Re-Imagining Federal Credit Unions’ FOM

In NCUA’s 1982 Annual Report Chairman Callahan’s  opening Foreward presented his approach to the Agency’s priorities:

“One year ago we were in the midst of a dialogue with credit unions about deregulation. . .our sense was that government was doing too much.  In the name of safety and soundness, we the regulators, had become overzealous. . .

In acting to change this direction, we were not advocating that credit unions should “do something” . . .Instead we tried to give credit unions self-determination . . .we tried to get out of their way. Government can’t react quickly enough to allow credit unions . . .to remain competitive.”

In every speech Ed reminded: “Deregulation is not freedom.  It is responsibility.”  To  a NAFCU conference he stated: “I think the vitality (in credit unions) comes from the initiative and ingenuity of the individual boards. Hopefully they’ll all do it differently so that the country’s eggs are not all put in the same basket. “

Reexamining FOM “Groups”

After NCUA approved the total deregulation of share accounts in April 1982, attention focused on the agency’s interpretation of the FCU Act’s common bond definition.   Callahan described this review in the Annual Report :

“Traditionally the agency viewed that “groups” meant an occupational credit union would be one sponsor, one employer period.  Groups within a well-defined neighborhood, rural district or community meant 5,000 people, then it meant 25,000 people; then we weren’t sure how many people it meant.  But numbers were all it meant. 

“We believe that this very narrow interpretation was probably far more insidious than the rules and regulations promulgated over time.   We have taken a more liberal view.  We think that if the law does not say no, it certainly leaves room for yes.  . . And so we think this interpretation is a far more deregulatory action than doing away with rules and regulations.”

Ed looked at the full scope of credit union history. Open charters were present alongside more  restrictive common bonds.  The practice in Rhode Island for example, was that their state charters could apply for statewide authority  to serve anyone who lived, worked, or worshiped via a bylaw amendment.  Many states had much more responsive FOM interpretations than NCUA allowed.

The result was that beginning in 1982 federal fields of membership became more flexible through senior clubs, multiple group charters and  allowing members  to  select from multiple credit unions, that is overlapping charters.

Still today, federal FOM changes are much more deliberate than most state processes. NCUA common bond oversight has metastasized as a  vestige of bureaucratic control.  Numerous vendors including former NCUA employees still offer consulting services to help credit unions seeking FOM change.

The Context for Callahan’s Reappraisal

Ed’s  belief in the importance of deregulating the common bond was shaped by his life experiences.  These include his thirty years as a teacher and administrator in the parochial school system; his six years overseeing the Illinois credit union system as director of DFI; and his belief in the unique self-help possibilities of cooperative design.

In  Illinois there were almost 1,100 state charters in 1977 when he became Director. He saw first-hand the challenges of unprecedented short term double digit rates.  The old economic and regulatory order was passing;  the need to change how credit unions responded to their members was urgent.

For example  in 1978 Sangamo Electric Credit Union in Springfield lost its sponsor when the company moved to Georgia. I was credit union supervisor and said the law required that we close or merge the credit union as it no longer had a sponsor.

Ed’s reply was: “The company moved, not the people. They need their credit union now more than ever.”  We changed the credit union’s FOM so it could continue serving members.

In these initial years at DFI we  saw how government regulation and process  at all levels had become so slow and bureaucratic that the members, the people credit unions were meant to help, were the last to be considered.

More Than an FOM Interpretation

In his speeches Callahan called the credit union system a “sleeping giant.”  He believed that all Americans should have a cooperative financial option.

During his tenure as Chairman, field of membership flexibility was just one aspect of credit union expansion.

New chartering efforts were encouraged with universities and colleges a point of emphasis to bring the next generation into the movement.

In November 1982 a group of credit union leaders met in Philadelphia to plan CUE-84.  This stood for Credit Union Expansion.  The  goal was  50 million members by the 50th anniversary of the FCU Act in 1984.  The honorary Chairman was NCUA board member Elizabeth Burkhardt.  In addition to the presidents of national trade associations,  leagues and  NCUA staff, the committee included the credit union CEO’s of Navy, United Airlines and the president of CUNA Mutual.

Spreading the word about credit union opportunity was more than an FOM change.  It was the  belief that helping grow members was in everyone’s and the country’s interest.

FOM: Inclusive, not Exclusive

Before deregulation, the public impression was that one had to be a member of a sponsoring company, association, or church to join.  That was often the case.  Ed wanted to turn that traditional view upside down.

He believed credit unions should be inclusive, not exclusive.   As he was often quoted,”I do not believe in THE common bond.  I believe in a common bond.”  That “a” was the responsibility of each credit union’s board and management to define and serve.

Many Different Frames- One Goal

Today there are as many practices of the common bond as there are credit unions.  The FOM is like the frames in the National Gallery’s thousands of paintings.  Every picture, every frame is different.   That diversity is the credit union system’s strength.

To see the common bond as an advantage or not, is to misunderstand the core of credit union success.

Credit unions are a prime example of the “relationship economy.”  We all connect in our lives with some group(s) to fulfill  a sense of  purpose.  As human beings we aspire to join together in productive, self-fulfilling ways.  We rely on others and they depend on us.

Credit unions are one option.  When led well, they become much more than “just a job.”  Or when members use the phrase, “my credit union,” more than a financial alternative.

Ed believed in credit unions as a community just as John Tippet stated in his 2001 speech to Navy Federal.

Ed’s lifelong leadership of multiple organizations demonstrate  the special skills required  to build  “communities”  of shared purpose. The FOM should be a building block for credit unions, not a regulatory stumbling block.

Fields of membership are a “frame” for credit union performance.  What occurs, the painting within the frame, is what makes each credit union unique.























Field of Membership: How Important Is It ?

Field of membership (FOM )has been a legal characteristic of credit unions from the first charters.

Virtually all credit unions in operation today were started with no financial capital  The “common bond” of association, employment or community provided vital support along with organizers’ sweat equity to provide the critical “capital” to get the effort started.

As financial reserves were built over generations, credit unions grew increasingly independent of sponsor support.  In the case of many employer based credit unions, the FOM became a vulnerability. Especially when a company failed, moved away or laid off employees.

An example is the International Harvester sponsored coops.  At one time almost 20 credit unions served its factories, Chicago offices and subsidiaries such as the Wisconsin Steel Plant.  Today none of those businesses exist.

The FOM has come to be viewed by many as a constraint on credit union expansion.  Even with the multiple interpretations now possible by state and federal regulators.

The debate continues and practices evolve. FOM’s vary greatly from the very limited charter of State Farm FCU to the “anybody can join” definition of PenFed. Its reported FOM is 330 million potential members!

Is the FOM, which is  a legal requirement even if loosely interpreted, a strength or a constraint?

Below is  a traditional view.  This is an excerpt from John Tippet’s presentation on American Airlines FCU’s strategy to Navy FCU’s board in 2001.  John was CEO at the time and has since retired.*

Here is his opening comment focusing on the common bond:

Thank you for the opportunity to speak – this assignment has given me the challenge to organize my thoughts and better comprehend how membership common bonds have contributed to the success of credit unions, and to realize what the benefits of that principle are to us now and will be to who we are and what we do in the future.

A couple of years ago, the Credit Union National Association (CUNA) encouraged credit unions to participate in their “Project Differentiation.”  They asked us to prepare statements and other forms of documentation about what it is that we as credit unions do and why we are different than banks or other financial services providers.

We were then encouraged to share those materials with our members, Congressional representatives, and in other public forums.  In doing ours for American Airlines Federal Credit Union (AAFCU), we labeled it “Who We Are and What We Do.”

Who we are is the common bond shared by those described in our field of membership – employees, former employees, retirees, spouses, and children of those associated with American Airlines and the related companies originally created by American Airlines.

We’re very proud of our common bond and we’re grateful for the part it has played in defining who we are.

A Strategic Advantage

It is my conviction that common bond is a credit union’s strategic advantage.  Common bond  helps make us different, contributes to our operational efficiencies, helps make our branding effective, and is a catalyst to increased focus on who we are and what we do.

In fact, part of the 1925 Edward Filene quote in your advance reading materials reads, “Whatever the common bond uniting the members, the bond must exist.”

Mr. Filene understood the value of common bonds.  In those formative years of U.S. credit unions, they were already learning from their past and the, then current, real world of financial institutions.  Mr. Filene had seen the banking panics and failures of 1895 and 1907.  He also had seen credit union models working in other countries, so he learned from them both.

By trial and error, the current U.S. banking system has emerged, including regulatory structure, the role of federal insurance, and a new tradition of credit unions within that system. 

We are a product of an evolutionary process, having survived as a result of unique adaptations and specialized advantages, one of which has been the common bond – the shared interests and affinities of credit union members.  (end of excerpt)

This statement is only 5% of his strategic presentation.  The entire talk contains an additional twenty slides.  He covers branding, products and the credit union’s response to 9/11– offering to help finance a plane for the sponsor.

Tomorrow I will offer another perspective from Ed Callahan.  As NCUA Chairman (1981-1985) he played a critical role in enlarging the interpretation of the FCU Act’s requirements.  A decade later one aspect was taken to the Supreme Court by bankers where the multiple group policy was overturned in a 5 to 4 decision in 1998.

What was Ed’s underlying philosophy? How did he reference credit union history in his understanding?

* Tippet’s brief biography:

John worked for 25 years in the ‘for-profit’ world (American Airlines) before becoming the AAFCU CEO.  He was an Officer with Sky Chefs, an AA, Airport Restaurant and Concessions, and Airline Catering, subsidiary.

He served as the credit union’s CEO from 1991 to 2008.  When he left the credit union was in the top ten by total assets.  Today it is 23rd.

The one material change after this talk was to take advantage of the TIP (trade, industry, profession) FOM option. This allowed other employer’s co-workers at the Airports to become members.  Airports were the credit union’s “community.”

John’s email:

Early Learnings from Bank Yearend Earnings

Everyone looks like a business genius when interest rates are at historic lows and money is incredibly cheap. But when the tide goes out, you see who isn’t wearing any swimming trunks.

(Warren Buffett, among others)

This week all major banks will report their 4th quarter earnings.  Yesterday the money center banks released their results.  Today the large regionals report.

Credit union 5300 call reports for the same period will not be available for 60 days or more from NCUA, unless individual firms post their financials independently.

There are three observations from these commercial investment and consumer banking leaders so far.

  1. 4th quarter earnings compared with the same period of 2021 are at best mixed. JP Morgan’s net is up 6%; Bank of America, 2% up; Wells down 50%; Citigroup a negative 21%. Goldman Sachs down 69% and Black Rock’s profit fell 23%.
  2. Goldman’s decline was due in part to a cumulative $3 billion loss since 2020 in its efforts to develop a consumer lending market under the Marcus brand.  The firm has since reorganized these products.
  3. The stock prices of most money center and regional banks have fallen precipitously over the past 12 months.

Some examples:

JP Morgan  -10%

Bank of America -27%

Citigroup -24%

KRE Regional banking ETF  -25%

Each institution singled out different factors affecting their results:  increase in loan loss reserves, falling revenue in certain business lines such as investment banking and trading,  operating expenses too high, rising interest rates, recession worries and economic uncertainty.

The common refrain in the earnings announcements: “These are not the results we expect to deliver to shareholders.

There were a number of negative events called out:  Goldman’s loss in the consumer market, Wells Fargo’s $3.7 billion additional government fine, and  JP Morgan’s $175 million write off of a fintech acquisition.  Results were mixed but not troublesome from a systemic view.

Potential Questions for Credit Unions

ROA for credit unions through September 30 fell about 21% to  88 basis points versus 2021.   The largest single factor was 15 basis points in loss provision expense.

What the 12 months decline in bank stock prices suggests is that the market analysts see a more challenging year for financial performance in 2023 in all banking sectors.  Uncertainty from the  inflation-recession outlook is the major concern.

This overall decline in bank stock values raises questions for credit unions.  For the 20-30 who completed or announced upcoming bank purchase, did they overpay?   Will the purchase goodwill premiums need to be reassessed?   Will purchase offers going forward reflect the market’s valuation declines?

Goldman introduced its Marcus consumer initiative in 2016.   It announced a partnership with Apple for a new credit card.  Since 2020 these “platform” based initiatives for consumers have lost $3.8 billion.  This is one factor in the bank’s announced 3,500 immediate employee layoffs.

The question for credit unions is, if a an expert firm such as Goldman can lose this much entering a new business line, consumer banking, could credit unions face the reverse challenge?

For example, Jim Duplessis in Credit Union Times observed that total credit union commercial real estate loan production has risen 41% in the first nine months to $36.7 billion. For some credit unions these participations are a new lending effort.

Many banking CEO’s are cautious about the future.  It is not just the recession prospect, but declines in mortgage activity, drawdown of consumer savings, and economic impacts  from higher rates not yet fully played out.­

A Proven Track

To the extent credit unions follow their consumer members closely, the future should be sound.

Where the difficulties may occur is forays in areas where experience is limited.  Among these are commercial loan participations, whole bank acquisitions, and investments in “side” business such as technology startups or crypto offshoots.

One of the advantages in this economic and rate transition is that credit unions don’t have to worry about their stock price.   However the market’s negative outlook for bank stocks  should be an alert that prior assumptions in underwriting and investing may need to be reassessed.

What credit union wants to be found swimming without trunks?


Overcoming the Financial Legacies of ZIRP and TINA in 2023

From March 2020 until two years later when the Fed began its rate increases, overnight rates were near zero.  For these years and the decade prior, monetary goals were dominated by ZIRP, or zero interest rate policy.  Federal reserve actions were characterized by “easy money” to encourage growth almost at all costs.

TINA was the real world consequence of an ever expanding money supply seeking higher returns.  There is No Alternative led to speculation in every market sector from crypto and all of its virtual spinoffs, the stock market with historically high valuations (price/ earnings  ratios) and in most other forms of investing such as residential and commercial real  estate.

With near zero cost of funds and asset appreciation occurring in every category, how could an investment not pay off?  Holding cash or buying short term bonds was for fools when higher returns were possible from virtually any other  investment.

Now the bubbles are starting to burst as the Federal Reserve continues its interest rate hikes and as these flow through to longer term yields.

The combination of ZIRP and TINA meant that valuations in stock markets, or new ventures , as well as traditional collateral based lending on real estate or commercial  buildings became separated from actual earnings or cash flow analysis.  Money managers were drawn to these alternatives assured by the decade long monetary easing culminating in ZIRP.

Entrepreneurs, startups and even established firms made decisions not based on actual business performance but future projections. These choices were based of valuations underwritten with assumptions of low cost of funding.

Impact on Credit Unions

In 2020 and 2021 credit union shares  grew by double digits. Consumers were flush with cash from multiple government stimulus spending packages.   They used these new funds to pay down traditional borrowings.

With only a 5-10 basis points return on short term funds, credit unions looked for alternatives.  They extended investments out the yield curve, sought higher yields from longer loan maturities, commercial participations, or other forms of indirect lending pools and even new CUSO investments.

In 2023 credit unions will navigate the 1-2 year adjustment process to correct these prior decisions. With patience and prudent balance sheet management most will transition to this new rate era and recover unrealized market losses.

This rebalancing may entail paying below market dividends on core shares until asset returns adjust to higher yields.    If the institution has a strong service culture and earned  loyalty, this reliance on member’s patience should  be successful.

However there were other investments by credit unions where the process becomes more complicated.  The two areas most vulnerable to ZIRP/TINA overvaluations are whole bank purchases and mergers. Or any other transaction which resulted in the creation of significant accounting goodwill.

The Bank Purchase Challenge

Most credit union bank purchases, where information is public, have been at multiples of 1.5X to 2X book value.   For publicly traded banks, these credit union offers were often much in excess of the most recently quoted stock price.

Total cash paid to bank shareholders depends on the size of the acquisition.  But these outlays are large involving tens to hundreds of millions of dollars.

Credit unions book the difference between the cash paid and the net value of the assets as goodwill.  This is an intangible asset.  It is non-earning.   These valuations are based on forecasts about cost of funds, the credit union tax exemption and any market synergies that may be achieved.

Most sizeable bank purchases will take 3-5 years to determine if the price paid will result in an accretion to ROA or perhaps reduce the prepurchase financial performance.  Operational and market integrations alone will take several years.   For purchases made in the ZIRP environment, these forecasts will have to be rerun.   Is the goodwill premium “real” or was it miscalculated?

Similarly in mergers combined with purchase value accounting, a goodwill gain for amounts greater than book value may be added to “equity acquired in merger.”   But is that goodwill actually long term or just a momentary valuation bubble caused by the low interest rates paid on deposits versus market yields?

If the goodwill recorded is unrealistic for any reason, then the valuation write downs  come out of current  earnings.  In this case, members pay twice:  once by sending  out cash to bank shareholders and again for expensing the decline in goodwill from current income.

Looking at Case Studies

In future blogs I will examine several whole bank purchases looking at the credit union’s performance before and after, and by benchmarking with peers.

I am inclined to prefer cooperative strategy which prioritizes organic growth through continuous innovation and consistent market focus for member benefit.  Engineering growth through acquisitions is a very different financial and operational skill.

In the capital markets these transactions are most often done with “play money,” that is the stock of acquiring companies, not actual outlays of cash.  The market’s judgment via the stock price of  post-acquisition performance is constant and public.

There is no such accountability in similar credit union purchases.   CEO’s and boards  leave and their successors must then  prove that these “investments” with a long tail were wise.

Ultimately it is not the valuation at the time of purchase that reflects opportunity; rather it is the ability to convert externally acquired assets for real member benefit.

2023 will entail assessment of investments driven by ZIRP, TINA and consultant’s fees to see if they really enhance the cooperative difference. That reckoning could be more critical and harder than traditional cooperative balance sheet transformations.


2023: Credit Union’s Opportunity to Reconnect with their Most “Essential” Members

When the economy shut down in March of 2020 due to Covid, many office workers went home.  Hybrid and remote work options were developed.  However essential workers stayed on the job:  the trash haulers, public transportation, police, fire, hospital, construction  workers.  These blue collar and middle class service workers make community life possible for the rest of us.

Today the key economic question is will there be a recession?  For hundreds of thousands of white collar workers in the technology, finance and venture capital startups the layoffs are here.

Goldman Sachs, Pepsi, Gannet, CNN, Door Dash, Carvana, Roku, Amazon and dozens of other previously industry high flyers are in the first rounds of layoffs.

The dominance of the four FANG (Facebook, Apple, Netflix, Google) and their stock market performance has fallen back to the mean of the rest of the market over the past five years.

The bankruptcies of the crypto, NFT industry and its offshoots have cost investors over $2 trillion in losses with more to come.

However in almost every other part of the economy, especially the service sectors, there are millions of unfilled jobs.  Wages are rising from both employer demand and more aggressive employee actions.

The Well Off and Essential Labor

America’s experience with capitalism has often been characterized as a society where the successful, the wealthy, the better educated have dominated their poorer classes.  Here is an excerpt from a Heather Cox Richardson description of why Lincoln strongly supported universal education:

But when they organized in the 1850s to push back against the efforts of elite enslavers like Hammond to take over the national government, members of the fledgling Republican Party recognized the importance of education. In 1859, Illinois lawyer Abraham Lincoln explained that those who adhered to the “mud-sill” theory “assumed that labor and education are incompatible; and any practical combination of them impossible…. According to that theory, the education of laborers, is not only useless, but pernicious, and dangerous.”

Lincoln argued that workers were not simply drudges but rather were the heart of the economy. “The prudent, penniless beginner in the world, labors for wages awhile, saves a surplus with which to buy tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him.” He tied the political vision of the Framers to this economic vision. In order to prosper, he argued, men needed “book-learning,” and he called for universal education.  

Congress passed the Morrill Land Grant College Act in 1862 to focus on the teaching of practical agriculture, science, military science, and engineering—although “without excluding other scientific and classical studies”—as a response to the industrial revolution and changing social class.

The Question Today: Do Rich People Know?

Gian Carlo Menotti’s opera Amahl and the Night visitors tells of the night the Three Kings, following the star to Bethlehem, stop for shelter at the home of Amahl, a poor, crippled shepherd boy who lives with his widowed mother.  The opera was first performed in 1951 and regularly at Christmas since.

The climactic scene occurs as the three kings sleep. The mother consider if she dare take a piece  of gold from  the king’s treasure chest. She debates the rightness of her action:

MOTHER (thinking to herself) All that gold! All that gold! I wonder if rich people know what to do with their gold? Do they know how a child could be fed? Do rich people know? Do they know that a house can be kept warm all day with burning logs? Do rich people know? Do they know how to roast sweet corn on the fire? Do they know do they know how to fill a courtyard with doves? Do they know… do they know? Do they know how to milk a clover fed goat? Do they know? Do they know how to spice hot wine on cold winter nights? Do they know… do they know? All that gold… all that gold! Oh what I could do for my child with that gold! Why should it all go to a child they don’t even know? They are asleep. Do I dare? If I take some, they’ll never miss it… (moving towards the boxes of gold…) …for my child for my child… for my child… for my child…

2023: the Year of the “Essential Member”

Credit union’s purpose was to address those in society who have the least or know he least when seeking financial services, especially credit.

The cooperative model proved that consumers are indeed a market that all financial institutions can profitably serve.  Today financing options for consumers are available for those with no or damaged credit to the elite credit cards made of titanium, not mere plastic, for the most well off.

Since deregulation the credit union system has grown, attracted tens of millions of new members and provided ever expanding institutional and professional opportunities for coop leaders.

Some coop executives see their opportunities in buying banks or scooping up their smaller brethren.  Senior executive coop compensation routinely rewards in the mid six figures.  For the best well-paid leaders, annual compensation comes with two commas.

The challenge for coop leaders will be the question asked by the widow in Amahl:  I wonder if rich people know what to do with their gold?

Have leaders so aspired to emulate their banking counterparts that the essential members whose loyalty created the institutions they lead has been forgotten?

Yes, the white collar tech, financial and previously high flying company employees now being brought back to earth by rising interest rates, will need our help as well.

But let’s never forget those who brought us to where we are today-a $2.3 trillion tax exempt financial force with a special role in society.  This institutional success has enabled many coop managers and boards to become members of the white collar class.

Do they know that America’s essential workforce may indeed be the greatest opportunity for credit unions in this pivotal year of economic and market realignments.



Are Members Losing the Cooperative “Savings” Game?

While the 2022 calendar has turned, we do not yet know the full results for the credit union system.  And how member returns may have ended up.

The number one economic topic in 2022 was inflation.  In response the Fed raised short term rates from 0-.25& to 4.25-4.50% in seven steps.   The rest of the yield curve rose although not  always in a parallel fashion. In some time periods,  the yield curve has inverted meaning short term returns exceed longer maturities.

Credit unions fund on the short end of the curve. Liquidity was, and still is, a top credit union priority.   At September 30, annual loan growth was 19.4% versus share growth of  just  6.5%.  Unrealized investment losses had grown to $40 billion, Total investments had fallen by over $100 billion.  FHLB borrowings were double the amount versus a year earlier.

So how did credit union member owners fare overall in this rising rate environment?  For the entire industry the year-to-date results through September show loan yields have risen, cost of funds has fallen by 2 basis points, and the net interest margin has increased by almost 20 basis points.  Rising loan demand was the primary reason for this margin increase.

The Top 100 Report a $51 Million  Decline in Dividends Paid

A commonly accepted truism in credit unions is that the larger the credit union, the greater the possible member value.

In 2022 Vanguard’s federal money market fund had a total return 1.55% rising from .01% in Q 1 to a 3.99% distribution at December 31, 2022.   These savers returns rose as did market rates.

For members of the top 100 credit unions there was a very different outcome.  In 63 of the largest credit unions the total dividend dollars fell by an average of 12%.  The total decline was $241.7 million versus the amount paid in the first three quarters of 2021.  For some the fall in rate was precipitous.  One credit union reduced total dividends by 46.3%; three credit unions reduced their dividends by over 30% versus the year earlier.

In contrast, thirty seven of the top 100 reported an average 21.7% increase in paid dividends.  One caveat: approximately seven of these increases were due to mergers or bank purchases which increased total shares by this externally acquired growth.  Their dividend payments may not be an apples-to-apples comparison.   However, ten credit unions in this group, all with only organic growth, reported over 20% increases in dividend payments.

When adding up the total dividends paid by the 100 largest credit unions through September, the combined result is a $51.2 million decline in member income on their savings.

The proviso:   The game is still has one quarter to go.  Some credit unions pay significant yearend bonus dividends and /or interest rebates.  These will need to be added in the final quarter.  With full year data we can also estimate the average dividend rates to compare with  alternatives during the year.

The Existential Question for Credit Unions

In the first three quarters of 2022, members are paying more for loans, credit unions are earning higher investment returns, salaries and benefits continue to grow, and total capital has  increased. However, many members are seeing a reduction in the dollars paid on their savings.

I will revisit these top 100 to see the full game’s results at December 31.  Did member-owners win or lose in this rising rate environment? Which credit unions navigated this rate transition most effectively for their savers? How did they do it?

Will members continue to “subsidize” the largest coops, many with increasingly public visibility, by accepting falling returns on savings? One money market fund today pays 4.25% (seven day SEC yield) with an expense ratio of only .10 basis points.  Will large shareholders start to move funds from their lower paying credit union money market products?

CEO’s frequently assert that member loyalty lasts for only 25 basis points.  The US economy has had historically low rates since 2009.  Lower inflation and the Fed’s “quantitative easing” have led to an unusual financial period where the cost of money was at or near zero.  Can credit unions avoid the “bubbles” created by this historically rare very low-rate environment?

Will CEO’s adjust their business models so that member savers can be winners in 2023?   So far the data show there is a significant gap  for coop owners to receive the results they will increasingly expect versus other options.

In 2023 will the largest 100 turn into leaders, or the majority continue as laggards in savings returns?

If many of these largest firms cannot remain competitive for savers, is the cooperative financial model at risk?

Or do these falling returns, just reflect management slowness in responding to the changed interest rate situation?



A College Student’s First Credit Card

By Marit Hoyem

I am a junior at Williams College with a concentrations in communications and volleyball. Last summer I was an intern at Callahan & Associates, the credit union company.  One assignment was writing articles about the financial habits of my generation. Their needs, how they get information, and how credit unions can attract Gen Z by helping them be more confident about their finances, especially using credit.

My reporting  last summer taught me a lot. But then, I became a case study.

The Need for Credit

My search for a credit card began two weeks ago when I arrived home from college for Winter Break. I am spending the next semester abroad in Edinburgh, Scotland.  This change of location means that I won’t have a meal plan and other college expenses included automatically in the tuition payment.

To support this new far-from-home experience, I needed a credit card to transact easily in the local economy.  I wanted to start building my credit before I left the U.S.  to learn what living outside the Williams college prepaid “financial bubble” would require.

Looking for Options

First  I talked to my Mom and sister.  Both have several credit cards. We are all members of the same credit union. They encouraged me to look at our credit union as well as seek other options. What kind of benefits did banks target for college students?

I started researching online looking for the best rated credit cards for students, credit cards for people with no credit, and credit cards without foreign fees. The options were overwhelming.

When I decided to try an option, the application was pretty intimidating.  I didn’t have much of a job history other than summer internships and part-time campus work, and no outstanding credit.  I also felt uneasy getting a card from a bank or fintech with which I had no first-hand experience. How would they know I was reliable? Was there a catch in their offer?

I decided to ask for a card from my credit union where I had been a member since high school.

An option on my credit union’s website met my criteria:  no foreign transaction fees, no annual fee, and a high enough credit limit.  I set up an appointment with someone in the lending department where I could present my case. I believed that explaining my income, my semester abroad, and the need for the card now would be more effective in person.

The credit union offered a secured card backed with my savings deposit. I had to show my last “part-time” pay stub from school, which the loan officer used to determine my limit — needless to say it was not very high.

During my online searches, I found a card through Deserve and American Express. The program  is meant to help students build credit. What stood out is that Deserve has multiple cards designed for specific activities such as entertainment, women-owned business, or student loans.  The application online asked similar questions to my credit union, which made the process familiar. Within a week I heard back approved — with a much higher card limit than my credit union’s offer, and not limited by my monthly income.  The card should arrive  shortly.

Seeking Credit the First Time

This experience showed the benefit of getting a credit card at a young age. Seeking credit for the first time can be super intimidating.  However the sooner I start building credit and pay bills monthly,  the more comfortable I will be will using credit when necessary.

As a credit union member, it was easy to go in person and be approved because we knew each other. But that isn’t possible for many students who do not go home or have no credit union  nearby.

Most of my peers are likely to pursue their first card online.  To gain their business,  the institution  should  be able to walk with the novice student borrower through the process.





Unions in Credit Unions

Labor unions have traditionally been seen as part of America’s older manufacturing  plants or where there are high concentrations of workers.  Autos, heavy equipment, steel, telecommunications, and transportation are industries where unions have been an key aspect of the workforce since WW II.

Gradually union efforts expanded to teachers, fire and police, and at the local state and national levels for public employees.   NCUA staff was unionized in  2013 under Chairman Matz.

Organizing has extended to NFL, baseball and virtually all player’s associations in professional sports. Graduate student staff at California’s state university system went on strike last fall.

The last two years have seen increasing efforts by employees to from unions, especially in the retail sectors.  The warehouse organizing at Amazon and Starbuck store-by-store votes, have been regular business news in 2022.

Hybrid work options and prospects of increased layoffs have led to organizing efforts in the heretofore non-unionized tech industry, including a small part of Microsoft’s empire.

Local circumstances as well as macro-economic factors have driven this effort.  Inflation has caused employees to be more aggressive in seeking higher wages.

There are more job openings than people job hunting. Yesterday’s monthly JOLT (job openings and labor turnover report)  showed 10.5 million openings, a level that has remained steady for more than a year.

Unions and Retail Services

One author has suggested that Starbuck’s unionization has been motivated by employee response to the firm’s modified corporate strategy.

This corporate transformation was necessitated by Covid driven changes in consumer commuting patterns and work place locations. Starbucks had positioned itself as the “third place” between home and office for people to gather.

Today the business model relies on transaction volume driven partly by a mobile app and instant pickup with fewer employees to keep costs down.

He describes the impact of this strategy shift in The Future of Retail is Happening at Starbucks Right Now. 

“The number of store employees has dropped dramatically.  Starbucks had 349,000 employees in 2020, which includes the period pre-pandemic, and 138,000 in 2021, but coffee is still flowing.

“Like any retailer, Starbucks needs people to do some work. Perhaps there are steps of the customer experience that could be replaced with software, but not all of it. If Starbucks is going to be successful with a reduced staff, it needs employees who know the stores, their customers, and operations.

“This is why many stores are fighting to unionize. Employees are demanding livable wages, dependable hours, and benefits. And it’s not like Starbucks is hurting. Store count and profits are up, while the company-wide payroll has fewer people. Yet the employees who still show up are struggling to get hours and benefits.”

A Top Ten Item

A Credit Union Times article by Henry Meier former General Counsel of the New York Credit Union Association, listed union organizing as one of the top ten trends to watch in 2023:

From Amazon to Starbucks, last year marked a movement toward unionization: Why would credit unions be exempt from this trend? This means that someone in your credit union should be familiar with the steps you can and should take in the event that your senior management receives notice of intent to form a union. This is an area of the law where a single misguided statement can result in loads of trouble.

This law firm’s new advertorial cited two cases of union organizing in a bank and coop in 2021: Big Labor Targets Banks and Credit Unions.

They point out these successes were in “union friendly” states at a time when there is more active NLRB support for organizing,

Credit Unions and Unions

A number of credit unions have had employee labor unions, some their entire existence.  717 Credit Union in Ohio was formed by a GM labor union.  Teachers,  police and fire credit unions in several states were formed by their professional associations.

Once in a while employees have ended their union affiliation. When a new relationship focused CEO came to State Employees in Michigan,  the employees disaffiliated some 15 years ago.

Both external economic conditions  and institutional strategy change–major mergers and bank purchases–are causing credit union employees to consider how to negotiate their future work opportunities in significantly altered environments.

In October employees at a Broadview FCU branch in Albany, NY announced their intent to form a union.  This occurred just months after the former State Employees FCU and Cap Comm CU had merged.

In the Times Union article,  the employees invoked both credit union design as well as traditional work concerns in these excerpts:

Credit unions are a form of economic democracy where every member has equal ownership and one vote. We have concluded that a labor union is necessary in order to provide Broadview members — our financial institution’s owners — with high quality banking services,” reads the letter. “We are organizing due to inadequate pay and benefits, constantly changing schedules, understaffing which overwhelms us, and a lack of equality and a voice in our workplace.”

The article continues:

“The union letter was from member service associates and relationship bankers at SEFCU’s Park South branch on New Scotland Avenue in Albany. It wasn’t clear if the organizers, calling themselves, the Broadview Labor Organizing Committee, were affiliated with or had reached out to other regional or national unions.

Credit Unions, Culture and Employee Unions

Many credit unions compete through superior personal service.  Employees are front and center of this effort.  Management constantly  nurtures this advantage through training and transparency.

If changes are undertaken and employees learn about their  new  priorities only as senior management announces them, a loss of agency can occur.   Why weren’t we asked?  How will this bank purchase affect our staffing?  What will happen to all the co-employee positions in a combinaton of sound, previously independent credit unions?

Unions and credit unions may increasingly go together.  After all, aren’t coops basically a member-organized union?

The best way to follow what  credit union employees are thinking is fully and regularly sharing  what management is thinking.





REAL Credit Union Stories

The stories we tell create our history.  They capture what is valued and honored.  They portray want we want to remember as individuals,  within an organization, or for a movement.

No two stories are identical for persons or firms.  Added together they are a kaleidoscope of what  credit unions have become and likely paths to the future.

Blogging is storytelling.  Today’s examples are from Day Air in Dayton, Ohio. They were selected by the CEO in his monthly update to  his team. The examples illustrate the credit union’s singular culture.

Using Stories

The CEO’s introduction: There were 25 service story nominations in December, bringing the total for the year to 232, just shy of the record set in 2021.  Please keep your eyes open to good news stories happening around the Credit Union – there are a lot of them….  Help us share those stories in 2023.

The Service Example

Palisha was commended five times this month by various members or associates. One of those comments included: “Palisha was very helpful and explained everything very well. She also gave me tips to help build my credit which I found out I was doing all wrong thanks to her.”

Partnering in the Community

We partner with various non-profits in the community.  One is the Artemis Center, which assists victims of domestic violence.  Their executive director sent this letter last week: 

My name is <redacted> and I am an active participant in Artemis support group.

I was never involved in the finances in my almost 25 year marriage. I knew nothing about loans, money, mortgages or credit. My credit had been destroyed during my divorce. 

An advocate at Artemis referred me to Day Air. Not only did they (Day Air) take the time to help and explain to me what I needed to do with my finances but how to achieve them. For someone that was significantly financially abused for years, the help from Day Air has made a huge difference and impact in my life. 

As a single mom I am almost to the place where I am going to be able to get a home mortgage but would not be at this place if it was not for the referral to Day Air.

For people that have been significantly affected by Domestic Violence, this is such a huge relief to have businesses that are willing to help others in this situation. I just needed someone to give me a chance and guide me in the process of becoming independent. This will enable me to provide for myself and my children.

Thank you so much for partnering with organizations and businesses such as Day Air Credit Union.”    

Another Partnership: Trinity Success Story

We typically see success stories from Trinity Credit Management that result from associate’s referrals of members.  The following was the result of a member finding Trinity through our website.

“this was an outstanding outcome……$31,300.00 on 4 credit cards……26.1% interest we reduced to 7.2%……original monthly payment $1,112.28 (only $324.00 was applied to principal!!!!)….new payment down to $854.00 and this couple is on track to being paid in full at least 15 months sooner saving about $20,000.00…….”

This organization does great things negotiating on member’s behalf to reduce credit card debt.

The CEO’s Message

Mutually owned financial cooperatives and CDFIs (and Day Air Credit Union is both) play a tremendous role in the economic vitality of communities around the world.  The impact is measured in the number of loans made and number of people served, but also in many other, intangible ways. 

A mortgage or home improvement loan helps improve the quality of housing and can bring stability to a community.  A car loan or a car repair loan can be the difference in a single parent being able to get to work or take children to daycare or school.

A personal loan can help people avoid predatory payday lenders.  A small business loan can create job opportunities that improves the standard of living of the business owner, the small company’s employees as well as benefit its patrons. 

All of us at Day Air Credit Union represent the “George Bailey” (from the movie It’s a Wonderful Life)  in the lives of those who we help and serve.  Thank you for being part of someone bigger than each of us; a part of something that greatly contributes to the very fabric of our community; a part of something that really makes a difference in people’s lives. 

REAL Stories

These are REAL credit union stories to lead us into the New Year.   Daily we will read numerous reports and publicity about many cooperative’s milestones, and even sometimes, endgames.

The critical factor for each reader will be to discern for him/herself what is a REAL credit union accomplishment, or merely an event touted by “a credit union in name only.”

AI Vs. the Author’s Joy

Randy Karnes served as CEO of CU*Answers and its multiple offspring in four decades.   He led during multiple technology revolutions.

He posted these comments on the role of AI and machine learning in general, responding to yesterday’s blog written by Playground.

AI and the Author-Artist’s Return on Work

Automation will be able to replace the delivery of such things by emulating the output from stored themes, patterned phrases, and just like students of millions of expressions of facts AI will simply string output together – a modern day scribe, typist, or plagiarist.

But while the output of work product for the economic return on work – the real return is for the author’s joy – the pride in the intellect on display – the heart in the translations of life’s learning and ideas interpreted. AI is a long way from capturing personal returns on being the owner of the work.

It will still be to the artist to generate the  moment of insight that sparks a genuine response amongst the noise of billions of expressions generated by endless data, tireless machines, and endless networks.

For all the noise it is the simplest of silence inspired thoughts–for thought that lights the soul on fire.

The Challenge for Today’s Technology Managers

But I am not sure many consumers today love the work to be the authors or manufacturers of value beyond telling machines to pump it out.

When you considered that my career changed from tech that readied the day for humans to interact around financial service delivery to one that where no humans are needed for 80-90% of the transactions or advice, you can see that less and less value generators or authors of ideas are needed.

Thinkers and dreamers no longer need apply.

Financial Tech was an exciting space of invention, creation, and innovation but more and more it is becoming simply a world of operation, maintenance, and tweaks.

Human workers are simply the lubricant of established systems today and mesmerized to overvalue the tech to be consumed and their role in supporting it – inflated on both sides of the artificial templated transactions.