Category: Co-ops in Capitalism

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Whose Voice Do You Follow?

in the late 1970’s Norman Gazer was a relatively new examiner in the Credit Union Division of the Department of Financial institutions (DFI) in Illinois. He had a bookkeeping background, understood accounting, and had a very quiet, reticent almost shy demeanor.

One of the DFI’s goals was that every one of the over 1,000 state charters must have an annual exam.  This must be by the DFI examiners  or completed by an independent CPA firm using our format.

An essential part of the annual exam was the verification of lndividual loan and share account balances.  This was the primary function of the supervisory committee. In larger credit unions this would be done by an outside firm.  When there was no record in smaller credit unions, the examiners would attempt to test the accounts.

Norman did this in two ways.  He would run his own adding machine tape of the individual ledger balances to see if they equalled the general ledger total.  Were their suspense accounts?  Late entries etc?  This was before computers.  In some cases the cards were still hand posted.

I knew we verified  external investments by sending out confirmation requests to firms holding these balances. But how did he verify members?  He said it was simple.  He just looked up the names in the telephone book and called.

It was this effort to verify accounts that led Norman to discover the credit union defalcation at Scott, Forseman and Company, the publisher of the children’s first reading books: “See Spot Run.”  After repeated attempts to balance the share accounts, Norman determined the credit union manager of this $1 million single sponsor, was keeping two sets of books.

When confronted, the manager handed over the second set. The defalcation was almost $1.0 million.Norman’s documentation persuaded CUNA Mutual to cover most of the shortfall under the credit union’s fidelity bond.

Whose Voice Do You Listen to?

In America today almost anyone can set up a platform to share their views about any issue.  Politicians routinely present themselves as the voice of the neglected, unheard or angry.

We often choose the voices to follow by two criteria.   Do we generally agree with the person’s point of view whether the topic is professional, personal or political.  Secondly, we tend to believe those in leadership, or individuals whose opinions are based on their professional experiences and credentials (professors, doctors, lawyers, or regulators)

One of the commentators i respect is Ancin Cooley.  His  succinct postings are well reasoned and from extensive on the ground interactions. His comment on the recommendations of America’s Credit Union lobbiests to reduce NCUA rules caught my attention.  And reminded me of Norman’s story of why we have supervisory committees in the first place.

This is Cooley’s response to  ACU’s proposal to  eliminate supervisory committee and succession planning requirements by NCUA.

What are we doing?

“Now its eliminate succession planning and Supervisory Committee audits?

We’re literally watching member money be used to advocate against the very guardrails designed to protect them and the institutions they trust.

At some point, someone has to throw a flag on the play. Come on y’all….

Succession planning shouldn’t even be up for debate. It’s basic governance. It’s only an issue because if there is a succession plan in place, it makes it difficult to merge the credit union when a CEO retires.

And now, Supervisory Committees? Yes, they can be a pain, but the function must remain intact and unweakened.

This one’s been locked-and-loaded for a while, especially given the quiet, strategic push to weaken audit committees through legislative efforts over the last twenty years.

If we let this trend continue, the very banks we claim not to be will end up with stronger governance and audit protections for their shareholders than we offer our members.

I’ve been asking this question repeatedly: Who do our associations and leagues actually represent?

The members? The credit unions?

Or the CEOs who sign the check for the membership dues?

Because if you said members—if you truly represent the membership—let me be clear: this proposal is not in the interest of any member-owner.

No bank shareholder would vote to eliminate their audit committee. Why? Because they have their actual money at stake.

Our members deserve the same level of protection. Their collective capital deserves the same level of seriousness and protection.”

This is plain spoken common sense by a person who knows what he is talking about.  But there is still a worse outcome than bad counsel.

What could  be more disastrous? Complete silence. Especially by those in positions of responsibility for credit unions.  Tomorrow I will show how voicelessness communicates approval of bad behavior in The Art of the Steal.

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Space City CU’s Board Asks Members to Reward Top Three Execs $6,750,000 for Closing the Credit Union

(Note: This analysis of Space City’s merger is in two parts. Part I follows with the overall summary and  Part II with additional details)

America’s tax-exempt, non-profit, democratically governed credit union system is at a crossroads.  Bank competitors and some analysts are questioning whether the movement has lost its core purpose.

The example below of self-dealing, conflicts of interest, lax board oversight and member manipulation is the latest example of internal corruption in the $2.3 trillion cooperative system. These mergers, marked by executive cash outs, are becoming more common. State and federal regulators seem oblivious or powerless to stop this internal pillaging.

On May 14, the 12,000 members of Houston’s Space City CU will cast their final votes to transfer all control of their 60-year old $142 million credit union, with 14.6% net worth, to the $4.8 billion Houston based TDECU.  The voting enddate was set in the official Notice of Meeting of the Members of Space City CU dated March 28, 2025, and mailed to all member-owners.

This so- called merger is just the most recent example of leaders taking advantage of their position for self-enrichment.  Five Space City executives are giving themselves 57% of the $11,750,208 equity distribution described in the Meeting Notice.  The President would receive $4 million (34%) of the $11.8 million payouts and the Chief Operating Officer   $2,250,000 (19% in distributions from the members’ collective net worth.

The top three insiders will divide $6.750 million for an average of $2.250 million while the 12,000 plus members whose loyalty built the credit union will average $412.

Even though the Notice states the Board “approved” these special payments to five people (one employee joined in 2022), these deals were arranged by the two CEO’s.

This is the September 2024 initial video released by the CEO’s side by side announcing and selling their deal together with a closing handshake.  However, the details of the special “bonus” distributions were not sent to members until the March 28, 2025 Notice or six months after this initial public announcement.

CEO Rohden’s Performance Record

Especially questionable are the actions of Craig Rohden who has been CEO for 30 years.  The board claims to “honor his outstanding performance.” His record as CEO is at best underwhelming and more recently, marked by annual losses. In the past two years the credit union reported negative net income of $611,670 for 2023 and $30,398 in 2024.

Following the 2023 loss, according to Space City’s IRS 990 filing for that year, Rohden was paid a total of $280,562 which included a bonus $46,186 and contributions to a retirement plan of $11,604.  Additionally, the credit union had a split dollar life insurance plan with a balance due of $3.275 million which would fully vest in the proposed merger.  The cash benefits, not disclosed, can often be taken tax free in the future.

However, this performance charade goes back further.  In the latest call report March 31, 2025 the credit union’s total net worth is $19.4 million or 14.6% of assets.  Of this amount 61% or $11.9 million is from “equity acquired in mergers.”  Only 39% is retained earnings from the 30 years of Rohden’s tenure.

Space City lists four mergers resulting in the collective $11.9 million addition to its net worth for free.  The largest gain was in the 2022 merger with Brazosport Teachers FCU (BTFCU). In BTFCU’s March 2022 Member Merger Notice, it disclosed that its entire reserves of $8.2 million were being added to Space City’s existing $9.2 million equity while paying the owners nothing from their collective savings.

It also said the combination would manage approximately $154 million in assets serving 12,564 members.  In the two and half years since this merger, Space City’s assets have fallen by $20 million to total $134 million and membership has decreased by 500 (data as of March 2025).  The reason for this dramatic loss of shares, loans and members is described in a comment by a former BTFCU member on Space City’s merger page at NCUA:

Hester Wende:  I am against this merger for 2 reasons. First, members of the now combined Teachers Federal Credit Union with Space City Credit Union were made numerous promises and assurances which were all fabricated. None of the promised items happened and our service has significantly declined. Student accounts were closed because they didn’t meet the standards of Space City Credit Union. Second, TDECU history over the past 10 years is horrible – numerous data breaches have occurred causing untold financial consequences to members. Their customer service is worse than Space City Credit Union.

Looking at the merger documents, it appears that this merger is all about the current President and Vice Presidents receiving a very significant buyout at the expense of Member’s earnings. 

Her  concerns about TDECU are addressed in my analysis below.

In this equity presentation of “retained earnings” versus “acquired in merger,” only 39% of Space City’s net worth is from the Rohden’s operational  performance. Rather growth has come from convincing other credit unions to transfer their firm’s entire assets to his control. The last three year’s financial record clearly shows a runoff and decline across all assets and share accounts  under Rohden’s management.

The Final Deal

Now CEO Rohden wants to make one more big deal, only this time it is to “sell” the credit union he has led for 30 years. But unlike his four acquisitions where the CEO’s received little or nothing. he wants his own Golden Parachute at a minimum of $4.0 million.

In addition to the Notice’s misleading justification of Rohden’s “outstanding performance,” two other reasons are equally nonsensical.  The Member Notice states Rohden “will not be employed post merger with TDECU and will receive a lump sum of $3.5 million which is the estimated compensation had he remained with Space City until retirement.”

This is the art of the flimflam.  The CEO negotiates the transfer of the credit union’s entire operations to a third party, retires early when he could have continued working and then wants to be paid for not working!

Even more specious is this distribution:  TDECU will pay a lump sum of $250,000 per year for a total of $500,000 in consideration for a two-year non-compete, non-solicit agreement with his compensation.”

Even though CEO Rohden has never worked at TDECU, he is paid for a non-complete agreement. The term non-compete refers to a firm’s internal employees who may have proprietary knowledge to prevent their taking that information to a competitor.  For 30 years Space City and TDECU served the same market. Now he gets paid for a “non-compete” while unemployed?

This upside down reasoning is just a verbal camouflage to cover up a payoff for Rohden’s delivering the credit union’s entire resources plus its brand to TDECU’s control.

There was a similarly worded justification explaining the $350,000 two-year non-compete for COO Nikki Moore as part of her $2.250 million merger payoff.  She again has never worked in TDECU.

These so called “non-compete payment” are from TDECU’s member reserves, not Space City’s. These bonus payments to two key players who arranged and approved this free transfer of all Space City’s resources are by the credit union receiving this largess.

The CEO and directors of both boards who approved these payments should be wise to review their fiduciary responsibilities, alongside their legal counsel.

 Lack of Board Oversight and Due Diligence

The dubious financial performance history of Space City under CEO Rohden continues in these merger justifications and payouts.  Instead of being stewards of the member-owners’ funds, the merger terms reveal self-enrichment. Rohden’s role is especially suspect. He negotiated the terms as CEO, received the largest payments from both credit unions and then recommended his board approve the transaction.

Space City board chair Mick Lay, who signed the official Member Notice, joined the board in 1975.  The Treasurer Robert Sander joined in 1980.  This is a board that has failed in its basic fiduciary duties of care and duties of loyalty.  They have abandoned any pretense of stewardship in their oversight responsibilities.

What’s Next

Should this merger proceed as announced it will be another nail in the coffin of credit unions as immune from the greed and excesses of private enterprise.  While the industry may be rich in its trillions of assets, it is poorer in soul and purpose.  And it is those values that were supposed to enrich members and their communities, not self-serving insiders dividing the spoils from merger deals.

To stop these credit union predatory actions will take courage from persons in positions of responsibility, public transparency in the media, and most of all, members speaking up to oppose this hijacking of their cooperatively owned financial institutions.  

The Rest of the Story in Part II

Following are four analyses of merger details that show the questionable nature of this proposal.

  1. Buying the Yes vote. How the member bonus distribution is structured to incent their approval independent of their support for the credit union.
  2. Using the names, logos and reputation of over 50 Houston area businesses, non- profits and public firms to endorse Space City Credit Union (and then TDECU) and its services for their employees. Each organization has just one vote. But a No would send an important message.
  3. What the members should know about TDECU as the new organization managing their assets including the credit union’s recent financial trends and its intent to buy the $1.2 billion Sabine State Bank headquartered in Louisiana.
  4. The regulators’ responsibility for approving the merge.

Part II: Four Additional Areas for Member-owners’ Attention

 

  1. The Process to Incent Member-Owners to Approve the Merger

Undermining the member vote process is simple.  Vote for the merger and you will receive a minimum $100 if your account is less than $289 (as of March 2024), and a maximum of $1,000.  If you vote no, you will get nothing.

What makes this strategy so transparent is the strange cutoff points for each of the three bonus levels:

Under $289.27, member receives $100.

Under $2,892.68, member receives 34.6% of their March 2024  balance

Over $2.892.68, member receives $1,000

What the Notice fails to disclose is how many voters are in each category.  I presume this precise division, down to the penny, means there are a majority of votes (one person one vote) in smaller balance accounts.  This is a great vote buying strategy, but it was nothing to do with rewarding those member-owners whose participation contributed the most to make the credit union successful.

The average share balance held by the 12,140 members is approximately $9,500.  As in most financial firms, 20% or fewer of members will hold 80% or more of total deposits.  The bonus dividend is not based on members’ financial support. The purpose is to incent small balance members to get $100 each for approving the merger of a credit union in which they barely participate.

We know the board and CEO are aware of paying bonuses on relationships is the normal practice. This example is from its December 28,2023 special dividend: a $1 million dollar bonus dividend payout to its loyal members. . . The bonus, which is a combination of Bonus Dividends ($750,000), Loan Interest Refunds ($175,000), and Checking Rewards Points ($75,000), will be distributed proportionally to all eligible members based on their qualifying deposit balances and activity throughout the year. 

The only qualifying activity in this distribution of members’ collective reserves is to vote Yes to approve the merger.  Vote No, and you get nothing.

  1. Using Sponsors’ Reputations to Endorse the Credit Union

At least 55 Houston Area companies, unions, and non-profits have endorsed Space City for their employees to join and support.  Each of these sponsoring organizations’ reputation is used to promote the credit union and its actions.

As stated on the Space City website, these Platinum Partners can provide your employees with access to a wide range of affordable financial products and services and a clear path to financial freedom.

The sponsors’ logos on the credit unions web page include:   GE Water and Power, Houston Freightliner, Houston Ballet, Houston Housing Authority, Westbury Christian School and dozens more local organizations.

As stated in the merger FAQ’s Businesses with a unique Tax ID number will be able to cast a vote on behalf of their organization.

When these sponsoring organizations vote or are asked by employees whether they should support the merger, their own reputations will be on the line.  Would they support this kind of activity if this were in their own organizations?

  1. What Should Members Know About TDECU?

Included in the Member Notice was a September 30, 2024, financial statement with just balance sheets for each credit union and  their combined accounts. Because of the multiple distributions to members and Space City’s senior executives, the combined net worth of 9.84% is less than each credit union’s pre-merger net worth.

The reasons offered for the merger can be summed up in one word: More.   More branches, products, services, technology, cost savings and employee opportunity.  There was not a single concrete example to document one member benefit.

Right now, every Space City member is eligible to join TDECU without a merger.  Why give up a locally focused independent credit union with higher capital ratios so the 12,000 owners can now be a part of a 385,000 member organization?  TDECU reports a potential market of over 30 million.  Space City members and employees’ control and influence is now 100%; in this merger their role is would be 3%, or insignificant

But the most critical fact about TDECU is not size, but its performance and business direction. Bigger does not mean a better member experience. TDECU’s CEO  assumed office in June 2022.  For the full years 2023/24 through the first quarter 2025, TDECU’s share and loan growth have flat-lined, employee count is down 56 (from 868), and membership is off by 1,000 (from 385.8K).

What’s up is delinquency from 1.54% to 2.01%, and full year charge offs which have risen from $43.4 million to $53million.  The loan allowance coverage ratio from loss reserves is  at .56% versus a national average of  164.3%.

TDECU’s growth has stalled, and earnings are in decline. Full year earnings fell from $32.9 million in 2023 to $11.6 million in 2024. In the first quarter of 2025 TDECU reported a loss of $35,476.

But the most critical question about joining with TDECU is not mentioned at all.  Prior to the September 2024 joint merger statement, TDECU announced it was purchasing Sabine State Bank and Trust Company on April 30, 2024. This $1.2 billion bank is headquartered in Many, LA.  It is 120 years old and operates 51 branches across Louisiana and East Texas. The merger would add about 90,000 new members.  The joint press release says Sabine “specializes in commercial loans with industry concentrations in oil and gas, forestry, timber and agriculture.” 

TDECU’s justification in the release states: “Sabine’s strong commercial operations will further diversify the credit union’s loan concentration and support TDECU’s overall growth strategy.” 

TDECU is using tens of millions of their members’ collective reserves to pay out the owners of Sabine Bank to acquire its business and operations.  If this same business logic were applied to the Space City transaction, then the member-owners of the credit union should be receiving their entire book value ($19.4 million) or more), not the paltry $5 million (25%) distribution offered.

The April 2024 joint bank purchase announcement of a “definitive acquisition agreement” was to be completed early in 2025.  Over a year later, there have been no further public updates.  If this purchase has been put on hold by regulators or other circumstances, then Space City members should know why before they decide whether they want to be part of this new strategy of TDECU.

4.What is the Regulators’ Responsibility?

This proposed Space City merger, according to the joint press release, requires regulatory approvals: The transaction is anticipated to be completed later this year, subject to receiving all regulatory approvals.

The two regulators are the NCUA which insures the credit union shareholders and the Texas Credit Union Commission, which charters and has primary supervisory authority.   Both regulators have seen the Member Notice with its misinformation, disinformation, and inadequate facts which  member-owners were sent to make an informed decision.

NCUA bylaws state CU boards “have fiduciary responsibility to vote for measures in members’ best interests,”  (CU Times March 20,2007) 

A December 18, 2007 CU Times report on the attempt by Wings FCU to pay Continental FCU members $200 each to approve a merger.  NCUA stopped this effort as explained in the article:

“ . . .credit union boards have an essential role in determining whether a merger is beneficial to the credit unions and their members, said NCUA Chairman JoAnn Johnson at an April 5 Massachusetts Credit Union Governmental Affairs Day Conference. 

“The agency held to its position that it would ensure that all statutory and regulatory requirements are being followed including an assessment of the accuracy of all advertising and representations being made about the merger . . .. NCUA said it was prepared to address any inadequacies or insufficiencies that threaten member protection, transparency and fairness.

“In the end, it was NCUA that put a stop to Wings Financial’s merger campaign. On April 20, the agency ruled that the $200 payments Wings Financial had offered to Continental’s membership should a merger go through were impermissible under the Federal Credit Act.

In this case TDECU is paying the arrangers of the merger, the CEO and COO of Space City $850,000.

Today two of the three NCUA board members have been fired by President Trump. This means the Texas regulator will have a primary role whether this self-serving effort, fraught with conflicts of interest, self-dealing and insufficient information is a valid process for member-owner decision making.

The Credit Union Commission’s decision will have significant ramifications for Space City’s 12,000 credit union members, the greater Houston business community, and the system’s reputation for integrity in Texas.

 

 

 

 

 

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Taxation is Not a Systemic Threat to Credit Unions

The most critical threats to credit union’s future are not external, but internal.

Taxation is merely an ongoing PR gambit which both sides use to reload their lobbying coffers.  The decline, or demise,  of the credit union option won’t be from competitors, regulatory adjustments or rapid technology change; it will be from failure within.

Cooperative design provides an unmatchable completive advantage against all foes.  In credit unions the users are also the owners.   In all other firms the objective is to extract a profit from consumer relationships to pay another group, the shareholders, a superior market return.

The Internal Distancing

Over the past several decades, CEO’s and boards have moved further and further away from their members.  The owners no longer have a meaningful role except making transactions. The required  annual meetings often do not allow members to attend, let alone participate. Members are merely customers whose interests are subordinate to the institutional ambitions of the “elected” leaders and the board’s chosen CEO.

Washington’s  Faux Tax Strategy

The current effort in Washington State with bankers sponsoring legislation to tax state credit unions which buy banks is a creative PR move.  But it is not a threat to coop institutions. Most Washington charters have no interest in a bank purchase. In the several states that already tax all state charters, this has not stopped those firms from growing and competing.  Think Indiana’s FIT tax.

Moreover as in many tax situations the workarounds negate any real impact  For example, a credit union could buy an out -of-state bank or convert to a FCU to avoid the local tax.

This law change would not endanger any credit union’s future.  However  it does focus the spotlight on the internal divorce now occurring between credit union’s leaders and the member-owners.

A Growing Estrangement

Has a credit union member ever suggested  their organizaton use its collective reserves to buy out  a bank’s shareholders at at premium over market?  It could never happen.

Credit union leaders would never ask owners for their thoughts, let alone their approval. The members rarely are told the terms of the offer (unless the bank is publicly owned) while the bank owners who must approve it, are given all the details.  Bank buys are an executive strategy, not a member facing one.

Purpose versus Practice

The Washington State tax initiative is a creative effort to highlight  the increasing incongruity between credit union’s stated  purpose and  present practice.   Credit unions were not chartered to buy banks but rather offer consumers a better value proposition with an ownership role versus traditional banking options.

The leaders of credit unions buying whole banks have moved away from their owners and communities as their primary mission.  They use the member’s  reserves to purchase other firm’s financial assets which  provide  no direct member benefits. It’s he bank’s shareholders who are the winners.

The  Democratic Model and Get Rich Quick

The history of political democracies from ancient Greece and Rome through modern day examples, show that outside forces rarely subdue a democratic opponent. Rather democracy fails from within.  Leaders, initially elected,  use their positions to further their self-interest, longevity and ambitions versus serving the interests of those who put them in place.

In the first quarter of 2025, NCUA lists 35 credit unions “failures.”  However the word used was mergers.  Yet reviewing the list most are financially sound, long serving and in many respects focused on local community contributions. These charer cancellations are leadership defaults, not financial failures.

For the past decade mergers have increased as a central growth strategy for some credit unions.  Recently a series of large billion dollar mergers have been announced.  In the DCU (Massachusetts) and First Tech (California) $26 billion combination the two firms are almost 3,000 miles apart.  The press release did not specify a single concrete member benefit.   If you want more information, a member-owner is directed to contact the Silicon Valley PR firm managing the communications.

Follow the Money

In this and other large mergers there is no benefit described that the individual credit unions cannot deliver themselves.  Instead in these and in many smaller mergers initiated by retiring leaders, they are a get rich quick scheme for a few senior executives, or a retirement topping off.

Retiring leaders who gained a professional career and standing, eliminate that opportunity for others and the owners’ legacy of loyalty.  In return the depating CEO receives an enhanced payout or an extended sinecure.

The end result of these merger and bank transactions  is that the credit union system has been pirated away from its ownership roots.  These  entities then pad the budgets of regulators,  system coordinators and their professional operators  whose focus is size—both assets and compensation- not member-owner’s and community needs.

Disruptive leadership is necessary to reverse a system in which cooperative leaders have abandoned the advantage that built the sysem’s current prominence.  Taxation is not  a disrupter and could even accelerate these bank-like maneuvers using a “level playing field” justification.

Gaining Backthe Co-op Advantage

The secret to winning in a competitive market is to define the game you want to play, not play the game you find.  Credit unions built their success around a unique cooperative model.

Placing institutional priority on external acquisitions is neither new nor unique in market economies.  It is merely a bidding contest whether done via mergers or for bank purchases.  It is how monopolies are constructed- the ultimate capitalist ambition.

There is no current body nourishing the sustainability of cooperative financial services.  If the credit union system is to remain viable it will require new energy and coalitions formed by leaders pushing to the front.  Not to fight taxation, but internal subversion, and in some instances corruption, undermining the cooperative model.

Tomorrow I will introduce a person trying to rally and fortify the unique strengths of the cooperative system.

 

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Buffett’s Wisdom For Credit Unions: The Casino in the Cathedral

On Saturday CEO Warren Buffett’s four-hour, open-ended Q&A with Berkshire shareholders was a lesson in leadership.  In life’s wisdom. And in human values.   It was his last time as CEO.

If you read one of many excerpts or listen to a recording, you will be rewarded with a superb public discourse.

One observation is especially relevant to an issue confronting today’s credit union system leaders. That is the radically different approaches to assure future cooperative resilience.

The Casino within the Cathedral

Buffett stated in one response:  “Capitalism in the United States has succeeded like nothing you’ve ever seen, but it has what it is, a combination of this magnificent cathedral, which is produced on the economy like nothing… the world’s ever seen. And then it’s got this massive casino attached.”

The casino describes the speculative, short-term, and potentially risky side of capitalism, where quick gains and money changing hands are the primary focus. The allure and rapid growth of the “casino” can lead to the neglect or overshadowing of the “cathedral.”

Responding to a question about hedge funds entering the insurance business, Buffett pointed out that these firms, which specialize in buying and selling businesses, follow different “fiduciary  feelings” than Berkshire.  Berkshire’s goal is to acquire a business for the long term (forever), not turn around and resell for short term gain.  He believes his approach is the best way to create long term value for his owners whom he wants to retain as well.

The Credit Union Analogy

Today there are two broad business approaches followed by credit union CEO’s. Driving these are two different “fiduciary feelings” about where one’s duty is directed.

On the one hand are those who believe the CEO’s primary goal is to maximize institutional growth quickly.  In some instances, this is through mergers or purchasing external assets or even whole firms (banks).

The primary motivation is maximizing the rewards of leadership.  Sometimes this is while employed; or if not then, cashing out by handing the firm over to another credit union for the right personal compensation from a merger.

A growing current example is the increase in “mega-mergers.”  These multi-billion combinations offer the owners nothing that the individual firms cannot deliver.  Sometimes they are an effort to eliminate a local competitor; in others, it is to gain a larger space and personal reward in the credit union Cathedral.

This Casino approach to leadership is described by writer David Simon in the composition Privilege.  It ends with the words, I’ll play by  those rules:

It’s almost like a casino

You’re looking at the guy winning

You’re looking at the guy who pulled the lever

And all the bells go off

And all the coins are coming

Out of the one-armed bandit

And you’re thinking that could be me.

I’ll play by those rules.

A Composition for the “Cathedral”

The purpose which built the credit union Cathedral is captured in this 1850’s folk song by Stephen Foster,  Hard Times Come Again No More.

The first verse sets the scene:

Let us pause in life’s pleasures and count its many tears
While we all sup sorrow with the poor:
There’s a song that will linger forever in our ears;
Oh! Hard Times, come again no more.

Followed immediately by the rending chorus:

Tis the song the sigh of the weary; Hard Times, Hard Times, come again no more; Many days you have lingered around my cabin door, Oh! Hard Times, come again no more.

“It’s a song about poverty–financial poverty first and foremost, but it also hints at a poverty of spirit, of general misery.

“What’s refreshing about it, what makes it stick in our craw, is its honesty. It doesn’t flinch or pull back from showing real human suffering, bringing it to the very entrance to the drawing room: “Let us pause in life’s pleasures.”  (Source)

This 2010 recording is one of numerous current arrangements.  It uses pictures of the Depression to reinforce this 170-year old challenge for the American economy.  It could be a National Anthem for the credit union movement.

This second arrangement is how a credit union leader like  Doug Fecher (former CEO of Wright-Patt CU) might have recorded with his group when presenting his vision.

How credit union CEO’s make this business choice  will determine whether the movement can maintain its Cathedral.  Or become just another group playing in the casinos of capitalism.

 

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An Annual Meeting that Owners Stand in LIne to Attend

Would your members take time to attend your annual meeting?  Is it an occasion the owners look forward to?  Will they learn something new?  Have a chance to meet board and senior staff?  What would the local newspaper or the credit union press write about the event?

Every  credit union that has issued news releases or been in the press this past year knows the value of public coverage.  The annual meeting is an opportunity to celebrate results, profile the leadership and show respect for the owners who make it all happen.

The “Woodstock for Capitalists”

This weekend in Omaha, NE Warren Buffet will lead Berkshire’s annual meeting.  It is a multi-day event for shareholders who travel from across the country and even foreign countries to attend. The excitement and preparations are described in the WSJ article from April 29.  The company has sent tickets to over 138,000 shareholders and another 6,000 to non-owners who want to attend the event and pay $5.

The actual meeting is so popular that CNBC will broadcast the event live-in Mandarin and English.  The high point will be the initial open-ended Q&A with Buffet and deputies answering questions from viewers and attendees—for hours on end.

This public dialogue always makes headlines as the annual report has been released months earlier.  Not just owners, but the general public is interestedd in Buffett’s observations on tariff’s impact, economic uncertainty, the role of America in the world. Viewers will want to know what the company might have in mind with its $350 billion in cash.

Buffett’s annual conclave for individual owners is a long standing show of respect to those millions of small shareholders versus the billions owned by investment companies such as Vanguard or Fidelity.  He rewards their loyalty by being with them, talking openly and sharing his leadership approach including succession.

The spirit is that “we are all in this together” and “I work for you.”  His approach is an example of a leader accountable to owners and creating a community of shared purpose.

A Buffet without Buffett

What credit union wouldn’t want this same spirited outcome?  But few even try even though the cooperative model presumes this same common interest among member-owners.

One credit union that has attempted to create is own sense of shared accomplishment and celebration is the $160 million Affinity CU in Omaha, NE.

At the annual meeting I attended two years ago there were talks by the state regulator, the President of the Iowa Foodbank as well as the required  CEO and Chair reports.  Scholarship winners were recognized, there was a free buffet dinner for entire families, prize giveaways and even video of one of the members telling his story.

The meeting included the election.  After which all board members, new and old, took their oath of office, in front of the owners.

This was an occasion combining all the elements that make Berkshire’s effort a national news event. It is not an organization’s size and resources that creates owner excitement for this required  meeting.  Rather it is the measure of leadership’s respect for the owners for whom they work.

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Fired NCUA Board Member Harper to Speak at Brookings

The Brookings Institution, a Washington DC think tank, has announced the following event this Thursday:

“Credit union regulation at a crossroads: A conversation with former NCUA Board Member Todd M. Harper.” 

Event Details:

Date: Thursday, May 1, 2025

Time: 11:00 a.m. – 12:00 p.m. EDT

Location: The Brookings Institution, Saul Auditorium, 1775 Massachusetts Ave. NW, Washington, D.C. 20036

This is the link to the online broadcast.

Two NCUA Board Members File Suit to Regain their Positions

On Monday, as reported in CU Today, Otsuka and Harper filed suit in federal court to regain their NCUA board seats.

The full 12-page suit can be found here.  One paragraph is especially important right now.  This is a statement about the quorum needed to conduct Board business.  It reads:

  1. The President’s removal of Mr. Harper and Ms. Otsuka has left the NCUA Board without a quorum, rendering it unable to implement Congress’s mandate in full. Only one Board Member, Defendant Kyle S. Hauptman, remains as both the agency’s sole Board Member and its Chairman.

But the Federal Credit Union Act vests the powers of the agency in “the Board,” not in any one individual, with a quorum requiring a majority of the Board. 12 U.S.C. § 1752a(d). And the “agreement of at least two of the three Board members is required for any action by the Board.” 12 C.F.R. § 791.2.

With only a single Member purporting to exercise authority, the NCUA cannot Case 1:25-cv-01294 Document 1 Filed 04/28/25 Page 7 of 12 7 continue carrying out the supervisory, regulatory, and institutional functions that Congress intended to be exercised by a Board composed of at least a majority of its Members.

Despite some agency and other comments, the lawyers assert that a single board member is not a legal quorum to conduct board meetings or other official business.

Questions for Harper’s Conversation at Brookings

The lawsuit is clear in its arguments that Trump’s actions are unlawful.  But it will take time to see how this legal process plays out, and lots can happen in the meantime.

Here are several areas  I hope Harper will address in this week’s public conversation:

  1. Circumstances at NCUA prior to the removals. The action was just prior to a scheduled board meeting in which the downsizing was on the agenda.  What was the proposed action?  Was there consensus among the board?  What internal work did DOGE representatives do?  Why are Hauptman and Fasio included in the suit?  What was their role in this action?  Did you ask NCUA legal staff for their position or to challenge this action?  What is your current understanding of the state of the agency’s staffing-how many are leaving and what critical areas do you see uncovered?
  2. In addition to following the lawsuit and Brookings conversation, what other public actions might credit unions or their representatives undertake to support this lawsuit? Amicus briefs?  How are your legal expenses being covered?
  3. Your role as Chairman at NCUA. Several significant trends emerged during your NCUA tenure in the cooperative system.  Two major ones were the accelerating pace of credit union whole bank purchases for cash.  The second was mergers of strong, long serving and increasingly large credit unions in which  the departing CEO’s and staffs gained significant personal compensation for setting up the merger.  In one case the CEO and Chair transferred $12 million in member equity to their personal control.  You did not address these topics while on the board.  What is your position on events like this?
  4. Your position on potential future regulatory changes. During your tenure as an NCUA board member you frequently cited the FDIC model to recommend multiple changes in the legislation governing the NCUSIF, the cooperative credit union insurance fund.  Would you support merging the NCUSIF and FDIC if that were to be proposed?  A second issue is potential federal taxation of credit unions in some format.  What is your position on such an initiative?

Finally, how might credit unions and the public get in touch with your and Otsuka now that your official emails and contacts have ended?

I intend is to attend the event in person this Thursday.

 

 

 

 

 

 

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An Annual Meeting Experience

The formal invitation came by mail and read as follows:

TowneBank

Cordially invites you to attend the:

Annual Meeting of Shareholders

Wednesday May 14, 2025  at 9:30 AM

The address for the meeting was the Richmond Convention Center. The invite closed:

Lunch will be served immediately after the meeting

Kindly reply by returning the enclosed card only if you plan to attend

The reply card asked if the attendees would stay for the luncheon.   The only required information was first and last name of those attending.  There was an addressed stamped envelope to mail the response.

TowneBank is $17 billion in assets with  2,800 employees in 51 branches throughout the greater Richmond, VA area.   TowneBank  converted from a mutual charter several decades earlier.  In that process depositors could buy  newly issued shares if interested.   My wife converted her  savings to stock.

TowneBank’s mission is:

Serving Our Community

Throughout our growth, we’ve never lost sight of our true mission: to continue to be a community asset by serving others and enriching lives.

Respect for the Owners

As a shareholder-owned financial institution, their board’s  goal is to provide its owners an acceptable return and ensure trust and confidence in the firm’s leadership.   Its invitation is gracious, formal in style and intended to encourage owner participation.  It feels welcoming.

A Credit Union’s Annual Meeting

The annual meeting of many credit unions conveys just the opposite impression.  Member-owners must register in advance to attend the meeting.  The event is often virtual only, with no member attendance permitted. The agenda may state as mine did: 

Matters requiring a vote

Please note that there is no new business to discuss. The only matter requiring a vote of the members in attendance is approval of the 2024 Annual Meeting minutes.

There is no voting for directors as the board nominated candidates equal the vacancies. No new items or old business will be permitted. There will be a Q & A for questions submitted in advance, and sometimes those added during the meeting.

This was the setup for Patelco’s 2025 virtual annual meeting last Friday.  There was much material a member-owner might download at this site.   The State of the Credit Union included 46 slides with much information both financial and operational efforts. The 2024 Annual Report is 18 pages of high level summaries, a financial statement (unaudited) and pictures of staff and board.

Patelco’s annual report and CEO meeting update met the letter of the law, but the Friday event lacked any hint of spirit. No celebration, no thank yous to members and carefully scripted to create an impression of a required exercise versus a shared experience with member-owners.

The Q&A Portion

The only section not prepared and sent in advance were member questions. Some were submitted prior and some during the meeting.

The cyber ransom attack was a major disruption in 2024.  It was discussed in the CEO’s summary and in the Q & A.  New information included an estimated total cost of $64 million of which  $37 million was fraud losses caused by some 6,000  members during the outage.  Their accounts were subsequently closed.  The sale of Visa shares in January resulted in a $35 million gain which helped offset part of the cyber attack expense.

The Annual Meeting’s Intent

Is the Annual meeting a mere administrative formality to be closely controlled by the organizers?  Or, is it an opportunity to enhance member confidence and support for their cooperative?

The meeting ritual can be much more than publishing required data and information. It  communicates leadership’s attitude toward their member-owners. Patelco’s approach signals control not mutual responsibility.  There were two examples that illustrate this approach.

Democratic Governance

When asked about the closed election process Chairman Rivera read the formal steps. He said there were no limits to board terms. Two board members’ service began in 1996. As of the next meeting, five more will have served for over two decades. Longevity is certainly an attraction for those in power.

The Chairman carefully avoided addressing the issue of democratic governance for topics such as: When was the last meeting in which there was a contested vote?  Ever? Why does the board encourage members submit proxies, thus surrendering their right to vote in board elections?  Why are no members allowed to attend in person?  How meaningful is the member’s meeting  in which all business is conducted with only employees present?

At a time when every segment of the country’s democratic processes seem to be under direct or implied threat, why is Patelco shutting down the democratic practice meant to be the hallmark of cooperative design?

This was a missed opportunity to highlight  fundamental cooperative governance.

Questions About Threats from Without

The second reason for engaging members is that this is the source of the movement’s political power.  Credit unions cannot out spend political funds or have enough lobbyists to rely on traditional forms of political influence. It is members voting their self interest that will secure credit union success in DC.

Three questions touched on  national topics. One was whether Patelco was safe and sound at this moment, referring to bank problems. A second asked about possible threats from a government agency. The CEO’s response interpreted the question as referring to credit unions’ tax exemption.

And the last question of the evening: After President Trump fired two of the three NCUA board members—does this threaten our deposit insurance?  CEO’s answer paraphrased: Your deposit insurance is not threatened, the NCUA board is reduced from three to one member but can continue to take the actions it needs to;  your insurance is federally backed. 

These questions referencing the external environment (taxation, NCUA board firings, bank uncertainties) were an opportunity to educate and prepare members for their critical role in countering these threats.  It was the moment to rally the members with straight talk.  Instead general assurances that everything is OK were given.

To suggest taxation is a just another banker’s campaign is to overlook the entire current context.  True as always, but that is not what is going on that makes this a potential opening now. The response that the firing of two NCUA board members means “business as usual” at NCUA and the NCUSIF, is ill informed or naïve.

Both questions were an opportunity to remind members about credit union uniqueness and why there is a federal tax exemption—the purpose and role of cooperatives in a capitalistic market place.   More vital, this purpose is regulated by a unique dual chartering framework. That system includes insurance fund options that require 1 cent of every member’s savings dollar be sent to capitalize their special cooperative fund.

To blithely assure members their fund and NCUA  function like “business as usual” is to misstate the whole intent behind the board’s two removals.  Moreover, the question of NCUA’s single member board authority is anything but settled.

If this is indeed the view of Patelco’s leadership about DC events, they need to do some homework.  More importantly, their power to address these topics will rely on member awareness and the ability to rally their engagement when needed.

The Bottom Line

Credit unions are different by design until those who lead them cease to believe in that difference.

TowneBank believes in courting and encouraging shareholder engagement. They talk the same language as credit unions about community and customer support.  But they back that community spirit up with invitations and hospitality.

Patelco’s actions speak much louder than the many pages of charts, numbers and operational activity in prepared reports. The annual meeting is not a member’s final exam for the prior year. It should be a celebration of mutual progress.

There has never been a time when acting to support democratic values and practice has been more vital.  Credit unions should be leaders in this affirmation of member-ownership and governance.  Without this effort, credit unions will increasingly be perceived as just another example of self-perpetuating oligarchy at work.

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“Take Action Now”

That was the request of O Bee Credit Union President Andrew Downin’s recent letter to his members.

Dated April 18, two days after the Trump administration fired the two democratic board members at NCUA, I thought this was fast action.

The immediacy of the situation was different however:

We need your help. 

A proposed change in Olympia (WA) could directly impact O Bee Credit Union and the services we provide to you and our community. A last-minute amendment was added to Senate Bill 5794 that would impose a new tax on not-for-profit, Member-owned credit unions like O Bee. This amendment was introduced without any public input and ignores the real value credit unions provide. 

This new tax would reduce our ability to offer affordable loans, low fees, and financial support to our Members. It’s not just a tax on O Bee – it’s a tax on you, our Member-owners.

The email closes with this request:

TAKE ACTION NOW*
* This link takes you to a trusted website from our partners at GoWest Credit Union Association.

The letter ends with: Thank you for being a part of O Bee Credit Union. Together, let’s stand up for what makes credit unions special.

What Makes Credit Unions Special?

In this event, the credit union threat is from a change in the state’s tax exempt status. There is direct parallel at the federal level.

But threats to credit unions are more than taxation. Last week the Trump administration took over NCUA.  With a single board member whose term expires in four months, the agency will either bow to Caesar or navigate to keep member-owners’ interest first.

If the latter course is followed, it will need the support and engagement of the members. This existential threat may be harder to rally for member action versus opposing taxation,  No one is for taxes.

But it is critical to point out the NCUSIF logo on the credit union’s marketing materials represents a uniquely credit union designed and dedicated cooperative fund.  Even this email includes the words:  Federally Insured by NCUA.

During the Silver State banking crisis in 2023, the credit union community promoted their separate insurance fund as well as the differences in institutional structure and risk versus banks.

Many factors make credit unions special.   For me the most important takeaway from this communication is not the issue of a tax change or  the current Agency takeover in DC, but rather the request for members to act.

It is member involvement that will separate the credit union issues from the transactional lobbying circus in Washington.   O Bee does an excellent job communicating their credit union’s uniqueness in their monthly messages.

This corporate discipline to stay connected with members is a potent power.  This was the first but not the last time members will be asked to take action in the months ahead.

 

 

 

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What Trump’s Removal of NCUA board Members Means and  Actions Now Needed

The decision yesterday to remove two of the three board members of NCUA without cause puts the future of the credit union system at grave risk.

Why an Independent Agency in 1978?

Credit unions were critical to passage of federal legislation in 1978   (12 U.S.C. 226) to convert NCUA’s single administrator status to an independent federal agency.  This new design was implemented in 1979 with a three-person board confirmed by the Senate.

A major reason for the change was that credit unions were increasingly concerned about the concentration of power and oversight by a single administrator.   They sought a  check and balance of policy priorities with a board where only two members could be from the same party.

The Credit Union System’s Future is At Stake

It was credit union experience and action that brought about this new structure. Credit unions and their members are the immediate losers in the abrupt removal leaving a single person in place. The authority of this remaining NCUA board member is at best uncertain and at worst entirely without agency to undertake regulatory actions.

An NCUA board of two can and has carried out its normal oversight and policy making decisions.   Without a legal quorum for board action the topic of whether NCUA can make any routine or extraordinary decisions is an open question. Can a one-person board issue a new charter, approve a merger, challenge a bank purchase or even hear an appeal of an exam finding?

Undermines Safety and Soundness

This uncertainty will cause both routine and extraordinary NCUA responsibilities to be doubted or mistrusted.  It will erode confidence in the agency’s ability to respond to credit union problems or crises whether singularly or systemic.

Once the public confidence in NCUA’s capacity to perform is questioned, that trust will be difficult to regain.

These firings occurred yesterday, the day before a scheduled NCUA board meeting, subsequently canceled, to present a plan to reduce the agency’s headcount and budget.  Was this action initiated by DOGE inserting itself into the agency’s operations?  What authority if any does the Chairman as a lone board member have?

An Immediate Credit Union Response

This is the third time Trump has removed democratic appointees to an independent federal agency.  In both the NLRB and FTC removals, the persons fired have filed legal challenges.  The outcome in the courts could take months, or even longer to reach a final resolution.  There appears neither a quick nor clear outcome.

However, in the credit union system there is an important option not available in these other agencies.   Credit unions have a dual chartering system.  In ten states, state charters are eligible to leave the federal system entirely and choose a cooperatively designed insurance fund for their members, namely  American Share Insurance (ASI).

An immediate priority for all system components is to expand this option.  In some states the approval can be by the state regulator, authorizing this choice.  In other states such as Michigan it would require legislation.

The time to act is now to establish more options in more states and to educate credit unions that choice is a critical.  This is one means of saving the system from a fate entirely dependent on whatever occurs at the federal level.

The Urgency is Now

Expanding options now is critical because there is a high likelihood other federal shoes will fall. The discussion of federal regulatory consolidation under Treasury is public.  OCC is now a bureau within Treasury run by a single administrator. Another effort to coordinate federal financial regulatory policy would be to have one deposit insurer, not two.

The removal of NCUA’s board members is the beginning, not the ending step in the makeover of federal credit union oversight.   DOGE’s NCUA staff cuts and budget reductions were just a prelude to force consolidation.

Speak UP and Show Up

More details about the state of board deliberations and other changes DOGE may have required would be useful.  It is important that persons seeing these events share what is the state of the agency.  What is the role of Hauptman, the lone board member?  What is the state of the agency’s exam and supervisory capability?  Have outsiders been brought in and what role are they taking?

Silence is the ally of authoritarian behavior.  Every NCUA employee took an oath of office to defend the Constitution as explained in this post, The Oath:

One purpose of the Oath of Office is to remind federal workers that they do not swear allegiance to a supervisor, an agency, a political appointee, or even to the President. The oath is to support and defend the U.S. Constitution and faithfully execute your duties. The intent is to protect the public from a government that might fall victim to political whims. 

Now is the moment  for NCUA employees who believe in the purpose of credit unions to share the facts about what is going on within the agency.  The two former board members should also speak up about recent internal events.

These firings are a direct threat to credit unions’ future. It is an immediate undermining of the safety and soundness architecture of the cooperative system.

CEO’s need to lead the charge, state the problem and mobilize members to protect their system.  This is a moment for direct action.  A time for leaders to make their views known publicly and not attempt to hand over their role to middlemen or fixers who claim connections. It is time for the people in power to see the power of the people.

Credit unions must join the “hands off” demonstrations around the country.  Show up outside NCUA’s office.   Do this often and show the media what is at stake and the willingness of people to protect their member-owned coops.

This is a fight for the future of credit unions.  The industry did not seek it, but must confront this threat. The time for action is now, not waiting to see how this might play out or for some hypothetical political solution.

Credit unions are the latest in a series of efforts by the administration to control law firms, universities, trading partners, etc.   What we’ve learned is that Trump’s first bite of the apple is never the last.

 

 

 

 

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A Statement of Belief from 1935 by Credit Union Founders

Daryl Empen. CEO of Gas and Electric Credit Union, sent me the first Annual Report of his credit union.  The three pages describe the results for members after just six months of operations in 1935.

His comment: While we are offering services today that could not have  been dreamed of in 1935, in many ways, our mission remains the same – improving the financial well-being of our members.  We are still granting loans today for these same reasons and are still focused on improving their lives. 

Sometimes, I think we make this job too complicated instead of focusing on that purpose.  Reading this brought that back into focus for me.  

I share most the typed Report because the context and accomplisments in just six months are remarkable.  The Report discusses the state of the industry in 1935,  presents multiple member benefit examples and projects an unlimited future-in the middle of the Depression. (I added subheads.)

Annual Report of the Secretary of Peoples Power Employees* CreditUnion  as of December 31, 1935  (January 13, 1936)
To the members of the Union:

On the night of May 9, 1935, a meeting was held in this auditorium  for the purpose of discussing what has already provided progressive and far-reaching steps ever taken by the employees of this company- the voluntary banding together of a group of men and women with a common interest for cooperative saving, service and profit; in other words, a credit union. . .

From that day on, your directors have worked untiringly to make this Union an outstanding success. Much credit is due to the President, Vice President and Treasurer  who have met to transact routine Union affairs and emergency business and consider old and new problems.

CUNA, League Membership and Tax Exempt

Among the more notable accomplishments of the year are the acceptance of the Union into the Credit Union National Association and Illinois State League, the exemption from Capital stock and Federal income taxes, the election of President Weise, a director of the Mississippi Valley Chapter of Credit Unions, Treasurer Dau as executive  chairman of the same organization and reduction of borrower’s insurance from 8% to 5% retroactive to October 1st.

Employees Are Benefitting

Already several employees have been released from the clutches of loan sharks, placed on a definite schedule and are fast getting back on their feet.

Others have settled long standing hospital and doctor bills at substantial savings.

Still others are saving for vacations, Xmas savings, insurance, furniture, automobiles and other wants too long to be listed, all of which, can be accomplished at considerable reduction due to elimination of installment buying.

Page 2

. . . today, there are over 3,200 Unions in operation and new ones being formed at the rate of 150 per month. The statutes of 42 states contain Credit Union laws. In Illinois alone, there are 250, Cook County leading with 126. The Tri-City area, with only a recent start already has 14.  (Ed Note: there is no reference to federal charters in these totals.)

The basic soundness of the organization is evidenced by the fact that with banks closing in large numbers, not one failure of an industrial Union mas recorded during the depression.

The movement is only now seriously getting under way and is rapidly spreading to every state in America.

The Depression

The Credit Union has definitely arrived. The question is: Has it arrived in time?

During the past 5 years, the American people have been suffering thru a depression unknown in history. We have machinery in abundance capable of providing a plentiful living for every family in America, but because this machinery is being operated under out-moded financial theories, the result is poverty in the midst of plenty.

And the result of this is a series of mass movements on the part of millions of sufferers. It is useless to point out the futility of most of these movements  such as, “share the wealth” and “soak the rich” or that they are economically unsound.

These people want positive constructive action which will result as soon as possible in definite benefits. And that, it seems to us, is the responsibility of the Credit Union.

You members now have some idea of the relation of money and credit, and our problem is to effect the distribution, not of our present small and dwindling supply of wealth, but of the plenty which we now have the capacity to produce by means of credit.

The credit Unionist can lend his influence to discourage unsound and destructive political legislation which can only result in making conditions worse.

Frankly, your directors have been somewhat puzzled at the continued refusal of some employees to join. Our work is not seasonal and with very few exceptions, there are none of us that are unable to save at least a small sum each month.

Let us look at some of the benefits that accrue to the Union member.

The most difficult step is the first, to resolve that I will have some of my salary laid away for me each month before I can spend it. Deduction is made from your paycheck, this procedure making it even easier than bank deposits.

Once formed, this habit becomes a powerful force as all habits do and before long, the small sums that formerly trickled away, mount up and, before long, the member has a balance that will really be of some benefit to him.

Safe and Sound Operations

Next, the safety of your capital. Your treasurer is bonded. An employee applies for a loan. He must furnish two cosigners, satisfactory to the committee, or collateral, At least one of the directors is personally acquainted with the applicant, we know his reputation, financial status, responsibility and habits. In fact, we know him and his circumstances far better than any bank or loan company can ever know their customers.

In addition, he makes a wage assignment, and his life is insured. The loan is repaid by pay roll deductions, a definite amount each month. And finally, the application is carefully scrutinized and must satisfy the Credit Committee that the purpose of the loan is what we term provident.  That is, the loan will be used for some purpose that will benefit the borrower.

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Already several employees have been released from the clutches of loan sharks, placed on a definite schedule and are fast getting back on their feet.

Others have settled long standing hospital and doctor bills at substantial savings

Still others are saving for vacations, Xmas savings, insurance, furniture, automobiles and other wants too long to be listed, all of which, can be accomplished at considerable reduction due to elimination of installment buying.

An Unlimited Future

The future of Credit Union functions are unlimited. Some are writing automobile insurance, organized collective buying agencies, and deal in certain types of mortgages. Legislation is now pending in Washington for the establishment of Credit Union banks scattered over the various states to act as clearing houses and care for the details and business of adjacent Unions.

Your directors feel that the Union has accomplished a real service in this company. The employee whose mind is free of financial worry is a better workman, and that which benefits the employee, benefits the company.

In a like manner, the things that benefit the company, benefit the employee. For the first time an employee can turn to his director assured of friendly considerate help in his financial problems, instead of appealing to an outside loan company who can and do, charge him as high as 42% per year.

And let me assure you that no director will ever betray a confidence. You can discuss your needs to him with the full assurance that it will never be violated.

A loan case study in the 1935 Annual Report

Consider two options. An employee decides to buy a certain article for $200.00. He can buy it on the installment plan, paying $5.00 per week 40 weeks, or he can buy it through the Credit Union.

He can buy the same article for cash and get approximately 20% off the installment price for $160.00.  He borrows $160.00 at 1% per month on balances for 40 weeks or ten months. The cost of the loan is $8.80, so this desirable article has cost him $168.80.

Buying at the rate of $4.00 per week, he pays $200.00, plus 6% for a year, so that the installment price is $212.00. The Credit Union member pays $168.80 and the non-union member pays for the same commodity from the same company $212.00. The difference is $43.20 or a total of over 20%.

The Savings Advantage

Or, place $200.in a bank. At the end of a year, they will pay you $5.03. Placed in the Union, the same amount at our present earning capacity would produce $10.00