Category: Cooperative Design

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The Big 3 Credit Unions and Member-Owner Democratic Practice

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

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

The two largest FCU’s quietly changed the required number of signatures for member nominations for the board.  In both situations the change removed the 500-signature standard bylaw and replaced it with a percentage of members.  For Navy this new signature requirement was 26,000 and for PenFed 5,800 based on their latest reported member counts.

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

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

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

Why Voting Matters for the Future of Credit Unions in America

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

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

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

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

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

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

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

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Democracy Takes Work-Especially in a Cooperative

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

President Eisenhower:

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

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

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

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

Practice Without Substance

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

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

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

Without Elections, Institutions Decay

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

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

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

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

Why Credit Union Democrative Practice Matters

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

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

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Volume 1, No. 1 — The Bridge and Credit Union Democracy

This week I explore the integral role credit unions expected to play supporting democracy in America.  Yesterday’s post presented ten principles of cooperative action during WW II when democracies united to fight fascist dictatorships.

Today I describe how this role is framed in the first  credit union publication, The Bridge.

In the Beginning

The first national credit union journal appeared in June 1924.  Called The Bridge, the lead articles included:  Postal Employees Take to Cooperative Banking and New Jersey Credit Union Law Enacted.

But most importantly in this initial edition was the Announcement box centered on the front page.  This column gave the rationale for The Bridge’s name.  It was a metaphor referring to credit union’s fundamental  purpose to promote democracy.

Below is a copy of that front page.  After the photo  is a retyped, clearer version, of this statement of credit union’s role in America’s democratic development.

                   

 

 

 

 

 

 

 

The Paramount Function

Announcement!

May we present “The Bridge!”

Other issues will appear from time to time as the development of cooperative people’s banks throughout the United States warrants.  In seventeen states—from New Hampshire in the north to Mississippi in the south and west to Oregon—there are now credit union laws.  It is the mission of the “The Bridge” to recount further credit union progress as it develops period.

Why the name “The Bridge”? Alphonse Desjardins, great disciple of Raiffeisen and pioneer in the development of cooperative banking in North America, said in his book:  “Success for the young democracies of this continent depends upon the prosperity and worth of life to the millions of working men who compose them.” 

The paramount function of any democracy is to equalize the opportunity of those people who constitute it.  The credit union is in very fact—a bridge; it may be the bridge over which the tenant farmer travels the wide gap that separates him from ownership of the soil; it may be the way that opens the great land of Opportunity to the wage worker who finds his savings the “open sesame” to broader possibilities for himself and his family.

If credit unions, when logically developed on the broadest scale, educate great numbers of our people in the management and control of money; if they result in a better citizenship; if they serve as a great practical Americanization process—the credit union system will prove to be a bridge—over which, as a people, we may travel to a more perfect, a sound and a permanent  democracy. 

Casting around for a name for this record of credit union progress–why not—“The Bridge”

June 1924, Vol. L  No. 1

 

 

 

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The Credit Union Committment to Democracy

On a visit to Seattle a week ago, I found two credit union traces.   The first was a street level branch for BECU near the Pike Street Market on 1st Avenue.

The second  was a listing of books referencing credit unions from the business and industrial section of the Seattle Public Library.  One of the books was The Fight for Economic Democracyin North America 1921-1945 by Roy Bergengren.

Published in 1952 by this co-founder (with Edward Filene) of America’s credit union system, the book tells the founding story  describing those efforts as a crusade for economic demcracy.

As the title suggests, democracy is a key theme for this post WW II cooperative history.  It is more than a movement. Credit unions are integral to America’s  democratic aspirations for equal opportunity.

A Statement of Principles

Bergengren included an example of credit union support for war bond savings drives that proclaims this larger purpose for the cooperative system.  Here is the V for victory poster with the credit union logo and the statements of purpose.

Here are the ten principles retyped for readability.  Some are war related, but others much broader for credit union’s role with members and their communities (emphasis added).

THIS CREDIT UNION HAS ENLISTED FOR DEMOCRACY

  1. Our first objective is to win the war.
  2. We will encourage and promote thrift and the saving of money as a basic personal war service.
  3. We will encourage and promote regular saving by our members and families for security and the future.
  4. We will make loans to foster the growth of stability in our community.
  5. We will urge members to buy war savings stamps and bonds regularly.
  6. We will keep faith with the requirements of the community, state and nation in all our practices and policies.
  7. We will supply our members immediately savings that otherwise might go into channels that would drain the war effort.
  8. We will keep our members mindful that saving, with wise use of the resulting credit, will help shorten the war.
  9. We will keep the records of our progress clear, complete and available.

10.We will maintain the existing democratic character of our credit union and apply the lessons we are learning daily to our postwar democracy.

Today’s Credit Unions

Seventy-five years on, are credit unions living up to the legacy described by Bergengren and passed forward to today’s member-owners?  Is democratic practice described in this statement still a guiding principle?   Most critically, if not, what governance process has replaced it?

As demonstrated this past weekend, many believe America’s political future is at risk.  Can credit unions in their cooperative way show their commitment to maintain the existing democratic character of our credit union and apply the lessons we are learning daily to our  democracy?  

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Americans Celebrate their Democarcy

Seeing and participating publicly  in community creates hope, especially around shared values.

Common purpose was on full display this past weekend. Nationwide people  exercised their rights of self-expression and assembly supporting democracy.

These principles  are also the foundation for cooperative credit unions.  The movement claims over 100 million members and democratic governance.  Are these assertions still true?  Would members show their support as in these weekend scenes from the DC area?

The Young

And old

Not his first rodeo

Humor

And costumes

No sign, just noise

Brevity

Fpr all Americans

Real conerns

A candidate for 2028 whose appeal is truth

A democratic harvest festival for fall.

How does your credit union celebrate its democratic foundation?

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Two Democratic Movement Events

Yesterday I spent several hours in two exercises with organizations founded on democratic principles.  The first was virtual, watching the Annual Meeting of State Employees NC. The second was in person, a participatory exercise for a much larger political event this weekend.

The Coop’s Annual Meeting

The theme. I believe,  of the two-hour credit union event was The SECU Difference.  The first speaker was the parliamentarian who announced authoritatively that the meeting would be under the latest version of Robert’s Rules of Order.

This was followed by the Chairman’s speech, a SECU foundation report and video and CEO Leigh Brady’s summary of the credit union’s performance for the fiscal year ending June 30.   All presentations were shown in a single, stationary camera frame, with no views of the audience or other members on stage.  Brady’s speech used a split screen when she showing slides to highlight numbers and goals.

The nominating committee chair reported that the number of candidates approved for the members’ vote just equaled the number of vacancies.  Therefore no action by members was necessary.  This prior board selection was approved by acclamation in contrast to the previous two years where there had been contests for all  open board positions.

The  President’s Q&A

The final hour was CEO Brady answering questions submitted in advance and read by an employee.  Up to this point every speech and action was fully scripted and  presented as done events with no member input.

So one would hope the members’ queries might be a bit more spontaneous and informative about The SECU Difference.   In short an opportunity for a CEO to show her “chops” that is the grasp of her role and understanding of  issues on members’ minds.

And the member concerns were plentiful and seemed candid even as grouped into common issues.

  • What is the credit union doing to help members feeling financial pressure?
  • Why are you so hard on loan aoolications?
  • Any changes planned to the Field of Membership?
  • Will SECU seek mergers?
  • When will small business loans be available?
  • Will fixed rate mortgages be offered, not just variable?
  • What is her outlook for interest rates?
  • How will the changes at the federal level affect credit unions?
  • When will the problems with the outsourcing vendor managing excrow accounts be fixed? etc.

The questions expressed real member concerns and experiences.  However every question received a written response of three to four sentences, prepared in advance, with little insight or empathy expressed about the topic.  Most replies referenced a process the member should follow if they had a problem, eg. contact your . . .

My take away: this was a 100% scripted event to conduct a required legal activity with no substance or owber interaction wanted.  And especially no live member involvement as in recent meetings.

The emerging SECU Difference is that the credit union is striving to be just like every other large credit union in both performance and example.   Some of the CEO’s accomplishments  include the replacement of over 1,000 ATMs, the installation of digital signage n the branches and the introduction of two new credit card options: a reward and a cash- back choice.  There will be a core conversion but that will take at least three years to complete.

The prior offerings that SECU created within the credit union structure including the life insurance company, the investment broker license, the real estate management company and the trust services were mentioned, but no performance details provided.   It is unclear if SECU still offers its ATMs without surcharges for non-members.  It has stopped the income tax service and ended the operational support ties with both Latino and Civic credit unions.

SECU’s financial performance is stable and it reiterated its commitment to operate branches in all 100 NC counties and focus the foundation’s resources on non profits throughout the state.  So the credit union may have refocused on its roots versus more expansive ambitions contemplated several years earlier.

What is different now is that SECU sounds and looks like virtually every other large credit union.  That’s neither good nor bad, unless you believe  focusing on creating member value options not readily available  elsewhere was the purpose of a coop.

North Carolina is one of the most attractive  states for new bank investment and branch expansion (after Texas and Florida).   Will not having a strategic difference, other than a tax exemption, be a sufficient strategy?  Time will tell.

Preparing to Participate in Democracy

The second two-hour event was a group meeting to discuss how individuals can become more engaged in influencing current political issues. It was followed by a sign-making, pizza-fueled party at a local church’s social hall. About 25 people gathered to learn and prepared to participate in the coming Saturday’s No Kings rallies around the country.

Seeing the Difference in Democratic Practice.

 

Our Legacies

What will our children and their children inherit from our democratic organizations’ efforts today?

 

 

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A Unique Beginning, But Is Now the End?

In March 1985 CUNA filed a friend of the court brief to support the newly chartered Local Government Employees FCU.   The charter date May 23, 1983.  The North Carolina Bankers Association filed suit in 1984 saying the FOM violated the FCU Act.

As reported in March 1985 issue of Credit Union Magazine (page 25) the suit was filed after the state Supreme Court ruled that State Employees CU (SECU) could not expand its FOM to county and municipal governments.

CUNA argued that “NCUA has statutory authority under the FCU Act to interpret the common bond provisions of the Act, that its interpretation is consistent with the legislative history and legal precedent and that the State Supreme Court ruling against SECU is inapplicable in this case.” 

Local Government FCU won.  It became an operational partner with SECU providing back office and branch support.  The two grew side by side for over four decades.  Local Government had its own board and began to diversify from total integration with SECU, ultimately founding a digital only charter, Civic FCU , to expand its virtual presence and business options.

After Maurice Smith retired as CEO of Local Governement, the new leadership began exploring other options.  SECU’s board may or may not have made a merger overture to the new LGEFCU CEO.  It depends on whom you ask. The upshot was the Local Government merged with its much smaller digital dopplinger June 1, 2025 , kept the Civic name and then proceeded to end its operational dependence on SECU.  No longer were Civic members being served through SECU branches after forty years of having access.

The Beginning of an End?

As the newly named Civic FCU began its independent existence, the transition has not been easy as noted in its July 24 website post. (link)

As it tries to build out its own delivery system the credit union has reported negative net income for the 2023 and 2024 yearends.   But the losses have begun to hemorrhage at June 30, 2025 post SECU separation.

In every critical financial and operational indicator, Civic is going backwards.  It reported a loss of $24.8 million versus a $9.2 million positive gain while working with SECU in  2024.  Compared to June 2024 balances, shares have declined by almost $600 million to $2.9 billion; members have gone from 407,926 to 380,898 with loan originations (-47.3%)and total loans both declining.

Civic has borrowed $320 million at June 2025 versus just $80 million one year earlier.  It is bolstering its net worth ratio with $52 million of subordinated debt.  Its total assets have declined from just over $4.0 billion to $3.66 in the first six months of this year.

The only increase has been in employee headcount going from 319 to 431 since 2024 yearend as the credit union opened at least ten new branches.

How will this story unfold– a new era or is it the beginning of the end?  Civic In its original incarnation was an example of operational, legal and cooperative ingenuity.   It succeeded in expanding credit union services by showing the power of dual chartering-a state charter in essence sponsoring  a de novo federal one.

Today that spirit has been lost.  Civic is struggling to just become another traditional credit union in a state with intense financial competition.  This strategy is using up the financial, reputational goodwill, and cooperative legacy that created a unique solution for serving their members.   Will the CEO and board find their way back to creating special value for their member-owners who seem increasingly skeptical of this independence turn?

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Federal Government Shuts Down-The Importance of Options

In this latest test of political masculinity in Washington DC, the federal government has shut down.

NCUA says it is still open for business.  As evidence  the agency  reissued this guidance from over 14 years ago:

11-CU-05 / April 2011
Planning and Preparedness for a Potential Government Shutdown

This  test of political will and messaging on both sides has an open-ended feeling about it.  No one knows for how long or at what cost this standoff will continue.

This event and its aftermaths will only add to the many economic, financial and consumer uncertainties now infecting future outcomes.

This is not the first era of credit union’s navigating broad events outside their control. Recalling previous periods of change can remind that one of the most useful responses is to have options–not merely  hunker down to weather the storms.

When Options Matter

The headline reads:  Federal Credit Unions Eyeing State Charters as Rate Ceiling Hurts. It is from the Business & Finance section of the January 18, 1980 edition of the Washington Star newspaper.

The opening paragraphs:

Some federally chartered credit unions are trying to switch to state charters because the government’s 12 percent interest rate ceiling is shutting down their loan business. . .

In the last year, the 12 percent ceiling on loans has either shut down lending at some credit unions or generally restricted granting of loans in others.

Energizing the Options-NOW

Leadership is the art of changing before you have to.  The Trump administration’s one consistent theme is disruption, if not the destruction, of traditional government functions.

Recently in an NCUA board meeting the single member Kyle Hauptman suggested that it was possible the agency might have no board members in the future.

Whether that was just a hypothetical musing or confirming his interest in another government position is unknown.

But assume that scenario.  No board at NCUA.  What would the administration do?  What it has done with other vacancies, appoint an “acting Chairman” likely from Treasury.  And then begin a process of assimilation like the OCC under that Department for the agency’s future.

Just one of many possibilities created when the status quo is not longer as political checks and balances are completely gone.

To protect the independence, integrity and unique role of credit unions, it may be necessary to go back to where the movement started and gained its credibility–the state chartered system.

State regulators (NASCUS), state insurance options, trade associations and every credit union, whether state or federal, should now be assessing the ability of the states to be their primary regulatory choice.

It is critical to reinvigorate the state chartering system as a real option as the federal government and NCUA seem to be careening away from any stable leadership and certain future.

Credit unions created the dual chartering system that has evolved into serving tens of milions owners.  It may end up being their best hope for the future.  That is just one history lesson from the 1980’s.

 

 

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Serving Multiple Masters

Jim Blaine’s blog SECU-Just Asking!  has continued almost daily for over four years.

His blogs have focused on SECU’s changes of policy, norms and practices which he and Mike Lord, his successor, developed over four decades.

These changes of direction included potential mergers, ending the partnership with Local Government FCU, considering business lending and expansion of the FOM.  But his early and most strident criticism was the implementation of risk based pricing on consumer loans.  The prior practice was to charge each member the same interest rate on loans of similar maturity independent of the members’ credit score.

Jim then exercised the owner’s option to recruit members who were open to his point of view to run for open board seats at the annual meeting.  The first effort was successful in that all three member-nominated candidates won over the board’s chosen.

But since that first success the board has enacted bylaw and other procedures to make it increasingly difficult for independent candidates to run–and then eliminating any “live” member participation at the owners’ annual meeting.

Jim’s SECU blog is sometimes caustic and personal.  But most often he tries to present his policy concerns with facts, logic, SECU’s experience, and occasionally referencing other credit unions.

Creating a Unicorn

He believed that long term success depended on creating unique value through  innovation rather than following conventional wisdom or practice.

He would reference the unicorn as a standard for differentiation–mythical or real.

The Basic Question Animating His Commentary

Recently Jim began a series of blogs on SECU’s use of the the 30-year mortgage as the industry standard for home lending.  A practice that includes periodic sales of those loans in the secondary market to minimize ALM risk.

This analysis began on September 18 with a blog titled: SECU “Reinventing The Wheel” With 1930’s “New/New” Mortgage Model.

Subsequent posts have demonstrated the advantage of ARMS for members in many circumstances, but not all.  You can read his follow on daily analysis at the site.

What’s At Stake?

I chose this issue to illustrate what I see as Jim’s basic concern with the many changes suggested and introduced by his successors over the past four years.  His critique is more fundamental than a difference of business judgment.

At the core is a profound  philosophical difference in what it means to be a cooperative.

Jim’s believes the credit union  is owned and exists strictly to serve the best interests of the members.  The most important corollary is the coop’s loyalties cannot be divided between other stakeholders and their business values.  Especially when choosing operational partners, interacting with regulators or even working with other credit unions.

Reading his critique of the industry standard of the 30 year mortgage, this concern comes through loud and clear.  Yes, many persons believe and have been schooled to think that this is the optimum choice when it may not or would not be the best option.

For this is a product designed, facilitated and controlled by two quasi-governmental entities  Fannie and Freddie.  They determine what is best for consumers and their financial duopoly, not for the  consumer requesting the loan.

When one looks at his other critiques, they often ask a basic question, Why is this action, change, or initiative in the members’ best interest?

What is occuring at SECU and many other credit unions is that industry stature and growth  are the primary drivers of change.   We see this reflected in mergers of long-serving, healthy independent credit unions, the buying of banks and outside businesses.  Most critically this disdain for members well being is demonstrated in the  elimination of any owner role in the election or other involvment at their annual meeting.

The coop model has been increasingly hijacked by leaders who inherited generations of member created financial wealth that they presume is now theirs to use as they alone determine.

One of the oldest lessons from all faith traditions is that a person cannot worship both God and mammon.  A number of today’s credit unions have given up on honoring members’ interest as the highest good.  Instead their goal is to become an industry asset leader, to paraphrase a recent CEO’s defense of mergers.

Or, as explained by the $9.0 billion Community America’s CEO Lisa Gitner (Kansas) in proposing a merger with the $3.5 billion Unify Financial Credit Union in Allen Texas:  “Now, we have an opportunity to expand our reach and create more access to CommunityAmerica for you, your families, and even more people across the country. I’ve always led CommunityAmerica with goals that are defined by how many people we can help–not by how much revenue we can generate. That is the driving force behind a transformative milestone in our credit union’s history–and the reason I am writing to you.”

Or to put the issue more bluntly, what consumer or member is going to choose this credit union because it will now “have a presence in 18 states and 22 markets, with branches in Arkansas, California, Nevada, Tennessee and Texas?”