing credit union brings no prior market recognition.

Sometimes these out of area mergers result in the  jettisoning of all prior local relationships and branding legacies for both institutions. (link)  A complete makeover of market positioning is necessary for the surivor  in both its old and new markets.  This can sacrifice generations of member goodwill, attention  and loyalty.

Last week a major regional bank pushed back against this opened-ended territorial expansion in a presentation to his banking peers.   The story was reported in the Daily Banking Dive on November 7:  M&T eschews the temptation of national presence.  It reads in part:

The Buffalo, New York-based lender remains focused on dominance in its current markets, said CEO René Jones, expressing some doubt that banks can perform at optimal levels as they expand. 

“The most active bank merger-and-acquisition environment in years has lenders chasing scale in far-flung areas of the country. But regional bank M&T is taking a different tack. . . 

 The $211 billion-asset bank has about $162.7 billion in deposits and 960 branches across 13 states from Maine to Virginia. Jones, for his part, seemed to cast doubt on banks’ ability to execute at the same level as their footprint expands.  

“As you get further and further away from home and [add] more geographies, I think the management challenge goes up, because you’re really an organization that is built around culture, and cultural norms, some of which are documented, many of which are not.” 

“Having enough people to deploy across that kind of a geography, who will make the same decisions that you make, I think, becomes more and more challenged as you get larger, 

He acknowledged buzz around national scale, “but the question is, what is your reputation and the awareness and how well you do your job for those people that you concentrate on?” 

“We’ve decided not to be a national bank, so we better be focused on achieving our goal where we are.”   He added. “Mergers of equals “don’t make sense.”

The article has further M&T history.  But he is taking a public strategic position that is at odds with many of his peers, industry consultants and forecasters of banking’s future.

Is there a message for credit unions from his experience and performance?  For credit unions, what is the track record of member benefit with out-of-area acquisitions? How do such efforts help the surviving credit unions member-ownes?

Facilitating the Sale of Crypto Assets to Members

Offering members the ability to invest in digital assets in partnership with third parties has become a front line service extensions for an increasing number of credit unions.

This past week the value of bitcoin  declined about 15% from its peak.  This has resulted in sharp declines in the  stock of firms holding significant crypto assets (sometimes called treasury- companies).  These stock traded firms buy bitcoin or other crypto currencies intending to benefit from the  increasing investment hype in these new assets.Their value proposition is to provide consumers indirect exposure to these assets without the hassle of direct ownership.

The market leader in this effort is the company Strategy.   Here is the November 9th Wall Street Journal  story about the performance  of these indirect crypto investments so far this year:  The Year’s Hottest Crypto Trade Is Crumbling.

It describes hownthe recent market selloff in bitcoin and other digital tokens has hit  these crypto-treasury company stocks .  It provides multiple examples of price declines of over 30% in one month.  It documents how ”the hottest crypto trade has turned cold” gives multiple examples of wealthy individual investors and companies who have lost money.

These October events have caused some to reiterate their skepticism of crypto as a store of value. With no performance or use, it is pure market speculation.  While true believers say this is a “buying opportunity” asserting  “bitcoin is on sale.”

The Wisdom of Crowds or the Greater Fool Theory of Speculators?

The Trump administration is certainly crypto-friendly.  There are numerous efforts to bring crypto into the financial mainstream as a “routine” financial investment.

But should credit unions be facilitating diect or indirect transactions at this very uncertain point in the future of alternative currencies?  The fees can be attractive when members both buy and sell.   The credit union would seem to have little to no risk exposure  in the traditional understanding of that term.  The payment is in cash and a third party offers and holds the asset.

But is it wise for the members whom the movement was formed to serve?   Credit unions present themselves as expert in many areas of a member’s financial life.  They offer through third parties, or  CUSO’s, insurance products, mutual funds and stocks, and financial advice, planning and  consultation.

Crypto as a financial assetand  has a vary different character than other currency assets.  The coins are offered via third parties (not governments-yet).  Some stable-asset coins are in theory backed by government issued currency or bonds. But the oversight of this structure is unclear.

Yes, members can go elsewhere to purchase crypto  assets directly or via EFT’s or “treasury company’s” stocks.

But I know of no one recommending that a large part of a person’s savings be put in crypto. The future value is a gamble.  All of he experience so far is at best erratic and uncertain, exuberance followed by quick periods of decline.   Crypto based options appears to be speculation, not an asset of proven value.

The Efficacy of NO

Sometimes the best response a credit union can give a member request is No.  We don’t believe the member’s request for a loan for a specific car, or selling lottery tickets or crypto is a wise decision for  our member(s).

Oftentimes we recall persons in institutions that said No to us.  Especially when we wanted something strongly.  Even though it is hard to understand the No, later we realize it was a decision made for mutual interest-yours and the institution’s reputation.   I believe in time, we remember and respect these moments of wiser concern than what we can grasp, at the time,  on our own.

The Wisdom No

The market is saying something important in both of these recent examples.  Are we willing to examine other’s judgments, not just take our own counsel?

For our purpose is to be wise stewards of our members’ financial well being through example and deed.  And not simply join a herd heading to who knows where in the future.

 

 

 

 

 

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At a Merger Inflection Point-What Should Credit Unions Be Asking?

The ordinary human being does not live long enough to draw any substantial benefit from his own experience.  And no one can benefit by the experience of others. . . each (generation) must learn its lessons anew.  (Albert Einstein) October 26, 1929)

On October 20, 2025 Callahan published an analysis with multiple charts showing how mergers are changing the institutional character of the credit union system.   The graphs have ten and twenty year times lines documenting the number, size and source by peer group of this consolidation.

The analysis, Credit Union Mergers on the Rise, provides essential macro trends to track how this consolidation is affecting the institutional structure in the credit union system.  One example is that over the past ten years the average credit union asset size has increased from $188 million to $538 million.

There are many other data points one might take from the article to help frame critical questions that should be considered, but are often overlooked.  For  many view this consolidation as inevitable and necessary.

Some Important Questions that Need Answers

The basic financial math of a credit union mergers is simple:  1 + 1 = 1.  There are no added members, shares, loans, employees or outlets.  Instead in most cases a financially strong long-standing coop has turned over all of its members’s assets, equity and future direction to another organization whose leadership they had no role in evaluating or choosing.  Sometimes the new management’s head office is hundreds or even thousands of miles distant with no connection to the merged  credit union members and community.

Credit unions are built on relationships/bonds and generations of member-owner loyalty.  That commitment was their initial capital and the foundation for much of their public reputational goodwill today.

So it is important to consider whether these trends and sometimes questionable activity are helping or hurting the system’s future.  Are mergers a symptom of a system’s weakness, an inability to sustain organic growth,  or a strength?

The Need for an Industry Conversation

Other questions that could help member-owners and cu leaders better understand and evaluate what is occurring could include:

Is consolidation resulting in fewer charters inevitable?

How has the coop system’s approach to merger changed over the past decades?  What role and benefits are third parties gaining in these combinations?

What are options for credit unions who feel the need to merge?

What should member-owners know when asked to approve the transfer of their entire coop’s assets and legacy about the performance, business priorities, and  leadership of the continuing credit union?

What is the fiduciary duty to the member-owners when leadership decides to seek a merger? How should the conflicts of interest be addressed with CEO’s negotiating their own merger benefits? 

What is the regulator’s role when reviewing merger applications?  What is their obligation to the member-owners?  Are they responsible for the information owners receive when approving the Member Notice announcing members’ voting role?

Has there been any multi-year studies of well capitalized credit union mergers and the before and after performance trends over a fiveyear period?  How did members value change? What happened to their community relationships and employees?  What are the additional immediate costs incurred by mergers?

Who Will Lead These Dialogues?

How one introduces an issue will often determine what actions are necessary.  With mergers occurring  at an average of three to four per week, there has been no industry discussion of the  implications and the benefit or hard to the members-owners.

Now, not later is the tme to understand the consequences of mergers.

Individual instances of multibillion dollar cross- country combinations or when one credit union completes three mergers in  one month (and ten in one year) are routinely announced.  But these apparent individual actions will have significant consequences for every other credit union.

For no credit union stands alone.  All are part of an interdependent  system that creates individual  opportunities and vulnerabilities.

Merger activities are having  important conseqences for the member-owners, their communities, and the shape of financial options in America.

The future of the coop system’s will be different.  This is not an effort to go back to what was.  Rather it is a necessary examination as Einstein might suggest, to plumb our wisdom now and not wait for future generations to assess past events.

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From the Field: Lending in the Member’s Best Interest

First, a recent CEO’s update to staff on the federal governments shutdown and the credit union’s response for members:

SHUTDOWN ASSISTANCE: The credit union is offering numerous options to members impacted by the government shutdown. We are offering unsecured loans based on the member’s normal net weekly or bi-weekly pay with a 7.25% APR up to 12 months. We have also extended the interest free period to 90 days and allow for a term up to 48 months to assist even more members  through this tough time. From the beginning of the shutdown through November 1st, we helped 387 members with total loans of approximately $1,911,167.00. We have also processed a considerable number of skip payments for members without any fee.

An Impact Maker Counsels a Member Not to Make a Loan

CEO’s introduction: This month’s Impact Maker is a great example of living our mission and doing good for people. We’re a lending organization and love to help members with their borrowing needs. But any loan needs to be in the members’ best interests.  In this situation, not making the loan was the better decision.

“Tammy recently spoke with our member, Betty (name withheld), who expressed interest in opening a Home EquityLine of Credit. Over the course of the conversation, the member divulged that she was taking out this loan to give funds to her daughter for flooring and renovation expenses.

Tammy dug in further – uncovering that the member really didn’t want to do this loan or assume another loan payment given her fixed income but was being pressured to do so by her adult daughter.

Tammy listened to the member’s situation but advocated against taking out a loan she wasn’t comfortable with, and explained to the member the loan options available to her daughter, should she want to apply in her own name.

Later on, the member texted to Tammy, detailing that her daughter was screaming and banging on her door, irate that Betty wasn’t moving forward with the loan. Tammy continued to support and encourage the member, advocating for her safety and for her choice to do what is best for her own financial situation. 

Betty was extremely grateful for this support, thanking Tammy for her “thought provoking” conversation.”

A Member’s First Credit Experience

This CEO’s story is about Jose (name withheld), who was aided by Isaiah  a financial coach at a local Member Center. 

“Isaiah opened Jose’s membership in February of 2024 at the  Member Center. Jose is an older gentleman with very limited credit for his age, but he wanted to start building it. Isaiah was able to help him obtain a $500 First Time User Credit Card in addition to his checking account and debit card. 

The member would reach out to Isaiah from time to time and update him about his credit score. Overtime, Jose was able to qualify for a higher credit limit. He started the process of trying to buy a car. However, he was challenged by his limited credit history, car prices and the loan to value on the cars in which he was interested. 

Overtime, Jose continued to pay on his new credit card and qualified for a larger limit again, but he still was not having success with purchasing a vehicle. Isaiah worked  to get him pre-approved for a dollar amount and began reviewing specific vehicles with their price and loan to value compared to blue book values. Finally, Jose found a vehicle he liked and qualified for.  The credit union approved his financing. 

Recently, the loan was closed, and Jose was driving his “new” car. The loan took over a year and the credit building process was over a year and a half. 

Thank you, Isaiah, for your persistence and caring approach with Jose. You lived out our purpose to build hope by being a caring financial partner.”

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A Departing CEO’s Lament

Starting an odyssey to change cooperatives.  Before you read this CEO’s statement from LinkedIn, consider a brief thought from Emily Dickinson, By a Departing Light:

By a departing light
We see acuter, quite,
Than by a wick that stays.
There’s something in the flight
That clarifies the sight
And decks the rays.

A Course Change By a Credit Union CEO

 I have always been a bit of a square peg struggling to go into a round hole. I have always pushed against the grain regardless of my role. Sometimes that has been appreciated. Other times, it has been criticized.

I have debated for years how I can best serve this wonderful industry. In a space that is riddled with hypocrisy and attrition, I have concluded that I am of more value outside the bubble than inside.

I’m not only stepping down as a CEO. I’m stepping away from working inside credit unions altogether.

There is never a good time. There are always what ifs. Unfinished work.

December 18th is my 25th anniversary in the credit union industry.

In my 25 years, we have lost more than 50% of our neighborhood or community credit unions across the country.

So what are my motives? Family. Opportunity. Change. Fit.

Change. Something has to change.

I could sit in a credit union trying desperately to conform to my round hole. To complacency. To status quo. To fit.

Or…

I can dedicate myself to change. Change to challenge complacency. Change to disrupt the status quo.

I’m betting on myself. For my family. For opportunities. But also for a chance to make an indelible change to our industry.

If we want future generations to know credit unions, we must be about the work of saving them.

If I am fortunate, I have 25 years left in my career. During that time, my priorities will be God, Family, Career. In that order.

The second half of my career will be focused on finding as many ways as possible to help our credit unions win. Creative Strategy. Next Level Results.

I won’t stand by idly watching credit unions get regulated out of existence or go quietly into the night.

So this is not a goodbye. This is a hello.

I am not leaving the fight. I’m just getting started.

November 14th. I close one door so that I can run through another.

See you then.

(James McBride, CEO, Connects Federal Credit Union)

 

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A Surprise for 1,254 Credit Unions & Heads Up for Everyone Else

Vendor relationships are an essential requirement of managing a credit union.  All credit unions contract with an external vendor for their core processing operations and many ancillay addons.

Only one or two of these vendors are credit union owned CUSO’s.  The others are for profit companies some privately owned and others public.  Some serve primarily credit unions; others the entire financial market.

Credit Union DP’s Market Share

The largest market share for critical back office operations is Fiserv.  In a 2024 survey, they served 1,264 credit unions or 27% of the total market.  This share is provided through almost a dozen core options.  This variety reflects FiServ’s business model of growth through acquisitions of independent credit union dp providers.

The next highest dp vendor’s share is Jack Henry with 544 credit union clients on a single platform.

A $30 Billion Loss in Market Cap Creating a Decline of 42-44% in Share Price

Yesterday Fiserv announced its operating results for the third quarter.  The surprise result stunned the market.  From Bloomberg’s Evening Briefing:

Fiserv stock suffered a record plunge after the fintech slashed its outlook for full-year earnings and unveiled third-quarter results that confounded Wall Street analysts. Chief Executive Officer Mike Lyons, who took the reins in February, said he discovered that Fiserv wasn’t going to be able to deliver on its previous promises after a broad-based review of the business in recent months. Lyons’ predecessor running Fiserv was Frank Bisignano, who left to join the Trump administration. 

“More financial surprises emerged in the start of Q3,” Lyons told analysts on a conference call. “That prompted not just the annual strategic planning process, but this much more rigorous review into our financials. And that was also driven by some of the stuff we’re hearing from our clients.” (emphasis added) 

Analysts expressed surprise at how quickly the business appears to have soured. Trevor Williams at Jefferies said the magnitude of the earnings miss and forecast cut “is difficult to comprehend.”

“To be frank, we are struggling to recall a miss and guide down to this degree in any of the sub-sectors we have covered during our time on the Street,” Matthew Coad, an analyst at Truist Financial, said in a note to clients.

What’s Next for Fiserv?  For its Credit Union Clients?

The most revealing phrase in Fiserv CEO Lyons call was the reference to some of the stuff we’re hearing from our clients.  That is pretty frank talk from a CEO facing a market confidence meltdown.

What’s next for credit unions?  With up to twelve different core solutions and serous earnings pressures, some consolidation forgreater efficien would seem inevitable.

In addition to being aware of what changes may be coming, the next important question is what are my options?  For the short run?   And the longer run when my dp contract is up?

This uncertainty will  put the focus on other credit union dp providers, especially those who may be credit union owned.   Or credit union focused vendors who would appear to be financially stable, and not positioning for an eventual windfall sale to an outside party.

With all the public focus on new technology, it is important to remember the value of long term reliable relationships.   The unique credit union solutions of creating CUSO’s to serve common tasks becomes more promising than ever.  While CUSO’s must compete with for profit alternatives, often with greater resources, they do not confront the prospect of market sell offs driving business decisions.

Whatever the outcome of Fiserv’s fall from market grace, it should prompt a greater awareness and examination of each credit union’s core provider. What do you know about the company’s financial circumstances and client satisfaction?

 

 

 

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Why Member-Owner Participation in Credit Union Board Elections Matters

In a response to yesterday’s post citing PenFed, a member sent me the following notice requirements for an owner to be nominated for an open board potions at the credit union.

The 1% standard cited would require 28,128 member signatures based on the latest call report.  It is a mere pretense of democratic owner control.

The member added this comment:  Credit unions are becoming more like Fortune 500 companies every day. They exist not to meet the needs of customers or shareholders but entitled corporate executives. 

The notice also contained short bios of the three board nominated candidates.  The first is a retired army colonel who has been on the board since 2008 and serves on the Planning Committee.

The second is a retired USNR aviator who served for ten years on the Supervisory Committee before “joining the board” in 2022.  He also serves on multiple committees including planning and risk management.

The third board nomination joined the board in 2005 and has just retired from a 38 year career working for the federal government.  This person is the board treasurer and chair of the financial and risk committee and on the planning committee.

All have earned advanced degrees and have served in multiple professional civilian roles.  No one would question their credentials.  However their candidate descriptions include no statements about their priorities for the credit union and its current performance.

 PenFed’s Recent Trends

At September 2023 PenFed’s total assets peaked at $35.4 billion.  As of this June the total was $30 billion.  This $5.4 billion asset decline is a continuing trend.  In the 12 months ending June 2025, shares have fallen by over 10% or $3.0 billion, and loans by 13.2%, or $3.6 billion.

In the income and expense comparison for the first six months of 2024 and 2024, total revenue is down 14.1% and operating expenses by 3.75%   The net income for both half years is positive with ROA’s of .27% and .54%.  However these  results were achieved by recording “non opeating gains” of $86.3 million and $95.3 million in the two periods.  Otherwise, net income would be negative. Non-operating gains result from the one time sales of assets such as buildings or loans.

In the past 12 months, there has also been a decline in the number of branches (4), employees and members.  It has downsized its balance sheet by reducing external borrowings from $3.8 billion at December 2023 to $756 million as of June 2025.   The reduction in total assets has resulted in a net worth ratio between 9% and 10% even with minimal earnings in the past 24 months,

In sum, PenFed is moving steadily backwards.

The Strategic Catbird’s Seat

PenFed has one of the oldest and most recognizable brands in credit unions.  It portrays strength and security suggesting a direct affiliation with the government.  The credit union  has an FOM  charter open to anyone, reporting  342 million potential members.

During the past decade, the credit union has merged over 25 credit unions across the country, acquiring their equity.  Often, after a brief transition, the local branches are closed, employees laid off, members offered only virtual services, and the buildings and other assets sold.  The local legacy relationships, representation, community presence, and reputation are gone.

PenFed has had strategic advantages many other credit union’s covet.  Scale, open membership, diverse products, a recognizable brand, multiple acquisitions of other credit union with their equity and increasing conversions to virtual and remote services.  Yet it is in decline.

Where Are the Overseers?

These declining financial trends have taken place for at least the past two and a half years.  What has the board been doing?   What changes have been tried?

Members are not being served well by their director representatives.  But what recourse do they have other than to close their account and leave?

This situation is a concrete example of why member-owner elections are important versus the habit of routine ratifications of board incumbents.   All three PenFed nominees would seem to have exceptional  credentials.  But in practice they are shepherding a significant institutional dwindling.

The financial engineering to maintain a net worth above 9% by selling off assets to record non operating gains is not sustainable.  Does the credit union even have a plan or leadershlp capable of reversing this diminishing?

This situation is why annual meetings should matter. Elections are moments for accountability not merely PR exercises.  Democratic elections empower owners and promote leader responsibility.  In the absence of member participation, there is no answerability by those in leadership positions.

When the regulator is the last resort for addressing financial and operational shortcomings, the credit union has lost its autonomy.  And member-owners’ needs are sidelined to meet the priorities of the government overseer.

When democracy as the means for leadership accountability is abandoned,  the outcome is rule by habit or authority.   Neither is a sustainable approach for long term success.

 

 

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The Big 3 Credit Unions and Member-Owner Democratic Practice

In a January 2024 blog, I described NCUA’s approval of bylaw changes for Navy and Pentagon FCU’s that effectively eliminated the ability of member-owners to nominate directors for board openings.  (link)

In the post Who is Responsible for Credit Union Democracy, I summarized these changes:

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.

Now the trifecta for the three largest credit unions is complete.  In 2023 and 2024 SECU NC had contested board elecrtions.  In the first year, member nominated candidates defeated the board selected ones.  The next year the board nominated candidates won with tens of thousands members casting ballots.

In 2025 there was no contested election at SECU.  The board chosen candidates were seated by acclamation.  In this post Jim Blaine, a member and former CEO, gives a summary of this voting process (link) titled The SECU Annual Meeting:  Isn’t this a Losing Struggle?

It is not just the Big 3 who have shut down member elections. It has become the standard operating practice for all but a few credit unions.   So does it matter?  Why worry if everything seems to be going OK?

Why Voting Matters for the Future of Credit Unions in America

  • It empowers members in their role as owners. You are more than a customer.
  • It implements the democratic design of cooperative governance via member oversight.
  • It opens director leadership positions to the widest possible selection of candidates.
  • Voting gives current and potential candidates a chance to state their visions for the credit union.
  • Without a vote, the director nomination and selection becomes a “closed loop” that perpetuates existing leaders and their self-chosen adherents.
  • The Board’s standing to carry out its oversight and policy roles is not presented to members and increasingly makes directors totally dependent on management.
  • Without elected board leadership, the default arbiter of vital decisions about credit union activity is the regulator-e.g. bank purchases, mergers and even operational priorities.
  • With voting negated, there is an accountability gap that isolates credit union leaders from the consequences of their operational decisions and performance outcomes.

Voting determines who holds the political power in the credit union.  Without choice, power is concentrated in directors and CEO’s who assert responsibility but not answerability to the owners.   The credit union model becomes compromised, and leaders gravitate away from member needs and value to their views of organizational success.

Absent proper governance via director elections, the cooperative model descends into a system of autonomous, independent financial oligarchies.   They take generations of member-generated collective wealth to run their personal private organization.  Credit unions are increasingly financial islands protected by seawalls from taxation and the traditional market indicators or measures of accountability.

Managing financial wealth is an intoxicating and addictive activity.  It symbolizes and enables the exercise of power in every sector of society.   For many individuals, it is the ultimate indicator of personal success and meaning.

What was once common wealth has become privatized.  The cooperative model is merely a veneer from a prior era of innovation.  And to keep the critical advantage of no taxation.

Ultimately the perversion of this primary check and balance by coop owners will lead to safety and soundness issues where credit unions combine out of fear or greed. The public perception will be that multi-billion dollar credit unions no longer serve a unique public purpose or need.

For some this is the inevitable outcome n a society that worships capitalism and wealth accumulation.  For others, it will be an opportunity to innovate and find new ways to bring the common good to areas of personal needs.

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Democracy Takes Work-Especially in a Cooperative

(Note: this post continues a series exploring the democratic foundation of credit unions)

President Eisenhower:

“Dictatorial systems make one contribution to their people which leads them to tend to support such systems—freedom from the necessity of informing themselves and making up their own minds concerning…tremendous complex and difficult questions. But while this responsibility is a taxing one to a free people it is their great strength as well—from millions of individual free minds come new ideas, new adjustments to emerging problems, and tremendous vigor, vitality and progress…. While complete success will always elude us, still it is a quest which is vital to self-government and to our way of life as free men.”

This year’s fall election cycle, allbeit limited, is putting the issue of what American democracy means front and center.  Some believe it is about majority rule-the winner calls all the shots.  Others have a more nuanced view of participation, diverse representation and compromise.

One of the ways citizens in America learn about democratic practice is its use in the many civic and public organizations in which we all participate:  churches, local elections, volunteer and nonprofit groups.

Credit unions are designed to be democratically governed.  One person, one vote. The primary means for how this process is exercised is at the members’ annual meeting and the election to fill board openings.

Practice Without Substance

In a conversation with a long-time credit union member ( joined at age 5 in 1966) he said he never saw an actual election.  Instead he learned the Chair would appoint a nominating committee led by the Vice Chair.  That committee selected just the number of persons as there were open seats. The candidates were all familiar faces from the existing board or “associate board” members.   The test was loyalty-would they “go along to get along” with the rest of the board.   The tenures of several of these board members extended cases over three decades.

This description would be familiar to many credit union boards.  The election process is managed to perpetuate the incumbents or their fellow travelers.   It is democratic in neither practice nor theory.  In the end the credit union is led by persons who believe in their special skills or status to remain in office for as long as they wish.

The justification for this self-perpetuating board selection is the idea of a “leadership class” similar to trustees, that should not have to answer to voting owners, let alone face a contested election.  This is especially so when external factors suggest satisfactory organizational performance.  Why tinker with success?  Aren’t we doing what is expected, and leading well enough?

Without Elections, Institutions Decay

However, when a minority, no matter how talented, takes control of a credit union board and its selection process, the responsiveness and accountability of the institution to its member owners is at risk.  Which means the future of the credit union is not in the hands of the members, but of a small group who eventually may tire of the task and decide to end the charter—not find new leaders.

The penultimate example is when these self-selected insiders chose to sellout their credit unions history and enter into a merger.  This ending destroys generations of value and loyalty for immediate payouts to the CEO and rhetorical promises for the future under leadership the members had no role in selecting.

Without the annual accountability via elections, the “leadership class” will become conditioned to act unilaterally.  This isolation is one reason why the number of credit unions has fallen from 6,000 to 4,000 in just the past seven years– an attrition almost all via mergers of sound institutions.

These are not financial failures.   They are failures of leadership and morale.   And it all depends on having a passive, uninvolved membership that will act as a customer and not owners-especially at the annual meeting.

Why Credit Union Democrative Practice Matters

Democracy is about more than elections. Even autocracies pretend to elect their leaders. Real elections ultimately undergird freedoms.  As Richard Rohr has stated in another context: But it’s a freedom we must choose for ourselves. It is almost impossible to turn away from what seems like the only game in town (political, economic, or religious), unless we have glimpsed a more attractive alternative. It’s hard to imagine it, much less imitate it, unless we see someone else do it first.

The example of freedom and self-governence is  the ultimate benefit credit unions contribute to a democratic society.  Without elections, the special economic opportunities from cooperative design will sooner or later be compromised by the allure of capitalist inspired greed.