Category: Co-ops in Capitalism

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Confrontation: An NCUA Examiner and Credit Union Leader

In Community Capital,  Race, Equity and the Credit Union Movement co-author Michel McCray tells the story in Part 2 of the closing of Kappa Alpha Psi FCU in 2010.

He creates first person accounts and reconstructed dialogue of some of the events from the participants.  The following excerpt is from a quarterly  meeting between the NCUA examiner and Victor Russell who was leading the credit union.

Confrontation  (From Chapter 12, Alice in Wonderland)

An angry sun glared off the tinted glass of a small law office in Richardson, Texas. I waited for my cousin, the proprietor, to return. Tall in stature but slight in height, Julius Thompson is a brilliant attorney who is the general counsel for KAPFCU. He provides legal expertise and guidance to the fraternity enterprise. He also offers his offices, file cabinets, and conference room to support the KAPFCU effort.

Friends and family call him the “Godfather;” Julius Thompson, the bald barrister with a caramel coffee complexion. Julius has a knack for networking and connecting people. He also recruited me to assist KAPFCU with government relations and community development expertise to help grow the fledgling credit union. . .

At 6:02 p.m., an alabaster male with stern, square cheekbones and thin lips walked into the conference room at Julius Thompson PLLC to conduct the quarterly examination of KAPFCU, the only federally chartered Black-owned financial institution in the state. He wore a dark conservative suit, a busy patterned tie, and polished leather shoes. He was clean-shaven with amber hair and piercing cobalt eyes.

NCUA Supervisory Analyst Tony Rausch personified the Texan view towards minority-owned financial institutions. Privileged, aggressive, and assertive, his demeanor was best described as “typical Texan,” exuding his white male privilege. Empowered as a federal official, he was assertive regardless of whether he was right or wrong. Ultimately, being a “Fed” means that you never have to say you’re sorry.

A loud commotion erupted inside the conference room of the small legal office and real estate title plant. Tony Rausch, a “good ‘ol boy” from Texas, versus Victor Russell, a fast-talking hustler from Chicago. They congealed like oil and water. However, Victor had transformed from Chicagoan to Texan, donning ten-gallon hats and ornate belt-buckles with Italian suits—even Black people do rodeo in Texas.

During the regular quarterly examination, Victor Russell described the current operations of KAPFCU and his plans to increase revenues by origination fees for residential or commercial mortgage transactions. Tony’s eyebrows rose. “Slow down, Victor, before you try to jump into high finance. You guys are just sitting on your deposits. If you want more money, make more loans to your members.”

Victor sat upright, interlocking his fingers. “We are trying to mitigate our risk. In banking, we say, ‘know your customer.’ We know our members and make loans to individuals we know will pay us back.”
“Very good, because that’s the only way you can legitimately make money to generate revenues,” said Tony.

Victor argued that KAPFCU was not issuing or holding mortgages on the credit union’s balance sheet. Instead, KAPFCU would only make referral fee income by finding qualified borrowers for other financial institutions. Rausch balked at this and declared that KAPFCU could not generate mortgage fee income because of real estate risk. “I will not let you do that, Victor.”

“What do you mean, you won’t let us do this? You don’t run our credit union—we do!” Victor bellowed.
“That’s not how small credit unions operate.” Tony replied, “You must grow your loan portfolio. Make your money from member loans.”  (pages 180-181)

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The Ultimate Coop Advantage

Every organization will face moments or periods of crisis.  These events can cause leaders to question the sustainability of their enterprise.

Sometimes the challenges are internal:  succession, mismanagement, poor leadership, or loss of confidence and purpose.   External threats seem  never ending from unrelenting competition, extraordinary climate events, and even the constant probing by criminal or ransomware bad actors.

What is the ultimate defense against these dual sourced  tests?   Some would say it is the level of capital (net worth ratio);  others, capable tested leadership; and finally some credit unions will reference the fact they are NCUA insured.

The irony of this last assurance is that NCUA has clearly demonstrated that it is not in the business of protecting credit union charters or even granting new ones.   Their approach is purely administrative: to note the steady passing and decline of  industry charters in quarterly updates.

The Strength in All Seasons

I read this mission-like purpose statement recently:

Our purpose is to manifest unity as:

We experience, practice and pursue community;

We share resources willingly to benefit one another;

We know and respond to other’s burdens;

We encourage, admonish and support each another;

So that together we achieve greater economic justice and individual well-being for this and generations to come.

Too idealistic?   Almost religious in tone?   Yet it captures the most important foundation of cooperative strength:  the support and belief of the member-owners working together, that is “community.”

When member confidence in a credit union is not the primary goal of every transaction or service, sooner or later, the owners will see that the organization as just another financial option.  It will have lost the unique cooperative foundation-the loyalty and belief of its members.

This confidence should be the principal responsibility of the board, to be visible and available in all seasons—the good and the challenges.

Because credit unions are in the financial business, it is tempting to assure success in purely financial numbers or goals.  However that has never been the credit union advantage.  Rather it is the relationships with members.  That is an outcome earned over months and years, not achieved with a branding or inventive marketing effort or even offering the latest technology.

Credit unions are organized on one of the most important aspects of life—what we seek is  relationships that reflect our values and priorities.

What matters to you in your activities and professional endeavors?  The $ signs or the relationships?

 

 

 

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A Preview for July 4th, 2024

American Commerce and the Declaration of Independence

The 4th of July is every person’s chance to celebrate the nation’s birthday and honor our collective vision.

Among the Declaration’s unalienable Rights is “the pursuit of Happiness.”

The Commercial Spirit

This pursuit of happiness has become entwined with America’s commerce. In the post WW II federal highway infrastructure project, the car became a symbol of this open-ended personal adventure.

In 1976, Chevrolet was the most popular car in the USA. General Motors crafted a slogan with video declaring that Chevy and the USA were the same: “Baseball, hot dogs, apple pie, and Chevrolet.”  The company even tried to appropriate baseball’s 7th inning stretch to celebrate its brand leadership.

Today, crowds stand to sing God Bless America. A triumph of ideals over markets?

Independence and Credit Unions

Credit unions are an expression of America’s founding document.  Their self-help character demonstrate what makes American freedom and enterprise so powerful.

Credit unions embody more than the Declaration’s goals of life and liberty.  Cooperatives exemplify how the document’s spirit is to be realized in application. The last sentence reads:

And for the support of this Declaration . . . we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.

This mutual pledge is every credit union’s founding ethos. Moreover, like America’s political democracy, the cooperative system depends on individuals’ character and their adherence to the principle of self-rule.

The first generation of credit union pioneers. like the founding fathers and mothers. understood both the ideals and challenges of self-government.   Credit unions are started and sustained by volunteers.  They shared funds and a commitment to address needs and common purpose.

The initial dimes and quarters may have been small, but their impact on lives was real.   Like the political colonies, these economic revolutionaries knew each other.  They joined to spread their vision of financial self-rule across America.

The Challenge

While the Declaration’s truths may seem self-evident, the democratic process is an ongoing experiment.  Today almost all credit union founders have passed on—will their basic principles be sustained?

As professional leaders take over, will their institutional ambitions for growth and size replace common purpose for members?  Will the pursuit of happiness instead become the happiness of pursuit?

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A Book Illuminating Recent Credit Union Struggles

July 30, National Whistleblowers Appreciation Day, is the publishing date for Community Capital,  Race, Equity and the Credit Union Movement.  

Here is a brief excerpt by Clifford Rosenthal, one of the authors.  The book’s principal case study is in Part Two. It is the story of Kappa Alpha Psi FCU and its abrupt liquidation in 2010 as recounted by one of the participants, and co-author, Michael McCray

From The Historical Context, page 20, by Clifford Rosenthal (used with permission):

     On August 3, 2010, without notice, NCUA seized and liquidated KAPFCU, sending out checks to close member depositors accounts. KAPFCU was effectively dead and gone.

      Why was KAPFCU’s case so important? For decades before and since, a steady stream of liquidations and mergers decimated the ranks of Black and other credit unions serving communities of color. Our Federation lost many small credit unions, painfully including many Black credit unions with roots in the Civil Rights movement and even earlier.

    But KAPFCU did what no credit union in our movement had dared to do during my 30 years at the Federation: they fought the liquidation in federal court.

    KAPFCU’s fate could have been—should have been—different. Had KAPFCU prevailed in court, Michael argued, KAPFCU v. NCUA could have been the landmark Brown vs. Topeka Board of Education case for the credit union movement.

 On Vacation

Next week I will be away at a singing camp working on Ralph Vaughn Williams’ A Sea Symphony and Five Mystical Songs.  Upon returning, I will post a number of key moments from the book to illustrate both the content and the style.   It is a glimpse into NCUA actions long before the letters DEI were aligned together.

In the meantime it can be ordered on Amazon for those who can’t wait.

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Foundation Documents:  When Words Matter

“Polonius: What do you read, my lord?

Hamlet: Words, words, words.”

While seeming to trivialize text, Shakespeare’s most glorious legacy is his words.  Hamlet’s response  illustrates his indecisiveness at that point.

Some words matter more than others. The National Archives has just added two Foundation Documents to the three preserved under glass in its Rotunda: the Declaration of Independence, the Constitution and the Bill of Rights.  This legacy of words formed a new country and continues to motivate debate and political action today.

The two additional documents which can be seen in their original form for only the next three days are the two emancipation proclamations.   The first is Lincoln’s Emancipation Proclamation on January 1, 1863, as the nation approached its third year of the bloody civil war. The proclamation declared “that all persons held as slaves” within the rebellious states “are, and henceforward shall be free.”

The second is General Order Number 3 issued in Galveston, Texas, nearly 160 years ago. June 19th is the day the people of that city learned of the existence of the Emancipation Proclamation and its promise of freedom for enslaved people in the United States.

But it took more than a General’s Order as related in this article:  The last two sentences of General Order Number 3 stated, “the freedmen are advised to remain quietly at their present homes and work for wages. They are informed that they will not be allowed to collect at military posts and that they will not be supported in idleness either there or elsewhere.”

This foreshadowed the struggle for fair treatment and eventually led to the ratification of the 13th Amendment in 1865, which ended slavery in all states; the 14th Amendment in 1868, which provided citizenship, due process, and equal protection to all persons born or naturalized in the United States; and the 15th Amendment in 1870, which provided the opportunity to Black men to vote and hold office.

What Makes a Foundation Document?

The addition of the Emancipation declarations to the three original Revolutionary era ones, show that America’s founding ideal of freedom is not won and done.  It is an ongoing process subject to challenge.  Always a work in process.

The Archives Central Rotunda room is dark and cavernous.  The documents are barely visible in light equal to four candles, the original illumination.  Its temple-like appearance is appropriate for these articles of political faith.

Below the Rotunda is the  Rubenstein gallery with its more active historical description of multiple citizen campaigns to attain the rights promised in the Rotunda’s collection.  One educational purpose in showing these historical, and ongoing struggles, is that freedom is fragile.  It requires effort and constant vigilance.

Entering this exhibit are the words: “The great glory of American democracy is the right to protest for the right.”  The major controversies and generation long battles for equal rights are profiled in multiple contexts from slavery, women’s suffrage, union organizing and Pride protests.

Do Credit Unions Have Founding Documents?

How does the cooperative movement fit into America’s ever-evolving quest for greater individual and social freedoms?

Certainly, fairness and economic equity have been an important part of the political debates from the very founding of the initial colonies.  Building cooperative financial options to counter the overwhelming concentrations of capitalist power and control was an essential part of the  progressive reform initiatives in the 19th and early 20th centuries.

But do credit unions have “foundational documents,” that is words that motivate and energize when someone  believes and acts on them? Would words like Member-owned;  People Helping People; or some longer statement from Filene, Estes Park or even later in credit evolution be essential for understanding today’s movement?

Many credit unions have an About section on their web site providing the story of their beginnings. Some will even show continuity with the institution as it exists today.

The difference between a story of words, and a founding document, is that the latter still animates today’s leaders.  These are people who believe that the credit union ideal, like freedom itself, is a never ending struggle between the status quo led by those in charge versus the needs of those left out or behind.

Benjamin Franklin is quoted in the Archives’ Rights exhibition:  “There is truth in the old saying that if you make yourself a sheep, wolves will eat you.”

If a credit union has difficulty identifying its founding documents,  it is not because these do not exist. It is because they have been forgotten or overridden or, more likely, just eaten by wolves.

To honor and celebrate those on whose shoulders we stand, professionally or personally, take a moment to find that family, organizational or external expression that captures your purpose.

If you can’t readily identify one, you might link to this site and read through an example of engagement powered by words.   Credit union member rights, like all rights, are just words until someone believes in them and acts to attain their full meaning.

 

 

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Regulation as a Service

There is a growing use or reinterpretation of  business models where a critical product or solution is not managed in house, but rather outsourced to a third party.

“Software as a service,” a term with multiple meanings, is one example.  Another I learned about recently was “banking as a service.” In this configuration the chartering functions are separate  from the back office support operations, which are run totally by a third party.

In these “service” models, separate organizations integrate their special skills to achieve common purpose.

There was a time and indeed an era, when credit union regulation was seen as actual “public service.” That is regulators were to serve the operations, needs and success of the overall cooperative system.  Their role was integral and supportive. Regulators were not a distant authority merely keeping lookout for and, if necessary, the cleanup  business accidents.

Regulation as a Service

The following are the high points from an extended list in an NCUA Annual report  for how the Agency, in its word, “served” America’s credit unions that year.  There were two categories:  Benefits and Outreach.

For credit unions benefit:

NCUA’s efforts to reduce costs and implement efficiency resulted in federal credit union paying 2.9% of $1.3 million less in 1997 to support NCUA operations.

The second consecutive NCUSIF dividend which returned over $100 million to federally insured credit unions  last October.  . . is a tribute to the strength and sound management skills of today’s credit union community.

At NCUA a major contribution to efficiency was fully implementing the new Automated Integrated Regulatory Examination system (AIRES).  It is a critical component to improve the examination process for both NCUA and credit unions.

Outreach Initiated

Last year 12 federal credit unions and 12 NCUA examiners participated in a pilot program placing examiners behind the scenes  in credit unions for two weeks.The purpose was to provide examiners with first hand knowledge of daily credit union operations.

NCUA began asking credit unions to evaluate their NCUA exam in a brief one-page critique. The goal is to incorporate improvements and to promote open communications with credit unions.

A technical highlight was linking NCUA to the World Wide Web.

The agency . .. launched a major effort to achieve a diverse work force and improve our employee’s quality of life.

(Source:  Page 6  NCUA 1996 Annual Report)

A Public Servant vs. An Independent Regulator

Following the corporate crisis in 2008/09, the NCUA board stressed their independence from credit unions. The revised corporate rules were imposed, not created in consultations. Other examples were the initial refusal to publish and take comments on the agency budget and the secrecy of the NOL calculation.  And later on, the risk-based capital regulation.

These initiatives and publications (A Guide to Credit Union Mergers) and proposed rules (closing all home-based credit unions) were from a position that “NCUA knows best.”

While some regulators will have initiatives from their experience with credit unions, many NCUA board members have little or no prior first-hand knowledge.   As a result they seek answers in the statutes, by looking across town to other regulators, or sometimes simply following the political winds of the Administration (Free market or Consumer protection are recent examples).

Weathervanes Responding to Winds?

To overcome this inexperience and/or knowledge gap, regulation as a service is one way board members can align their priorities with credit union needs.  Without this focus, it is easy to set policy by default. Look for where the wind is blowing the hardest versus what would assist credit unions to better serve members.

Instead of service for the public, NCUA becomes another Washington DC governmental “authority” directing members’ lives.

The interesting part about the verbatim accomplishments reprinted above is that most of these initiatives were not new.   But they reflected an attitude of accountability and support for the credit union community.   Not a bad place for any policy or priority to start.

Editors note:  For an even older description of this service approach read the article, Changing Role of the Regulator: Relationship Based On Mutual Respect,  by CEO Frank Wielga on pages 14 in NCUA’s 1984 Annual Report )

 

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Do Credit Unions Have an Ethical Responsibility in Managing Members’ Money?

Over a decade ago, I asked a potential senior employee how he had first become aware of credit unions.  His response was when he was turned down for a loan after getting his first job out of high school.

He had gone to the credit union to finance his first purchase of an auto.   The credit union told him he could not afford his dream car, denied the loan and then showed him how much he could pay.   He found a different car.

This was not an uncommon example when I first began working with credit unions. Today’s credit union system is more complicated.  Every organization faces multiple decisions about what member activities and even industries they should be supporting with loans and business partnerships.

The following is a brief summary of some of these “opportunities.”

Crypto sales and Partner Brokers

Prior to the covid shutdown, the facilitation of crypto purchases was the latest and growing expansion of financial services.  Partnerships with crypto exchanges were announced with credit unions lending their reputation and operations for members purchase of this new form of financial instrument.

A recent article has summarized the numerous critiques of the crypto industry and the intense lobbying efforts to make these options part of the financial mainstream:  Crypto Just Got Exponentially More Dangerous.  Or in Charlie Munger’s (Warren Buffet’s longtime partner) immortal assessment:

“…A cryptocurrency is not a currency, not a commodity, and not a security. Instead, it’s a gambling contract with a nearly 100% edge for the house, entered into in a country where gambling contracts are traditionally regulated only by states that compete in laxity.”

Cannabis Sales

Another groundswell of credit union interest is in financing and supporting the growing legalization and distribution of medicinal and/or the recreational marijuana sector.  Political leaders such as Janet Yellen and Chuck Schumer have spoken publicly of the need to pass federal legislation taking marijuana use off the list of prohibited drugs.

One report from Marijuana Moment shows a total of 812 banks and credit unions reported actively working with marijuana companies in the second quarter of the 2023 fiscal year

Almost 30 states have approved some form of marijuana use.  Sometimes this is seen as an effort of social equity where a certain number or percentage of licenses are reserved for minorities to offset their disproportionate legal convictions prior to legalization.  NCUA board members, credit union trade associations and numerous credit unions have supported some form of a SAFE act by Congress to allow controlled distribution of cannabis.

Gambling and Sports Betting

With betting on sporting contests now legal in almost all states, credit unions have become involved in these transactions.   A report after the Super Bowl betting surge in CUToday discussed the increasing member use of online gambling sites,  As reported in the Article  Why Credit Unons Should Place a Bet on Paying Attention to Gambling from a PSCU analysis: 

Gambling, fueled by further expansion of government-licensed Internet gambling to a total of 38 states, posted strong results in February, the analysis added, noting debit purchases were up 39%, while credit purchases were up 11%.

The top three merchants (FanDuel, DraftKings and BetMGM) represented over 70% share of purchases in this single category that peaked in February, with Super Bowl LVIII occurring in Las Vegas, PSCU/Co-op Solutions said.

The full PSCU report is available here. 

There are multiple other sectors or activities that credit unions have been or could be involved with that might raise ethical questions.   These include financing of gun purchases, liquor licenses, interval level vacation home ownership and perhaps more recently certain kinds of medical care including abortions.

Some would maintain that these are not credit union issues, but rather decisions for how members choose to spend their money.  Yet for every loan there is a “purpose” section stating how the funds would be used.

In defense of their crypto relationships, several credit union CEO’s have justified their partnerships by saying members want this service and if we don’t provide it, they will just go elsewhere.   It is strictly members’ choice.

Others, as PSCU describes in its review of gambling activity, would maintain these are situations for financial counseling:

“While online gambling was once viewed negatively, it now represents a growth segment opportunity, particularly among younger demographics. This growth presents an opportunity to keep internal staff informed about this evolving transaction trend, as well as provide members with financial wellness education.”

Other credit union leaders would decide that these areas of transactions and for financial loans are inconsistent with both the purpose and values of the cooperative.

Many want to avoid the controversy altogether.   Each credit union, and each member, should be free to do whatever they decide to act upon with their charter or with their personal savings.

This quasi-libertarian view is appealing to many until one recognizes that each of these areas is controversial because there are enormous and proven downsides to both members and society in each of these activities.

Crypto investors do lose money.  In  online gamblng, once the winners are paid out, online sportsbooks keep between 5% and 25% of all the money users wager. In other words, online betters typically lose 5 cents to 25 cents for every dollar they spend on a sports bet.  Marijuana usage can become addictive.  Its long tern usage consequences are still not known.  America’s gun culture is unique in the world and the consequences in mass shootings and suicides are just one aspect of this worship of the second amendment.

No one can deny that members will always borrow for activities and purchases that others might disapprove of or seem over the top, just examples of life’s numerous “fascinators.”

The Need for Discussion: Never Value Neutral

One of the fiduciary responsibilities of leadership  is knowing what issues to bring to the fore and how these are to be presented in the context of an organization’s purpose.

For some the topics above are not an issue.  Credit unions are value neutral.  There are no issues of right or wrong, but rather just the pragmatic questions of whether activities are legal and can we make money?

This debate about the ethics of organizational activity is never ending.  Here is an excerpt from a discussion similar to the above, about whether teaching economics at a university is “valueless.”

One of the first things that the over 500 students who take Economics 10: “Principles of Economics” are taught each fall is the distinction between normative and positive statements; the distinction between stating how things are and stating how things ought to be

Giving undergraduates the impression that economics is a value-neutral discipline, and that studying it will entail no further moral judgment or inquiry on their part, is not only dangerous but also intellectually dishonest.

The notion that calculus is more important to studying the economy than ethics, history, or psychology still ignores just how socially constructed our current economic system is.

Perhaps it is true that the price people are willing to pay for a good is the best estimate of their marginal utility.

Perhaps it is true that it is rational for a consumer to always prefer more to less.

Perhaps it is true that GDP growth is always desirable.

But those are assumptions about the world. And students should be invited to question them.

An economics degree ought to, in our normative opinion, entail a genuine reckoning with the moral stakes of the field. A discipline that studies human behavior and the distribution of resources was never value-neutral to begin with.

I agree that credit unions are a “normative” activity and in the management of member resources require a reckoning with the moral stakes of their actions.  So let the debates begin.

 

 

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When There Were Two National Credit Union Trade Associations

If you have ever speculated about what is lost in a merger of credit unions, leagues or trade associations, the following example may be a helpful reminder of why choice matters.

CUNA’s Letter on NCUA Leadership

The Credit Union National Association’s August 6, 1973 letter to the White House:

Dear Mr. President:

The members of the Executive Committee of CUNA, Inc respectfully and unanimously urge you to replace Herman Nickerson, Jr as As Administer of the National Credit Union Administration.  . .

We are urging General Nickerson’s replacement because we feel that his actions as Administrator are creating growing bitterness and antagonism throughout the credit union movement, and this is causing a serous loss of confidence and trust in his administration.  . . we would particularly like to call your attention to the following:

  1. General Nickerson’s arbitrary and authoritarian attitude in deail with credit union problems. . .
  2. General Nickerson’s excessive issuance of burdensome regulations. . .
  3. Diminishing morale among employees at the NCUA. . .
  4. General Nickerson’s refusal to cooperate on legislative matters. . .
  5. General Nickerson’s poor public image. . .

Signed by the entire executive committee including Herb Wegner.

NAFCU Responds

On August 10, 1973, NAFCU’sExecutive Vice President Jim Baarr wrote the White House:

Dear Mr. President:

We have received a copy of  the August 8, 1973 letter from CUNA  . . . signed by all members of the Executive Committee.

The letter contains a series of five charges against  General Nickerson. . .

We totally disagree with the five allegations contained  in the  August 8 letter.  . .

Allegation (4):  He has always cooperated whenever possible with this Association. . .

Allegation (5);  “General Nickerson’s poor public image.”  . . .I was not aware that  Mr Jack Anderson (and his column The Washington Merry-Go-Round) was the final authority in assessing an individual’s public image. . .

In conclusion, may I add that as a representative of the credit union industry, I am appalled that a letter of this type would be directed to you by a sister trade association .  . .  may I state on behalf of the officers and directors of NAFCU that we continue to give an unqualified endorsement and support to General  Nickerson.  . . 

(Source of letter excerpts:  NAFCU’s  Washington Line, October 1973,  pages 15-16) 

The Credit Union System’s Challenge Today

A current echo of this concern  of a single administrator is the ongoing political debate about the structure of the Consumer Financial Protection Bureau and its lone Director.

The above debate on NCUA’s single overseer was real. The situation was resolved in 1977 when legislation was passed creating NCUA as an independent agency with a three-person board.  No more than two members could be from the same party.  The board structure was intended as a check and balance on the chairman’s power and to facilitate different points of view on policy and oversight.

As mergers continue to reduce the number of independent voices in the cooperative system, how are different and sometimes opposing points of view getting voiced?   The credit union community values relationships.  Public disagreement is rare.  Internal board dissent is even more likely to go unaired.

One hope is that the competition of ideas will occur in the “free market” and different points will automatically arise.  Rarely happens.  Mergers are often of competing organizations as in CUNA and NAFCU’s recent combination.  The same occurs in many credit union tie-ups.

Another hope is an independent press, but the structure and resources of oversight of these organizations are limited.  The general press rarely follows credit union events, unless there is a crisis. There is no requirement that institutions respond to press queries.

Finally, some put their hope for dissenting views in  external oversight by Congress or state regulatory or legislative activities.  The current effort to amend the federal credit union act to accommodate Navy’s management of a military bank, has found sponsors and opponents submitting their views to Congressional committees-which are then reported publicly.

When any industry is marching to a single drummer, sooner or later that approach will be found wanting.  Ensuring there is open and full consideration of differing points is how change begins. Defending the status quo can lead to irrelevance or worse,  purely self-dealing decisions.

Mergers at their core, are anti-competitive.  Anyone doubt that motivation?

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Do Americans Want or Need More Credit Union Charters?

The answer to the first question is easy.  On May 24, 2024 NCUA replied to Denise Wymore’s FOIA request for the number of new charters in any phase of the application process.

The response: “In June of last year it was reported there were 51. . .(Now) There are a total of 63 applications.”

Where is the Need?

NCUA did not provide details of the chartering efforts. Two broad examples of innovation by those looking for alternatives to the for-profit banking system have been covered in the genral press.

One example is the growing interest in “public” banks chartered by cities, counties or states to manage their funds and to support investments in local housing and other priority projects.  This is an example of an Oakland, CA based effort.

The second are those groups and/or communities not being served by existing financial options.

A long description of this demand is reported in this recent Washington Post analysis, Community crowdfunding is built on trust for immigrants.  The article gives two organic financial creations.  One is the Korean self-funding and self-help practice called Keh.  First developed in Korea following the Korean war, the financial practice was adopted in America by immigrants who were limited in the amount of funds they could take from to their new homes in this country.

The Post has followed this form of financing for the greater DC area over several decades.  In an article in 1990, it reported the Korean Association of Greater Washington estimated 80% of Korean American households belong to at least one keh.  It is the source of financing for local grocery and convenience stories, and more recently the ubiquitous food trucks serving the community.

The article states that Korean-American banks began to meet some of these local business finance needs in the late 1990’s with traditional SBA and other finance options.  “But the tradition of community-based microfinance has evolved and flourished in the years since-just as the economy has been reshaped by fresh waves of newcomers.”

“Unlike a traditional investment, the keh lenders earn no interest and no equity and have no say in the business. . .Instead, it is best understood as a trust-based financial support network that’s held together by concern over reputation.”  These efforts sound much like the original credit union model.

Financial Networks in the Latino Communities

The other example in the Post article is the creation of tandas among the Mexican community on both sides of the border.  Like keh, the immigrant communities rely on mutual trust; “the last thing they want is to be ostracized by their own community.”

One organization that is addressing the variety of financial needs of the immigrant community and those left behind is the Mission Asset Fund in San Francisco.  It is a 501(c)(3) tax-exempt organization that in 2022 had revenue of $7.7 million.  Its Annual Report describes programs of micro finance, startup funding and training programs involving almost 20,000 individuals.

The Credit Union Challenge

There are multiple organic, people-centered financial solutions for individuals and communities which are not part of America’s financial mainstream, including the credit union system.   They serve those at the outer boundaries of financial experience who lack the history and resources demanded by traditional institutions.

Instead, they rely on an individual’s character and local community when extending financial services.  The solutions are diverse, experimental, dependent on good will and trust.

In theory the credit union charter in all its diversity and potential should be an ideal fit for these circumstances.  But for that to happen there is going to have to be a reawakening of purpose and priority for the cooperative community.   The charter interest and economic needs are there—but is anybody paying attention to these groups and their potential  as new startups?

 

 

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What the State of Credit Union System in 1944 Means Today

As the 80th Anniversary of the June 6, 1944 Allied landings at Normandy draws to a close, we listen with great interest to the living participants’ stories of that consequential event. They did their part. Now it is up to us that their examples of duty, service and honor be carried forward for freedom’s fight

One might also ask about the state of the credit union experiment at this time.  Are there any lessons relevant for today from four score years ago? What examples might inspire current cooperative leaders?

The first surprise is that there is a very comprehensive analysis on the cooperative system including details that are directly relevant for today’s priorities.   The source for this information is Bulletin #850, from the Department of Labor titled:  Activities of Credit Unions in 1944. 

This 16 page report contains historical tables, state and federal totals for numbers of credit unions, total assets and members, number of loans made and dollar amounts outstanding in each state and for national totals.  One table records the number of state and federal charters that are active from 1925 through 1944.  The cost of the report was just five cents.

Observations on 1944 Credit Union Trends

The impact of the war on credit union lending is central in this analysis:

The entry of the United States into the war was followed by a sharp decline in the credit union movement. Many associations were liquidated, membership fell off, and credit union loans showed a precipitous drop.

This was caused by a number of factors. Among them were the issuance by the Federal Reserve Board of Regulation W (limiting to 18 months—later to 12 months—the period of repayment of installment purchases or loans made for that purpose), the disappearance from the market of higher-priced consumer goods (automobiles, refrigerators, etc.) for which many credit union loans had previously been made, the restrictions on the use of building materials, the emphasis on repayment of debts and the inadvisability of incurring new obligations of that nature, and the increased wartime earnings of wage earners which resulted in a lessened need for credit.

However, some trends were looking better:

Reversing a trend that has been sharply downward since the beginning of the war, both the membership and business of credit unions showed an increase in 1944, although the number of associations was smaller than in 1943.

At the end of 1944 the number of associations on the register totaled 9,099, as compared with 10,373 in 1943. The 8,702 associations active and reporting for 1944 had 3,027,694 members and made loans aggregating $212,305,479. These represented increases, as compared with 1943, of 0.1 percent in members and 1.7 percent in loans.

Total assets which have continued to increase all through the war years, even while number of associations, membership, and business were declining, mounted to $397,929,814, or 12.0 percent above 1943.   

The Bulletin also provides a brief history of credit union chartering.  Here is one excerpt: 

. . .in 1934, therefore, a credit union act was passed by the Congress of the United States and the Credit Union Division was created in the Farm Credit Administration to oversee the carrying out of the law and render various services to the associations formed under it.

From that time onward, until checked by wartime conditions, the credit union movement expanded at an accelerated pace. Not only did the associations with Federal charters spring up and grow, but the older State-chartered movement also seemed to be stimulated to growth considerably faster than its previous pace. The rate of growth of the Federal credit unions, however, was consistently higher than that of the State-chartered associations, and by the end of 1944 the Federal credit unions accounted for 43.1 percent of the members, 36.9 percent of the loans made, and 36.3 percent of the total assets of the credit union movement.

The FDIC Supervises

In 1942 the federal Credit Union Division which was first placed under the Farm Credit Administration was transferred to the FDIC.  The FDIC administered the Federal Act but did not insure credit unions, only banks.

What makes the financial details in this report so remarkable is that the totals for the 9,099 credit unions were all maintained by hand.  Credit unions used only hand posted card ledgers and total tapes run on mechanical adding machines. There were no databases for quick comparisons, summaries and trends.  Given these conditions, the report’s historical tables and graphs are even more remarkable for their thoroughness and timeliness. (the Bulletin is dated October 16, 1945)

The Status of Negro Credit Unions

One of the most enlightening analysis is under a section called Experience of Federal Credit Unions.  Here are the details:

The Federal Credit Union Division of the Federal Deposit Insurance Corporation has made available to the Bureau of Labor Statistics certain information on Negro credit unions and on all liquidations of associations organized under the Federal Credit Union Act. Unfortunately, similar data are not available for the State associations.  

Negro credit unions 

By the end of 1944 a total of 91 credit unions had been organized, under the Federal Act, among Negroes. Of these, 74, or 81 percent, were in active operation at the end of the year, and the remainder were inoperative or had had their charters canceled. For the entire group of Federal credit unions 74 percent were active.  

The following tabulation compares the 72 Negro associations for which data were available with the whole group of 3,795 reporting Federal credit unions. As it indicates, the Negro associations, although smaller than the average for all Federal credit unions and less well financed, were holding their own very well and even excelled the showing of the whole group as regards bad loans that had to be written.

Liquidation Information

Information for 1,109 Federal credit unions that were discontinued during the period from June 26, 1934, through 1944 indicates that the liquidated associations were in the main small. Over a third had share capital amounting to less than $500, and 68 percent less than $2,000. Only 18 (1.6 percent) had capital amounting to $20,000 or more.

Of the 1,109 credit unions, 785 (71 percent) returned to the members all of the share capital they had invested and some paid back even more; altogether the members of this group of associations received back $164,955 (or an average of about $2.60 per member) more than they had put into the organization.

The members of the 234 associations that paid less than 100 cents per dollar of share capital sustained an aggregate loss of $20,889 (about $2 per member). Some 65 percent of this loss was accounted for by the associations with capital of $2,000 or less, and 97 percent by those with capital of $5,000 or less.  

Sixty-three percent of all cancellations, mergers, and revocations of charter made in the 9 ½ year period took place during the war years of 1942-44.

What This Report Reminds Today

This remarkably candid and thorough report concludes with two pages of updates on Developments in the Credit Union Movement in 1944.  This section describes changes in league and CUNA organization and in state chartering regulations.

In just a few pages one finds an important factual and analytical record of the emerging credit union system by 1944.   In wartime we rightly honor the contributions and sacrifices of all who serve.  How in moments of extreme challenge, ordinary people do extraordinary deeds.

But these same contributions occur on the home fronts, unheralded and frequently taken for granted by their successors.   This unique Bulletin is a valuable document about the early contributions of the founders of the credit union system.  It is their efforts and commitment, the seeds they planted, that created the foundation on which today’s credit unions built their success.

Ordinary people doing extraordinary things for their communities in the past, now and into the future.