Category: Cooperative Design

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Will NCUA’s Journey Be From Chartering a COOP Movement to a Regulatory Dead End?

What kind of financial regulator would be most effective to carry on the purpose of the credit union system stated in the FCU ACT? (see note on Congressional purpose at end)

Should the credit union system be overseen by a regulator of cooperatives or of financial institutions?

The arc of federal regulation from 1934 to today is simple.  The federal regulator evolved from the role of chartering, promoting and supervising cooperatives to just another financial supervisor safeguarding an insurance fund.

The coop design is unique in American financial options. The users are the sole owners of the service.  The intent was to create shared community resources not private wealth.  The structure was to be perpetual with the common equity always “paid forward” to benefit future generations.

Moreover, financial soundness was underwritten by  this shared purpose of borrowers and savers.  Governance was democratic–each member-owners had one vote. No proxies.

The Impact of NCUSIF On Coop Regulation

The  turning point in cooperative regulation was the 1970 passage of a federal deposit insurance (NCUSIF) option modeled after the FDIC and FSLIC.  The banking funds were created in the early 1930’s in response to the  “banking holiday” failures in the depression.   The nascent state chartered credit union movement had no such system failures.  Deposit insurance was not  part of  the FCU act passed in 1934. It wasn’t needed.

The need for the NCUSIF was much debated by credit unions in the lated 1960’s.  CUNA opposed the option arguing such an institution would eventually dominate the system’s functioning.  A new trade association, NAFCU, was formed to lobby for and pass this federal option for cooperatives.

The NCUSIF was not created because of system failures.  Rather it was a recognition that cooperatives, while different in design, were just as safe as any for-profit banking option.

As NCUSIF insurance spread, so did federal regulation mimicking other banking regulations.

From Cooperative Partner to Financial Overseer

When implementing deregulation from 1981-1985, NCUA Chairman Callahan asserted credit unions were unique.  The so-called level playing field arguments, he believed, would undermine the cooperative advantages of member-ownership.

Callahan believed regulations should promote cooperative purpose and collaborative actions.  Both tenets were key tp the financial restructure of the NCUSIF and achieving 100% credit union participation in the unique CLF’s-coop system liquidity partnership.

But the bureaucratic pull of Washington prompted later NCUA leaders to emulate the example and practices of banking regulators.  Safety and soundness, not member service, became the regulator’s mantra.

Both NCUA and credit unions sought Congressional hearing seats at the tables with the titans of America’s financial services.

Today NCUA has copied banking regulators with rules such as risk-based capital and, expanding market sources of capital.  New charters are non-existent.  Cooperative purpose is never mentioned in supervisory priorities.

NCUA oversight has fluctuated between laissez faire (let the free market decide) to embracing the administration’s political ideology from DEI to government downsizing.

The absence of any reference to coop design is that there is no protection for for member-owner rights or their collective savings.  NCUA like the banking regulators has reduced their oversight to merely offering a $250,000 payout in the event of institutional failure.

This neglect of member-owners’ rights has resulted in boards staying in power perpetually.  Owners are kept out of any governance or voting role.  Bylaws are modified with NCUA approval to prevent member initiatives.  Boards and CEO’s feel free to take a credit union’s business model and its billions in legacy assets in any direction they choose.

Transparency for cu leaders’ conduct is non-existent.  Director fiduciary duties flouted. Accountability for outcomes occurs only after a financial crisis. Then the system’s leadership shortcomings are quickly swept under the rug via mergers.

When new CEO’s arrive from outside the coop system, often former for-profit financial professionals, they bring their prior experiences with them. They act like teenagers given a new high-powered formula 1 car.  With board assent, they jump into the driver’s seat and try to see how fast they can make their new institution grow.

The NCUA’s Future

Today NCUA acts and sounds like the other banking regulators.   Credit unions applaud the Trump adminisration policy of government tear down and relaxed o exam oversight.    NCUA appears  alongside the other financial overseers in Congressional hearings, states all is well, and makes no effort to describe how the tax exempt coop system is fulfilling any public duty.

The consequence is that credit unions no longer see their organization as part of an interdependent financial system. Institutional success is celebrated versus cooperative’s  ability to create better financial solutions for those who have the least or know the least about personal finances.

Individual credit union priorities look more and more like capitalist business plans.  They attempt to acquire, not support their peers, via merger takeovers.  If that fails, just buy a bank.

With self-perpetuating board oversight, regulatory withdrawal, no transparency about transfers using tens of millions of member-owners’ capital, the cooperative system may lack the capacity for self-correction.  Industry hegemony, not cooperative purpose, becomes the institution’s endgame.

How much longer will Congress or public policy think tanks not pose the existential questions: Why does America need a financial system that emulates its competitors, but with a tax exemption?  Will NCUA become part of Treasury’s financial oversight, just like the OCC?  Why have two federally managed deposit insurance funds that provide the same function?

“It Makes No Sense:” One Analyst’s Assessment

Yesterday’s post gave a brief history of federal regulatory evolution, It  tracked the various federal governmental departments that shepard credit union’s evolution.  And subsequent events under NCUA as an independent agency. This is that author, Ancin Coolley’s  concern, about where the coop movement stands today.

 When you read credit union regulatory  history and go back to the arguments, it keeps bringing me to this point: the FDIC and other agencies did not want credit unions. And it calls to mind the question, why did they not want them? 

They did not want them because credit unions were not treated the same way as other financial institutions. They were viewed as something that drifted into a social-services posture.   

And honestly, the more I dig into the history and the legal history, the more it feels like I’m finding out Santa Claus isn’t real. The more I learn about the lack of standing for members in court, and the reality that there’s often no remedy for members against directors who effectively give away capital, the more disorienting it feels.  

It’s like there’s the reality I want to believe in, and then there’s the legal reality of what a credit union actually does.  

And what I can’t even begin to reconcile conceptually is this: credit unions want to maintain their tax exemption while also purchasing banks. In good conscience, I can’t even argue against someone who says, “How are you going to maintain your tax exemption if you’re buying a bank, when you were originally given a tax exemption for not being a bank?”   

It makes absolutely no sense.  

Editor’s Note on Cooperative Purpose:

Congress added the following language to the Federal Credit Union Act on August 7, 1998.

The text was included as part of the Congressional Findings in Section 2 of Public Law 105–219, also known as the Credit Union Membership Access Act.

This specific language was crafted to affirm the Mission and reassert that credit unions serve people of “modest means.”

The Congress finds the following:

  1. The American Credit Union movement began as a cooperative effort to serve the productive and provident credit needs of individuals of modest means.
  2. Credit unions continue to fulfill this public purpose, and current members and membership groups should not face divestiture from the financial services institution of their choice as result of recent court action.
  3. To promote thrift and credit extension, a meaningful affinity and bond among members, manifested by a commonality of routine interaction, shared and related work experiences, interests, or activities, or of an otherwise well understood sense of cohesion or identity is essential to the fulfillment of the public mission of credit unions.
  4. Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most state taxes, because they are member-owned, democratically operated, not-for-profit organizations generally managed by volunteer boards of directors and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means.
  5. Improved credit union safety and soundness provisions will enhance the public benefit that citizens receive from these cooperative financial services institutions.
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A Short History of Federal Credit Union Regulators

History matters.  It provides perspective for how we  arrived at our present circumstance.  This context can highlight critical prior assumptions.  It teaches about successes and failings.

Most critically, knowledge of the past can help identify important issues for future sustainability.

In the summary which follows, Ancin Cooley provides insight about the motivations during credit unions founding era.  And what has been lost from that generation’s experiences.

Tomorrow I address the underlying question from this history lesson: What kind of regulator is most likely to sustain an independent cooperative financial option for America?

A  Short History of Credit Union Federal Regulation

By Ancin Cooley

Did you know that between 1934 and 1970, credit unions had four different federal regulators, and none of them actually wanted the job?

Here’s the journey:

1934–1942: Farm Credit Administration
When the Federal Credit Union Act was passed, the Federal Reserve and the Treasury Department were the “logical agencies” to oversee a financial institution. Both said “Nah, we’ll pass.”

1942–1948: FDIC
During World War II, credit unions were temporarily transferred to the FDIC. But the FDIC didn’t want them either.

1948–1953: Social Security Administration
When the FDIC pushed credit unions out, they didn’t go to another financial regulator. Credit unions were placed in the Social Security Administration.

1953–1970: Department of Health, Education, and Welfare
When HEW was created, credit unions moved again.

In 1970, the NCUA was established and the NCUSIF created.

What does this tell us?

Credit unions weren’t seen as financial institutions in the same category as banks. The St. Louis Fed wrote: “Credit unions are exempt from federal taxation because Congress views them as member cooperatives and, therefore, quite different from banks and thrifts.”

But why?

Why were credit unions classified differently and given a non-profit status? Many credit unions from that era were born out of crisis. The Great Depression wasn’t an abstraction for the people who built these institutions; it was a lived experience.

From the 1929 crash through 1933, about 9,000 U.S. banks failed. Those failures resulted in approximately $1.3B in losses. (I am sure someone can convert that into today’s dollars)

If you’ve ever known someone from that generation, you know it changed them. My grandmother is 93 years old. She hid money in places we have not yet found. That era shaped how an entire generation related to trust, to institutions, and to one another. Credit unions didn’t grow from a clever marketing campaign. They grew as a community in response to a collapse of trust.

A note on where we are now.

I’ve been wondering why the norms in the credit union movement began to deteriorate about 25 to 30 years ago. I believe the early builders reached a point at which they could no longer protect their institutions.

Many of the things we are watching today would have been harder to pull off if those original guardians were still in the boardroom. I find myself often whispering to myself, “Now, you know this wouldn’t have gone like this if Mr. John were still alive.”

The people who built many of these institutions carried a lived memory of bank failures. They remembered what it felt like to lose everything. That memory did something important. It created guardrails. Because when you have experienced a trust collapse, you do not treat a cooperative as a commodity.

Next post: how the S&L crisis reshaped the credit union landscape, including the entry of bankers who both helped and harmed the movement.

Editor’s note:  I will post my response to Ancin’s insight tomorrow.

 

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Can Credit Unions Buy Their Way to Success?.

For the first 75 years of credit union history, member, share and asset growth was from internal, “organic “ business efforts versus external acquisitions.

Some of the factors requiring this approach were regulation, field of membership limits, the absence of external capital or liquidity, and the cooperative design’s  “local” advantage.

After deregulation of financial services became government policy in the 1980’s, many of these constraints were modified.  Growth options expanded. FOM regulations were broadened.  New membership strategies such as indirect lending were introduced.  Credit union leaders expanded their market ambitions.

Purchasing New Accounts

Today many credit union strategies involve both organic and external acquisition growth tactics.

This market bidding for new members is illustrated by financial institutions’ multiple offers for new checking accounts. Here are some recent cash bounties sent to me:

From an airline credit card issuer:

 As a valued  Chase customer we’re thanking you with an up to $900 offer.  Open a new Chase total Checking account and the new Chase Savings account with qualifying business activities. 

One of my credit unions emailed this offer:

Dear Charles,  

You can still earn up to $100 when you open a new Patelco Checking and Money Market account.  Here’s how.

USAA’s post card appeal had this headline; $400 Cash Bonus.  The offer:  When you apply for and open your first USAA Classic Checking account and receive a qualifying direct deposit.  Offer is nontransferable.

A new local bank, Atlantic Union, promised  a $400 welcome bonus in three easy steps.

  1. Open a checking account.
  2. Set up direct deposit.
  3. Collect you $400 bonus.

Not to be outdone, PenFed offers up to $300 for opening a new checking account with  a qualified deposit.  To receive the full $300  requires an initial $20,000  deposit.  The average daily balance must remain above this amount for five months to receive the $300.

Can Credit Unions Win These Bidding Battles?

Indirect auto loans illustrate the ultimate challenge of external asset purchases. Can these new customers  be converted to loyal members.  Or is the transacton a one and done event?

Before deregulation the credit union option was itself compelling.  Word of mouth was the most common marketing effort.  Credit union membership was thought to be a valuable benefit.

One proof of this belief is the many times members moved away from a job or their community, but chose to retain their credit union affiliation-just in case I need it.

In what some CEO’s  view as a commoditized financial services arena, the quickest way to grow is to go buy it.  These efforts include third party loan originations, purchasing individual participations, acquiring whole banks and the ever present offers to merge facilitated by golden parachutes for the selling CEO.

Is offering a better price sustainable?

Will these “bonus” pricing strategies result in long term  loyalty?

What is the Coop Competitive Advantage?

Buying growth seems easy at first.  The costs and immediate increases in size are seen.  The longer term question of whether these relationships last, is down the road.

The tactics of purchasing initial market success raises important  questions:

  • Does cooperative design, other than the federal tax exemption, give the credit unions a competitive advantage in these price/bonus competitions?
  • Does acquisition of new accounts via third parties result in new member relationships, or a temporary lift?
  • If growth via acquisition becomes an important strategic effort, does a cooperative’s internal capability for organic market efforts atrophy?

Buying growth is not a unique market capability.   It is very visible and easy.  Just call up a broker or other third party originator. The real work of relationship building just begins with the booking.

Purchasing growth is constrained by internal resources and market competition. Is attracting new members with a better price the best way to present the cooperative value advantage?

Learning from the Past

The capabilities and reputation that created a $2.3 trillion ciiperative financial system today were built on a foundation of multiple factors.  These included convenience, personal service, local familiarity and a fair price. All wrapped in values centered on collective community care.

The challenge of creating real organizational value is ever present.  The answers are not simple and often unique to a credit union’s situation and leadership skills.

The response is not to go back to a prior era or model. Rather it is a simple lesson from generations of coop success.  If an organization wants to be a credit union, then it must decide to be one.  Not perfect, but at least good.  America has plenty of banks.

P.S.  Here is a case study published by CUDaily of a credit union expansion effort based on credit union advanages: Why a California Credit Union Intro’d a New Digital Brand in Georgia.

 

 

 

 

 

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What Are Credit Union Schools Teaching?

One of the important collaborative efforts is the system of credit union professional courses.  These multi-year commitments are preparing junior staff members for leadership roles in their careers.

I received the following note from a person attending one of the oldest and largest of these programs:

I am in my third and final year at Western Credit Union Management school.  In working on my final project, I came across a past high honors project that I wanted to share with you. 
It details one larger credit union’s growth strategy through mergers and acquisitions. What is particularly interesting is how they view the Small Credit Union category, which they define as $500 million and less.
“A very desirable new market or a significant new strategic capability would need to be evident for our cedit union to consider a merger with a small credit union. Otherwise, the operational disruption would not be worth it.”
 
She attached the full project of almost 200 pages.  It is very professionally done.  Well organized, lots of data, tables and clear presentation strucure. The student’s own credit union is analyzed with a SWOT framework.  Various consultant views are offered and footnoted. 
Mergers and acquisitions are just one of five goals to try to restart the credit union’s slowing member growth.
I did not thoroughly read the entire thesis.  My question would be who is providing feedback on these major academic efforts?
For the work is filled with data and other documentation,  current in its references, and  logical in the recommendations.
I did not study all the points. It is written from an institutional perspective.  I did not see any reference to two areas: credit union system’s future as a unique alternative for members, and what parts of the consumer market are in most in need of cooperative solutions.  Growth was the goal.
The thesis is a well written document that should be used as a starting point, not a final plan of what this credit union aspires to be.  Who are the readers and evaluators for these academic exercises?
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When Music Transforms Words

The folk singer Jesse Welles and retired credit union CEO Jim Blaine are separated by two generations of lived experience.  Yet they share a vision and common mission for the country.

Each person has their own professional “lane” for implementing their commitment.  Side by side they illuminate each other’s core values.

Most credit union people of a certain era know about Jim Blaine’s career at SECU (NC).  Over five decades he built the country’s second largest credit union by not following conventional industry practice.

His two guiding principles to staff were simple:  Do the right thing and Bring us your Momma.  Folksy, yet profound.

No risk-based pricing–a member either qualified or not for the loan. No indirect lending allowing a third party to set the rate.  No frills credit cards.  Focus on real estate as the surest means to enhance member long term well-being.

He created a Warren Buffet like organization with centralized funding but local decision making and implementation,  SECU built a statewide network of ATM’s  and over 200 branches. He chartered a unique member-funded foundation supporting education, health and other community needs throughout his home market, the Tar Heel state.

He was outspoken about his approach to cooperative purpose, often challenging peers’ priorities.

“A prophet is not without honor, except in his hometown” is a biblical phrase that summarizes Jim Blaine’s most recent efforts.

For the past four years he has spoken his mind about the direction SECU’s board and senior management have taken.  His blog, SECU just Asking is plain spoken, factual, and sometimes personal when publicly challenging the credit union’s change of philosophy.

Over five decades Jim built one of the most successful cooperative financial charters in America by following one simple rule: “What’s good for the least of us, is good for all of us.”   A phrase with multiple meanings. 

The purpose of the tax exempt cooperative system is to serve a vital  segment of America’s consumers.  He described that group as: Those who have the least or know he least pay the most for financial services in America today.”  

Many peers misunderstood this approach, believing his business model was archaic, lacking innovation and missing the most important market, the A credits and well-to-do.

Enter Jesse Welles

I was listening to recent protest songs from community sings in Minneapolis, now under federal armed siege. My algorithm offered a  Woody Guthrie, Pete Seeger-style activist folk singer.

Born in 1992 in Arkansas, Jesse Welles has, over the last ten years, written hundreds of single ballads about life, politics and those left out of America’s promise.

One commentator describes his voice as sounding like burnt toast.  To which he replied, but you can still eat it.

One ballad that caught my ear was called The Poor.  The chorus has these ironical lines to support the common view that the poor just need to work a little harder: “It ain’t the banks / And it ain’t the taxes / It ain’t the payday loans and high-rent homes / And predatory fees and practices”. 

(https://www.youtube.com/watch?v=I6vjaimSK4E)

Jim Blaine is the counter example to Jesse’s satirical critique of those who blame the poor for being poor.

A Common Mission

Both men are outspoken, but grounded in the belief that change can happen. They are unconventional in their approach to their professions so are unlikely to be honored by the establishment.

Both believe in protecting the vulnerable, standing up for justice and caring for “the least of these” in our communities.   For them economic justice is moral justice.  We cannot remain silent when individuals and families are preyed upon by a system that celebrates profit as its highest priority.

These two voices illuminate a shared vision. Together they  challenge us to live into our better selves.

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A Post Every Credit Union Employee Should Read

This is a CEO’s statement  from the monthly staff update:

Our credit union is in a very commoditized business of financial services, most of our products and services can be purchased elsewhere. So our difference is you, how we treat each other and our members to truly change lives one person at a time in our community.

And then a reminder of two guiding principles:  Every person has a story-do the right thing.

Recently consultant Ancin Cooley in a LinkedIn post described why doing the right thing happens rarely to employees in a merged credit union.

His  recent blog should be posted in the employee lounge of every credit union office.  Mergers of well- run credit unions not only eliminate a local grounded financial institution.  They also end employees’ investment in their professional future.   Following is his analysis of the impact of mergers on the most important “difference makers” in every credit union.

How Credit Union Mergers Rob the Next Generation  of What Was Freely Given to the Last (Attention!!! Millennials and GenZ)

The consolidation cheerleaders talk about member impact, technology investments, and competitive positioning.

The executives advocating loudest for mergers  built careers in an industry that had room for them. They were given opportunities for CEO, CFO, and CLO roles at shops, and VP positions at institutions that no longer exist because they’ve since been absorbed. Those jobs paid mortgages, put kids through college, and built retirements.

The Ladder They Climbed Is Being Pulled Up Behind Them

Every merger eliminates leadership positions—CEO, CFO, CLO, and VPs. Two credit unions become one, and half the top roles vanish.For early-career workers, this means fewer rungs up the corporate ladder to reach for. The CEO role at that $350 million credit union that could have been theirs in fifteen years? Absorbed into a $1 billion merger. Gone. “Good luck bud…”

For mid-career professionals who’ve spent a decade building expertise, the chair they were positioning for no longer exists. They did everything right.

The “Efficiencies” Folks Celebrate Are Your Career and Your Money.

When merger advocates toast economies of scale and eliminated redundancies, translate that: they’re toasting eliminated people.
Early-career workers lose the broad exposure that builds future executives. The young professional at a $200 million credit union who might touch lending, compliance, member service, and strategy? At the merged $3 billion institution, they’re a specialist in a silo, building narrow skills with no line of sight to leadership.

Mid-career professionals find their expertise deemed “redundant” when two departments become one. One compliance officer survives. One lending director. One marketing lead. Senior professionals get offered early retirement packages or the dignity of reporting to someone who was their peer last quarter.

The Mission Is Being Sold Off by People It Already Paid

Many younger workers chose credit unions over banks because they wanted work that meant something. The idea that finance could serve people rather than extract from them. Now they watch executives who built wealth and reputation on cooperative principles abandon those principles for scale and extraction. The same leaders who gave conference speeches about “people helping people” or “Main Street Values” now give conference speeches about “competitive positioning” and “Market Forces.”

To the Millennials, Gen Z, and future Gen Alpha workers in this movement: the path is narrower than it should be. And they owe you more than a picture with a politician and the ability to “crash” an event. But the mission that drew you here is still worth fighting for, and you might be the generation that reclaims and rebuilds it.

Every Person’s Chance to Act

Every proposed merger of a sound credit union depends on the overt support or quiet acceptance of staff.  In these situations, they are the first line of defense for “doing the right thing” for members and their communities.

Remaining  obedient or quiescent as leaders plan the demise of their institutions’ integrity and future will compromise the values underpinning both personal and corporate purpose.

Speaking up is never easy.  But that is what makes a democracy work in a credit union or a country.

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Living in an Era of Golden Calves

The golden calf in biblical stories is a symbol of idolatry. In these tellings, the statue is worshipped by a people or nation that has forgotten the values they held together.  These idols include the temptations of earthly riches, political domination and worship of false gods.

Currently, Trump literally holds court with the public and press in a gilded Presidential office.

The credit union system also displays the appeal of glitter.  Every week there is a new PR release of a credit union climbing the never ending ladder of state or national asset rankings.  These steps upward are not from internal growth, but from a just  completed external acquisition.

Concerns Being Raised

Credit unions’ exemption from state and federal income tax implies an obligation of public duty.  The cooperative option was not intended as just another financial choice. But instead, an alternative to the for-profit system driven by ever greater market share and superior financial returns.

Here is an AI generated Edward Filene critique of credit unions’ tendency to adopt  banking practices.  Created by a concerned coop CEO.  (link)

(https://www.youtube.com/watch?v=3lBPV3tx_WM&t=21s)

In this time of misplaced or lost public purpose, some feel called to be truth tellers.  They  seek to transform the priorities of wayward coop activities.  Some of these credit union believers are member-owners. They call out the abandonment of member value  being replaced by  institutional glory. And the frenzied search for  more golden calf acquisitions.

They speak the truth that credit unions were formed to provide consumers a financial home that would avoid the excesses  of the for-profit sector. Today,  some coop leaders believe that to beat the competition, a credit union must become the competition.

With coops, the owner-customer design can be an unmatchable competitive advantage.  That is, until members are treated like customers  whose  relationships are routinely bought from or sold to third parties.

Truth Renews  Hope

The American cultural anthropologist Margaret Mead said: “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has.”

She emphasized that significant cultural and institutional shifts always begin with a few individuals who act as catalysts, demonstrating new behaviors and inspiring others.

Coop strength  is an example of  Mead’s observation.   A credit union’s viability is from roots planted by a small committed group and nurtured with generations of member loyalty.

Some of these member-owner voices are being raised to challenge their institution’s monopoly of corporate power, not subject to their governance.

They are raising alarms in their local press and sometimes in national media. Some concerned CEO’s are no longer willing to follow their industry’s call to be still about their objections with their predatory peers.

Standing up for Democracy

In multiple institutional pillars today (media, universities, military, business) democratic norms are under attack. Voices are reminding credit unions of their purpose– to offer each member a financial home where their “daily bread” is the priority versus an insatiable drive for growth.

Even  in the uncertainty of misdirected events these individuals are joining hands and linking arms to return the coop model to its counter-cultural economic responsibility.

Credit unions will once again be recognized as a safe place where people, even when on the edge, can find hope.

This cooperative public spirit has transformed lives and the well-being of millions. It is an option that has attracted over one hundred million Americans as member owners and billions of their savings dollars.

But will this effort to rekindle credit union purpose succeed?

Martin Luther King stated the challenge this way:  Truth when crushed to earth will rise again.  This is the credit union’s public promise, even as some bow their knee to the altars of gold.

 

 

 

 

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The Power of a Single Person

Most of us bristle a little bit when we feel our agency is really limited and there’s nothing we can do about it,

One of the potential advantages of credit union democratic governance is that each person has an equal vote on the annual election of directors and mergers which end a charter’s life.

In both cases this potential for a single member to make a difference often creates anxiety and pushback by those in power.   A current example of this fear is the reaction  by the board of SECU (NC) to former CEO Jim Blaine’s repeated critiques of the credit union’s direction and lack of transparency.

After two years of contested board elections in 2023 and 2024, SECU’s Board made sure in 2025 there would be only the number of candidates as there were vacancies, thus ending a brief span of democratic member choice.

SECU’s conduct is not alone. It is the SOP for most large credit unions.   And in mergers, the process is even more controlling as there are billions of dollars up for “change of control.”

So can one person make a dfference when all the traditional forces are aligned against democratic practice, when regulators are AWOL and the members seduced by their unrequited loyalty to their coop?

One Person’s Effort to Challenge Exploitaton

History shows again and again that one person can change the world, one event at a time.  Here is the story of Bernard Devoto as told in Garrison Keiller’sThe Writer’s Almanac from Sunday, January 11, 2015.

It’s the birthday of historian Bernard DeVoto, born in Ogden, Utah (1897). He loved the wide spaces and big skies of the West, but he felt like an outsider in his hometown — he was raised Catholic in a Mormon town, and he was too bookish and unathletic to feel comfortable there.

He studied English at Harvard. After graduation, he taught at Northwestern and then at Harvard, although he never succeeded in his goal of becoming a full professor there. He wrote a novel, The Crooked Mile (1924), and dreamed of writing the Great American Novel. Then he wrote a book on one of his literary heroes, Mark Twain, a book called Mark Twain’s America (1932). It blended literary criticism and history, and DeVoto found he had a knack for nonfiction, and especially for history.

In 1935, he began a monthly column for Harper’s, “The Easy Chair,” which he wrote until his death. He covered a huge range of topics: the evils of McCarthyism, detective novels, the Civil War, railroads, the Western landscape, the best way to make a martini, and international politics. . .

In the summer of 1946, DeVoto took a three-month road trip through theWest. He had been writing about the West on and off for years, and had just finished two books set there — a novel and a history of fur trading. He wanted to revisit the place in preparation for a book on the Lewis and Clark expedition, and he thought he would write some essays during his trip.

He was horrified by the land abuse that he discovered there. The novelist Wallace Stegner, who wrote DeVoto’s biography, said: “DeVoto went West in 1946 a historian and tourist. He came back an embattled conservationist.” Commercial interests — especially cattle grazers and big timber — were attempting to take back huge amounts of public land, and DeVoto coined a phrase to describe it: a “land grab.”

Instead of the lighter travel pieces that he intended to write, he wrote a series of essays for Harper’s criticizing the assault on natural resources and the exploitation of wilderness. He described how politicians and businesspeople were conspiring with cattle ranchers to open public lands for grazing, and how timber companies were trying to clear-cut national parks.

In one of these essays, “The West Against Itself,” DeVoto wrote: “So, at the very moment when the West is blueprinting an economy which must be based on the sustained, permanent use of its natural resources, it is also conducting an assault on those resources with the simple objective of liquidating them. The dissociation of intelligence could go no farther but there it is — and there is the West yesterday, today, and forever.”

The preservation of Western land and resources became his life’s work. DeVoto lived for just nine more years after his summer road trip, but in that time he published more than 30 essays about Western conservation. . .

The Liquidation of Public Property

I chose this eample of one person’s influence because of the many parallels with today’s credit union’s practice of exploitive mergers.

In almost all these transactions now, members are showered with promises of future benefits while their legacy heritage is taken away and given without compensation to unknown third party control.

Credit unions like the natural wildness on public lands, grow organically from the ground up.  They must start with a core group of common interest to be chartered.  Afterwards it will take a generation or two of member loyalty to become self-sufficient.

Today these merged firms with millions and billons of dollars of asset growth funded with public purpose and tax exemption. are routinely chopped down  after generations of growth and prosperity.

These naturally created dynamic organizations are broken apart for their individual pieces of market value. The member-owners who supported these “forever” institutions are left with nothing except the rhetoric of marketing and PR phrases never defined and quickly forgotten. And the financial spoils are dispersed among the arrangers.

The question remains.  In a democratic institution can one person make a difference, sound the alarm and mobilize others to oppose this predatory behavior?

I’ll give an example of one who had the tenacity to throw back the covers on mergers.  Then see who else might be willing to come forward.

 

 

 

 

 

 

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Balancing the Old With the New in 2026

When implementing NCUA’s practice of turning around problem credit unions versus liquidations or paying to  merge, the key success factor was finding experienced capable turnaround managers. One name was frequently mentioned as an example by  NCUA Regional Directors (RD) in this talent quest.   Only after leaving NCUA did I meet him.

Jeff Farver was the CEO of San Antonio Federal Credit Union (SACU), now  Credit Human, for almost 22 years–July 1990 to retirement January 2012.

In early 1990 Farver was asked by  NCUA RD John Ruffin to take over NCUA’s largest problem conserved  credit union.  By 1995 this insolvent  $650 million coop had achieved a 6% net worth.

Becoming a Problem Solver

SACU was not Jeff’s first rodeo.  In the 1970’s, he had joined a small Florida bank as comptroller just as interest rate turmoil upended traditional assumptions about investment management.  At Eglin FCU in Florida, he resolved a deeply flawed investment strategy as investment manager.

Based on this success he was hired as CEO of Chattanooga TVA FCU.  Upon arrival, total assets were earning 8% and the cost of funds was  8.25%.  The investment portfolio in 1981 was $5 million underwater due to Fed Chair Volcker’s rapid double digit increase in short term interest rates.

His success in these three previous problem situations caused NCUA’s new Region 5 RD John Ruffin to again reach out to takeover San Antonio Credit Union, the industry’s largest problem case. The credit union was $25 million insolvent with troubled business loans, fixed rate real estate loans underwater and no proactive recovery strategy.  He took 90 days to assess the situation and then negotiated a partnership with NCUA to inject a NCUSIF capital note, incentive targets and forbearance for time to implement product and business changes to restore solvency.  By yearend 1995 he had achieved his 6% net worth objective set in his workout goals with NCUA.

Recently Jeff shared thoughts from a decade of post-retirement  mentoring college business students.

I describe his advice from five decades as balancing the tried and true with the new.  A timely quest  at the beginning of the year.

A Turnaround CEO’s Learned Wisdom

The reason I bring the balanced scorecard concept  is that I do believe in balance!   If an organization and its leadership “over-plays” diversification of its customer base and takes away resources and  “pricing values” from its existing customers,  it is putting at risk the customer base that brought its current success.  

Further, the question must be answered how  diversification impacts existing customers in the short term and more importantly in the long run.    Leadership must articulate the pros and cons of growth for growth’s sake.

In 2000, SACU’s  indirect auto lending was 60% of our earning assets and 70% of gross income.   I recognized that gas price hikes or recessions could adversely impact our delinquencies, charge offs and financial workout.   Also real estate lending was a commoditized market with narrow interest spreads and Interest rate risks causing surges in demand or declines of loan volume. 

Entering a New Market

By luck I interacted with several manufactured home lenders  in trouble financially. With GNMA’s help,  SACU took over the servicing of their GNMA  loans, hired their staff and entered this new line of lending. 

Months later Jamie Dimon in the Bank One merger chose not to continue the Manufactured Home lending business. I went to Seattle and convinced 34 Western region mobile home lenders to become credit union employees.  They generated $200 million in new mobile home loans the next year.

These new business lines generated improved Interest rate spreads, allowing us to pay our existing members better savings & CD interest rates.  Moreover, our manufactured home loans averaged 200 basis points less than bank or other lenders’ interest rates.   

When I retired in 2011,  SACU had $1 billion in indirect auto loans and $1 billion in manufactured home loans.   SACU’s diversification  was a win for our member savers and  our new  MH Loan borrowers.  It is the cooperative model at its best.

Don’t Forget the Core

The key issue still today is how do mergers, expanded market  reach, bank or third party loan acquisitions, and new services provide value to existing members whose loyalty created the basis for further expansion? Without balance, credit unions could lose the relationship advantage that is the basis for their continued success. 

 

 

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A Cooperative System Vision Gap & Learning from our Past

Whether one calls the current period a time of transitions, transformation or just multiple uncertainties, there is a sense that national and credit union futures seem to be nearing a precipice.

Washington’s political divisions are heightened by increasing consumer anxiety.  Economic uncertainty is created  by the federal government’s policy shifts and attacks on opponents, ending key social programs and assaults on leading private institutions.

Trump 2.0 is not the same as the first term.  He is turning the entire executive branch into his personal fiefdom installing loyalists in every department and  agency of the federal  bureaucracy.  That is, when their functions are not being downsized to feebleness.

NCUA is no exception to Trump’s government onslaught. The lone republican board member became Chair on January 20th.   His two democratic colleagues were subsequently fired so the White House could directly control NCUA actions.  This ending of an independent agency’s leadership is now in the hands of the Trump dominated Supreme Court.

Chairman Hauptman’s term expired in August.  At the same time the agency initiated a reduction in force that led to at least 20% of staff leaving.   The agency now holds no regular board meetings.   Regulation is by rote or reptition rather than design or intent. The role of NCUA is at best cloudy and at worst, irrelevant to credit unions’ future.

The largest trade association ACU  has a new CEO, Scott Simpson, a veteran of the league system.  He is introducing himself to credit unions speaking of unity, advocacy and defending the status quo.   The credit union Defense Council (DCUC) is trying to position itself as a new national voice for the industry with daily press release postings.

With the economy and consumers both showing contradictory signals, the momentum for America’s economic outlook seems fuzzy even with record stock market highs.

In this period of transition in both public policy and AI generated business disruptions, credit unions third quarter results showed stability and resilience.  However there are multiple concerns rippling across cooperative waters as the industry’s new national leaders take over.

Symptoms of Growing Coop Fissures

  • The absence of a vision for credit unions’ unique capacity and purpose to address urgent member needs:
  • The merger frenzy based on a faulty premise, which is that  mergers are growing the movement’s  market share. Rather it is simply consolidation largely fueled by CEO ambition and in a number of instances personal greed.
  • The absence of new coop startups and the steady decline in credit union charters and local presence;
  • The exclusion of member-owners from any meaningful governance role or even awareness of democratic coop design.
  • The use of member funds to purchase whole banks often at premiums to prior market valuations.
  • The lack of credit union initiated and controlled innovations and instead relying on third party vendors for both operational orginations and enhanced member value creation.

Hope For  a Cooperative Future Vision

Those in leadership  can wait and watch.  Try to keep pace by doing more of the same.

And, hold tight until market forces or political challenges force a change of direction.

Or, create a new cooperative vision that becomes a rallying point for those concerned about current trends,

 A Lesson From the Past

Credit unions have been mired in uncertainty before.  Sometimes the confluence of external events; other times by internal shortcomings marked by grasping for false advantage.  For example the effort to convert to mutual bank charters in the first decade of this century—an option taken by over 30 credit union CEO’s, of which only one survives today.

History suggests the gift of cooperative hope is more likely to come from the passion of insiders rather than the hired experience of other industries.  These Insiders should  know cooperative history, its multiple strengths, proclaimed values and commitment to member and community wellbeing.

Moreover any “updated” vision must be fought for, not just proclaimed.   It wil require repeated articulation and conversation to define a better direction than following the status quo crowd.

Last week I posted the final video, Edition XX from NCUA’s Video Network created during the Callahan era from Oct 1981 through May 1985.   The 30 minutes is a summing up of the major internal changes that took lace during this initial period of deregulation.  Three themes stand out:  change requires will, teamwork and documented results.

But the real foundation for the successes in this final video was laid in the first film the network distributed  in cooperation with the Illinois Credit Union League: Deregulation-What Does it Really Mean?

This initial communication presented a new regulatory policy and the approach for how it would be pursued—cooperatively and in dialogue.   The panel includes the NCUA Chair and General Counsel, three credit union CEO’s and Jim Barr who was CUNA’s Washington spokesperson.

This video portrays what is required to state and implement a path of hope and progress in an era marked by uncertainty, rapid change and new leadership.

The video is an example of leadership in a cooperative system.  It is as relevant today, as when it was created over forty years ago.

Here is the link.

https://youtu.be/S09QkeNYgBU