Category: Cooperative Design

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The Unmatchable Competitive Advantage

Recently  legal counsel  Henry Meier posted an article outlining his reasons for the decline of personal customer service in many retail organizations. His title The Demise of Customer Service and What It Means for Your Credit Union is a thoughtful analysis.

But  what does effective customer service look like?  Is  it just a process of smiling and using the member’s name when they enter the credit union?  Following are examples of experiences these members will never forget.  They were included in the CEO’s monthly report to staff.

An Impact Maker

Destiny referred two members to our partners at Trinity Debt Management. Trinity specializes in negotiating with credit card companies (think Capital One, Bank of America, etc.) on behalf of individuals who may be over their heads in credit card debt. They can make a big impact in the financial lives of our members.  Here are the two stories..

Destiny made a referral to Trinity for a member that owed $5,230 on two different cards. The original payment was $160 with only $73 going to the principal at 20% interest rate. The new payment is $15 with $123 going to the principal with the new interest rate of 7.45%! The member will save over $600!

A second member had four different credit cards with a balance of $6,122. The original payment amount was $256/month, with only $104 going to the principal at 29.63% interest. The new payment is $173 with $129 of that going to the principal. The interest is now only 9.33% saving nearly  $1,400.

Way to go Destiny!

Why Service Works in a Digital Era

Saving members money is certainly a memorable service.  But  Meier’s  article provides several reasons why this personal service is no longer the preferred business model.

Somewhere along the way, customer service became a necessary evil rather than a means of helping to build brand loyalty. Part of this trend reflects the digitalization of commerce. . .

But I’m afraid that the demise of customer service also reflects a more troubling trend, which I believe is a direct result of the rise of smartphone culture and the aftereffects of the pandemic. First, it has become too easy not to talk to each other. . .

Meier’s Credit Union Takeaway

Customer service is a lost art that has become so conspicuous that in its absence, now more than ever, it can be a differentiator for credit unions that continue to cling to the antiquated notion that customers should be treated with respect and dignity in return for giving businesses their money.

Here is my operational takeaway, no matter how good your credit union’s apps or bots become or how informative your website is: Avoid the trap of thinking of your customers as inconveniences.

Communicating with Staff

I could not help but note two other notes also in this CEO’s staff update.

The Call for Candidates for the 2025 Board of Director elections resulted in 11 candidates applying. The Board Governance Committee is in the process of constructing the ballot.

Could there be a connection between  service and actual board elections by members?

The conforming loan limit is the maximum amount of money a homebuyer can borrow using a conventional mortgage that’s eligible for purchase by Fannie Mae and Freddie Mac and is increasing from $766,550 to $806,500 in 2025.

Just one example from many of how this CEO informs staff about the political, competitive and business context in which they operate.

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A Lesson from the Past: Could NCUA Be Reorganized Away?

While credit unions focus on the threat of federal taxation, there is another event that could end the independent cooperative system.  To understand how governmental agencies are reorganized, it is useful to review what happened to the separate S&L industry after a decade long series of industry and regulatory failings.

From an Inspector General Report dated March 2012: Title III of the Dodd-Frank Act sets forth provisions to address problems and concerns in the multiple agency financial regulatory system by abolishing OTS and transferring its powers and authorities to the FRB, FDIC, and OCC as of July 21, 2011 .

All OTS functions relating to federal savings associations, all OTS rulemaking authority for federal and state savings associations, and the majority of OTS employees transferred to OCC; OTS’s supervisory responsibility for state-chartered savings associations and OTS employees to support these responsibilities transferred to FDIC; and OTS’s authority for consolidated supervision of savings and loan holding companies and their non-depository subsidiaries transferred to FRB.

Prior to this 2011 transfer of supervision, chartering and examination, the separate FSLIC insurance fund had been merged into the FDIC in two steps.  The FSLIC was abolished in August 1989 and replaced by the Resolution Trust Corporation (RTC). On December 31, 1995, the RTC was merged into the FDIC which became the sole deposit insurer for all thrift institutions.

The Presidential Transition Center describes one surviving regulator’s situation today: “The OCC is one of eight Treasury bureaus and has approximately 3,850 total employees. Headquartered in Washington, D.C. It has four district offices and a London office that supervises international activities of national banks. Operations are funded primarily by assessments on national banks and federal savings associations.”

Current numbers under OCC responsibility are  approximately 1.500  national banks and federal savings associations and 50 federal branches and agencies of foreign banks.

The administrative head, the Comptroller, is nominated  by the President to a five year term and confirmed by the Senate.

As of mid-2024 there were 556 surviving savings institutions.  There was no single regulator however. Supervisory oversight of their $1.2 trillion total assets was divided among the OCC-242, the FDIC- 278 and the Federal Reserve-36.

An  independent consolidated thrift industry does not exist today.  Depending on each institution’s charter history and scope of operations, regulatory oversight is divided among the three federal banking agencies.

The Relevance of History

A goal of the Trump administration is greater governmental efficiency. Combining regulatory agencies is not a new idea. Merging the cooperatively designed NCUSIF into the FDIC, closing the unused  CLF and transferring  chartering and supervision to a new Treasury bureau would seem a reasonable proposal-for some.

A New North Star: Faster Alone, Farther Together

How might a single OCC administrator view this possibility?  The following is from an exit interview with the acting OCC head during the Biden administration:

Michael Hsu, a longtime bank supervisor and former top Fed staffer, threw himself into what he describes as a dream job: running an agency full of examiners. The OCC chief was at the table as officials managed through a regional banking crisis and a crypto crash.

MH: I made safeguarding trust the North Star for all that we were doing…I feel good about what we’ve done.

I’m most interested in long-term, durable wins. I’ve been in government for 20 years, over 20 years doing this stuff. There’s nothing more frustrating than this kind of fleeting, pendulum-swing of announcements. . .

There’s a saying: Faster alone, farther together. I say it to my staff all the time, which is frustrating, because sometimes we have to slow down…But if you just do it alone, you can get the quick win, but then the next guy is just going to undo the quick win.

Responding to a Reorganization Review

To counter the inevitable suggestions for more coordinated financial regulation, the so-called level playing field, requires rethinking what is being communicated at every level about credit unions today.

Some areas for messaging might include:

  • An NCUA led by informed and articulate leaders presenting the contributions and role of credit unions and cooperative design to the pubic and Congress;
  • An industry performing with stable and successful financials capable of responding to ever-changing markets;
  • Meeting public and individual interest in and demand for cooperative charters to lift up local groups and communities;
  • Daily examples of member-owner benefit that rises above traditional service and product options from for-profit providers;
  • Leadership at all levels communicating the advantages of cooperative design. A former NCUA executive director once summarized credit union’s purpose with the phrase:  “it’s the member, stupid.”

Much of today’s credit union commentary reads and sounds like all the other lobbying and jockeying with a new administration.  Protect the status quo.  Align one’s vision and “asks” with the incoming administration’s priorities.

That apprach may be smart politics.  But credit unions did not succeed by preserving the status quo.   What will their role be in responding to the numerous areas of unmet member needs and expectations?  That response will position NCUA and credit unions as leaders for greater contribtions or, if not, as a part of  governmental policy that needs rethinking.

 

 

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Honoring our Cooperative Heritage

A June 26, 1984 gathering of “Old Timers:” current NCUA board members, prior Administrators, past General Counsels and senior staff celebrate the 50th anniversary of the passage of the Federal Credit Union Act.

Seated  left to right: Deane Gannon, Joe Blomgren, Richard Walch and Bernard Snelick.

Standing left to right: Joe Bellenghi, Austin Montgomery, Fred Hayden, P.A. Mack, Ed Callahan, Elizabeth Burkhart, General Herman Nickerson and John Otsby.

A statement of cooperative enterprise from a church’s bulletin board

LEGACY

All of us are indebted to the past,

to those who precede us.

We drink from wells we have not dug.

We enjoy liberties that we have not won.

We share faith whose foundations we have not laid.

 

At the same time,

We are seeds of the future,

for those who succeed us.

 

We dream and envision

and set things in motion.

The fruition of our decisions

will be known only to others,

whom we wll not meet.

 

We are called to partner in faith

with those who have gone before us

and to offer the best

that we have to give

to those who will follow.

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Reflections Entering 2025

Some individuals believe leadership is about the spirit of the poem Invictus:  that I am the master of my fate and the captain of my soul. 

The majority, I believe, understand our future will more likely be shaped by communities and groups with which we participate, professionally and voluntarily.

The following is a selection of issues that we will  encounter in the year at hand. In contrast to the certainty of Invictus, management guru Peter Drucker cautions:  “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window. ”

Success May Look Boring

I start with an observation by banking consultant John Maxfield:  Banking is a sport of unforced error. The harder one tries the worse one performs.

Tennis.

Ping pong.

Don’t be too ambitious.

Credit Union Leaders Out of Touch?

Outlining vital missions is the job of leadership.   But this skill does not necessarily come with those in positions of authority.  Consultant Ancin Cooley described one industry challenge:

A core question is about advocacy in our movement: Who are we really advocating for? If we claim to represent the interests of members, why does it so often feel like so much public energy is spent protecting interests that don’t align with members’?

So, should we be out in front of the overdraft fight or supporting legislation that limits corporate ownership of single-family homes? The response you get from some folks is often very telling. I often wonder who is actually making these decisions for the credit union movement because the direction we are going seems out of touch with our members and the communities we serve.

A good example to understand Cooley’s concern is the debate on credit card fees.  This article clearly outlines the conflicting positions credit unions must balance for members.  One of the author’s observations:  “Nobody ever got rich through credit-card rewards, yet lives have been ruined due to credit-card debt.”

Innovative ideas and compliance mandates cannot create the kind of priorities that clearly define credit union’s unique role in the American economy.  That can only come from persons who care deeply about their members’ future and financial lives.  When leaders combine both mind and heart in their roles, it may be possible for coops to discover possibilities  never imagined before,

The Loosening of Social Norms-Culturally and Politically  (by David  Kaiser, American Historian)

“From Shakespeare: “The fault, dear Brutus, was not in our stars, but in ourselves.”  So it is again.  What my generation has done was only human.  The self-restraint which, as the Founders realized, was essential to make the American experiment work, had weighed upon too many generations for too long. 

“It could not, human nature being what it is, endure indefinitely, and it didn’t.  It had indeed gone too far in some ways, and humanity has benefited from loosening some of those restraints. 

“Now it will fall to future generations to re-establish some of those restraints and enable us to live together and solve new problems in the large, cooperative communities which their vast numbers now need to survive.” 

The Proper Use of Artificial Intelligence (AI)

What if AI is unleashed and never quite controlled — not in the sense of a robotic takeover but, as Harvard law professor Jonathan Zittrain puts it, as a new form of asbestos: dangerous, everywhere and hard to get rid of.  

Trump Administration: Uncertainty about Everything

( Analysis from  Kellogg Insight, Northwestern University)

Two months have passed since the election and the policy landscape under a second Trump presidency remains as uncertain as ever. We suspect that the Republican-controlled Congress will squeeze some savings out of the budget, but not enough to have a material impact on economic growth 

Economists generally view innovation as the main long-term contributor to living standards, as new ideas make people more productive and richer, freeing up time to innovate anew. But there is a second strand of thinking in the economic growth literature, and it holds that political institutions matter most of all.

Peter Thiel famously said, “We were promised flying cars; we got 140 characters.” With crypto we were promised DAOs and smart contracts; we got $100,000 Bitcoin.  

Technical progress desperately needs to be matched by social progress that increases trust and delivers better decision-making — from neighborhoods to boardrooms to relations between heads of state.

The Outlook for Interest Rates

How will markets perceive the growing burden of national deficits and debt?

From the Rising Burden of US Government  Debt

Federal Debt as a Percentage of Gross Domestic Product

From Bloomberg Forecasts:  Hopes that the Federal Reserve would keep up a swift pace of interest-rate cuts have dwindled. That means stocks and US consumers could face mounting pressure, and borrowing costs could remain higher for longer.

An Environmental Change That Aligns with Credit Unions?

From: Addison Del Mastro on Bringing Back America’s Small Cities and Towns

In last year’s predictions roundup, I predicted that 2024 would see the housing crisis, and urban policy more generally, become more of a mainstream issue. Of course, that didn’t happen all at once, but I feel pretty good about the trajectory of these issues’ salience.

This year, I’m thinking about a laterally related issue that may have the wind at its back: the question of economic revitalization in small cities and towns.

However much (or little) the incoming administration may do in terms of housing affordability or lifting the fortunes of deindustrialized or “forgotten” places, the hope that they might do something about it was certainly a factor in Donald Trump’s victory. And a lot of small cities and towns are seeing new construction in their old downtowns for the first time in decades.  

The eye-watering expense of housing in the biggest metro areas, the rising appreciation for classic urban patterns and the sense that perhaps we owe something to places that have lost out to globalization, may all combine to create a real movement or effort behind bringing back America’s intact but battered small old cities and towns.

(From Discourse)

 

 

 

 

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A Plea for Patelco:  Seek Member Paraticipation, Not Proxies

Yesterday I received the following email signed by Patelco’s CEO Erin Mendez.  It read in part:

Dear Charles,

As part of a member-owned credit union, you benefit from our commitment to your financial wellness. Our volunteer Board of Directors helps guide the credit union – and you can allow them to vote on your behalf, making decisions to benefit you. Our Board of Directors and senior leadership work together to guide Patelco and provide the best service and benefits for you.

To help things run smoothly, we use proxies, which give authority for the Board to represent your interests when they vote. (A proxy is a person you designate to vote for you at meetings. By designating a proxy, you allow that person – in this case, a qualified member of our Board of Directors – to cast votes on your behalf.)

Update Your Proxy Today  

Clicking the update proxy link brings the following instructions:

Updating your proxy only takes a few seconds and remains in effect for three years. By updating, you will:

  • Have your vote represented with no need to attend meetings
  • Provide authority to our member-centric Board of Directors
  • Allow qualified business people to look out for your financial interests, and those of all members

Your current proxy expiration date is 10/11/2023

My Concern with This Request

The email was sent from  a no-reply@email.patelco address. This is a one-way message and recipients could not respond to the CEO’s signed request.  Therefore I am taking this public route to voice my concerns about members transferring their basic franchise responsibility to incumbent directors.

Proxy voting is prohibited for federal credit unions.  It eliminates the concept of the member-owners democratically (one-member, one-vote) electing their representatives.  While a small number of states, like California, permit proxy voting in board elections, these statutes were passed before the 1934 Federal Credit union Act was in place.  These initial coop governance models were lifted from existing mutual savings statutes that permitted proxies.

Proxies give existing leadership who already control the nomination process and the candidates selected, absolute control over director choice. Instead of empowering members, proxies further entrench existing directors. The process removes  member-owners from any meaningful role in choosing their leaders.  The unique democratic design of credit unions is rendered meaningless. Proxies shield directors from accountability to the coop’s owners via elections.

The Opportunity of the Annual Member Meeting

The annual meeting should be a celebration of member-ownership and institutional progress.  Owner participation should be encouraged.  Member voting is one of the ways this engagement is meaningful, not just a coronation. The second largest credit union in the country SECU NC has demonstrated that individual member voting is feasible in even in the largest coops.

Voting is a fundamental right of ownership.  Credit unions should be leading examples of democratic governance.  As the general public feels increasingly distrustful of elections and democratic processes for public institutions, credit unions should be an example of how this form of governance works. It can function well even when it comes to the management of their most critical matters of personal finance.

In the last several years Patelco has expanded aspects of its annual meeting agenda to encourage member engagement. Last year there was an extended Q&A with the Chair and staff responding to pre-submitted questions.  The prior year CEO Mendez prepared a lengthy live presentation distinguishing Patelco’s liquidity and funding strategies from the recent Silicon Valley and other bank failures.

In 2024 Patelco suffered a major cyber attack. Some member services were limited for weeks. Much time and resources were required to stabilize the situation.  Direct, open conversations with members at the Annual Meeting about this and other performance challenges are a way of sustaining member-owner confidence.

More importantly member enthusiasm for their coop is enhanced if the meeting includes both business and celebratory events. This gives directors the chance to connect with and be seen by members—not just spectators watching scripted formalities by the Chair presiding over a required agenda.

An Alternative Communication Approach

Rather than requesting members hand over their most important ownership role to the existing board, why not instead survey members about their experiences at the credit union?   Give them the opportunity to become involved, to raise their issues (e.g.why is my HSA account dividend only .25%) and to encourage thoughtful engagement and attendance at the meeting.

A brief survey would show respect for members’ opinions, create interest in the upcoming meeting, and promote the cooperative difference of member-ownership.

The credit union advantage is the capacity to create long standing member ties. Credit unions should welcome participation. It would educate the owners about the credit union’s performance and their critical role in its success.

In brief: Drop the proxy solicitation.  Seek member input.  Demonstrate the credit union democratic governance model in action.

A closing suggestion: Please include your direct contact information in these kinds of member communications to show your openness to hearing our point of view to your message.

 

 

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Form Follows Function Even in Credit Unions

A principle of both internal and landscape architectural design is that “form follows function.” The concept was developed by Louis Sullivan, who used the phrase when he designed the Wainwright building in Chicago.  It was utilitarian in design reflecting the office work that would take place within.

Examples of this premise can be found in numerous areas of biological evolution:

  • Coral reefs, which protect other species from ocean waves and currents
  • Bears, which have sharp, curved claws to help them catch fish
  • Walruses, which have blubber to keep them warm
  • Giraffes, which have long necks to reach leaves on tall trees

More to the point, credit union organizations are subject to this same evolutionary  principle. The member owned, self-funded, locally focused, democratically elected leadership reflected the founding purpose of a financial cooperative.  That is to combine individuals’ resources to assist those left behind or preyed upon by existing consumer options.

This special economic focus on those on life’s financial margins was supported politically with a blanket exemption from federal taxation.  Credit unions were seen as an example of doing good for communities and groups rather than rewarding institutional profit and private ownership.

Today with abundant financial choices for almost all levels of society, the original purpose seems somewhat muted.  The middle class of employed workers is doing well. Those with  home ownership and savings in ever rising markets, even better.  Serving those left behind is hard.  These groups today are often the focus of special governmental or nonprofit programs

What happens to credit union design when the original function, or calling, is changed by market forces?

As in many other areas of life, the form changes as the focus of an organization evolves to serve all-comers not just those left behind by America’s promise of opportunity.  The previous cooperative design elements are replaced by institutional priorities of growth, increased marketplace visibility and reach.  These ambitions are driven by CEO’s and boards who inherited a legacy of financial resources held in common, but who chose to pivot away from traditional community and member investments.

This evolution places profits before people, thus turning upside down the cooperative priority.  Growth comes from acquisitions using the collective capital pursuing other financial organizations. Internal value creation for the member-owners is seen as boring. Geographic diversity, new revenue sources and investing in fintech startups are the key to future success.

In short, these new designs make some credit unions indistinguishable from their for-profit privately owned competitors.  Members are no more than customers, each a potential revenue or profit center.

This evolution is neither inevitable nor the ultimate outcome.  But it does garner the headlines and lots of external brokers, consultants, advisors who introduce credit unions, as their next meal ticket, to the wonders of market capitalism. Credit union boards, executives and even external advisors who have limited grasp of their organizations’ legacies are easily seduced by the thrills of this market-place capture.

Self-awareness and self-restraint are hard characteristics to nurture when one is in a position of power and privilege.  However, I believe the leaders of credit unions in the year ahead will be those whose vision may seem modest compared to more dramatic short term activities.

For values that sustain are not the result of temporary market success, but rather the hard-earned relationships nurtured over years. These values shape the functions to which leaders give priority.  For those in positions of credit union leadership, cooperative design is still true to the original purpose.

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The Second Expression: Credit Unions Member-Facing Value Stories

Yesterday I  compared credit union’s public personas  to the tragedy-comedy masks of ancient Greek theater.

The face I discussed was that of credit union’s institutional achievements:  the growing sponsorship of stadiums and sports teams, the continuing mergers of long standing organizations with no member benefit, and the rebranding from legacy origins to aspirational names (Bethpage FCU to FOURLEAF FCU).

Today’s alternate face is member focused.  They celebrate the many ways credit unions are sharing and enhancing their value for members and communities.

It is for the reader to decide which credit union expression may be tragic or life affirming.

Sharing the Annual Financial Harvest

The most frequent member-centric announcements this time of year are the numerous bonus dividends credit unions pay members.  This is a pattern of member value sharing that goes back decades.  Some examples.

The largest  yearend bonus in credit union history.  That is how the Ogden, Utah Goldenwest Credit Union described its recent $3.5 million  bonus dividend.  It added, “During the last 21 years, Goldenwest has returned more than $30 million to its members.”

These distribtutions are is not new or unusual.   If one types “bonus dividends” into the search box on CU Today’s  home page, 2,482 matches are listed.  Some stories go back decades of coops sharing success their with member-owners.

These payments can be structured in many creative ways.  On December 2, 2024 CEFCU (Peoria, Il) announced a $55 million Extraordinary Dividend:  $52.25 million shared equally between borrowers and savers, and $2.75 million going to CEFCU Debit Mastercard users. The video announcement  states the credit union has distributed over $500 million in bonus dividends since 2000. Listen to CEO Matt Mamer’s explanation for why and how this bonus was paid.  You may view one of many member’s stories featured on the site, that of a single women buying her first home.

The $1.9 billion Tyndall CU paid $1.6 million using the following formula:   To get their holiday cash, members had to participate in everyday banking activities, such as online banking, bill pay, direct deposit, card usage, e-statements, and loans. Each member had the opportunity to receive up to $700.

More Than Special Dividends

Being part of a community is more than sharing financial success.  It is leaders’ personal participation in special events as described in these LinkIn posts:

From the CEO of Desert Financial:  My family and I had the opportunity to volunteer with the Desert Financial team at a special Hometown Heroes event last night at the Phoenix Zoo. The highlight of the night was seeing the kids’ faces light up as they picked out gifts and met Santa. This initiative is a small gesture of gratitude for the sacrifices these veteran and first responder families make for our community and country.

From San Francisco Fire’s CEO: This is my favorite time of year when SF Fire Credit Union staff volunteer alongside members of the San Francisco Fire Department and others to give out toys to children in our local community as part of the annual SFFirefightersToyProgram. Thanks to all who joined us and everyone who supports this amazing program.

Special Community Investments

From the December 11, 2024 Youngstown Business Journal:

YOUNGSTOWN, Ohio – The city has selected 717 Credit Union to administer $13 million in American Rescue Plan Act funds across three programs to improve housing. 

As part of the Youngstown Affordable Loan Program, the city allocated $8 million for the construction and/or rehabilitation of quality affordable housing. The credit union proposed to parlay the $8 million into not only funding for housing development, but also $35 million worth of discounted mortgage financing.

To begin development, 717 will create a $5 million revolving commercial development fund to be used for developers to rehabilitate vacant downtown buildings into residential condos, to build homes on vacant lots and to develop neighborhoods. After renovation or construction, the units will be sold to individual buyers and the funds recuperated to be invested in additional projects. 

A press release yesterday from SECU North Carolina:

SECU Foundation Initiates Phase Two Disaster 
Relief Package of $1.75 Million for Western North Carolina 
RALEIGH, N.C. – SECU Foundation’s Board of Directors approved a phase two disaster relief package with an additional $1.75 million in grants to three organizations, providing intermediate assistance to the hardest hit residents and communities impacted by Hurricane Helene. Funds awarded will help address temporary housing needs, financial crises, and food insecurity. Grantees include:

  • Baptists on Mission – a $1 million grant to support its Essential Rapid Repairs program.
  • The Salvation Army of the Carolinas – a $500,000 grant to expand its capacity and help ensure impacted families receive financial aid to recover effectively.
  • MANNA Food Bank – a $250,000 grant for a six-month produce distribution pilot program beginning December 2024 that will expand accessibility of fresh fruits and vegetables to impacted communities.

Phase two funding builds upon the Foundation’s $3.75 million relief package announced in October to help expedite provisions of water, food, supplies, shelter, and other emergency services to Western North Carolina.

Credit Union Teams Having Fun Supporting their Community

The annual polar plunge with purpose video from Affinity Plus FCU (St. Paul, MN) for the Special Olympics program.

Polar Plunge With A Purpose

(https://creditunions.com/features/polar-plunge-with-a-purpose/)

A Credit Union’s Example of It’s  a Wonderful Life

Every day in numerous communities, credit unions put their members’ well being first in all they do.  They are the current expression of  George Bailey’s mutual savings and loan in Frank Capra’s memorable film .

Here is one real life example from Wright-Patt Credit Union in Dayton, Ohio:

(https://www.youtube.com/watch?v=yMJT0nneRaM&t=18s)

The Credit Union Challenge

Which mask, the corporate or the member facing one, will the American public see in  credit unions today?

Will it be the continuing acquisitions fueled by payments to senior leaders, the public branding campaigns and naming rights on buildings, suplemented with continued efforts to purchase banks?   Or, wlll member-owners recount stories of goodwill, shared financial success  and innovative projects with partners to advance their communities?

If institutional success dominates public discussion and headline events, the results could be tragic for a separate, member-owned cooperative system.  Does American really need more growth maximizing financial firms fueled by internal and external acquisitions?

If special member value delivered results are the lead story, America could certainly benefit from these modern day George Bailey-like coops.   Ones where purpose for member and community progress are the priority.

I believe it is clear which expression members prefer; but will their leaders meet this moment for their institution’s choice?  And the movement’s future?

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The Two Faces of Credit Unions Today

 

In  theater comedy and tragedy are a pair of masks, one crying and one laughing. Originating in the theatre of ancient Greece, the masks were said to help audience members far from the stage to understand what emotions the characters were feeling.[1]

Today these two masks are a metaphor for two contrasting public faces of the credit union movement.  One is the corporate face. The other the member one.  I will present one persona today of the corporate face; tomorrow the member one.

The reader can decide which of the Greek interpretations might apply to their credit union face.

A Critique of the Credit Union’s Corporate Persona

Here is an excerpt from an October 2024 article by Aaron Klein a senior fellow and financial regulatory commentator with  the Brookings Institute.  The full article is called Why Are Non-profit Employee Credit Unions Spending Members’ Money on Stadium Naming Rights?   An excerpt of one example in his analysis:

Northwest Federal is quite small, America’s 91st largest credit union. Two years ago it spent a total of $2 million on advertising. But in August, it secured naming rights to the Commander’s home stadium – now Northwest Stadium. According to news reports, the deal runs eight years at a higher cost than the roughly $7.5 million a year that previous rights-holder FedEx paid.

How is this a safe and sound decision in the best interest of Northwest Federal’s members? Why would CIA employees want their credit union’s name on a football stadium? How can one argue that money is better spent on the side of a building than on serving the needs of Northwest’s members, particularly those living paycheck to paycheck? 

I asked the nation’s top credit union regulator, NCUA Chairman Todd Harper, about credit unions buying stadium naming rights. His response was spot on: “If I were on a credit union board, I would be advocating that rather than spending that money necessarily on naming rights, I’d be pointing in the direction of what can we do to lower the prices of our loans and increase the service to our members”. 

But Klein could have chosen many other examples of this growing marketing practice. In October Dort Financial Credit Union announced a ten year extension of naming rights to the Dort Financial Center Flint Firebirds hockey team through the 1934-35 season.  The first sponsorship agreement was signed in 2015.

Two months later, Credit Union Times on December 17 reported that Flagler CU Signs Major Naming Rights Deal With Florida Atlantic Athletics.  

The article points out that the $2.3 billion Dort Financial’s head office is in  Grand Blanc, MI.  In 2023 the credit union  purchased the $513 million Flagler Bank in West Palm Beach.  CEO Brian Waldron in the purchase announcement noted. “This is a big step in Dort Financial’s strategy, allowing us to better serve our members who spend winters in Florida.”

When completed  the bank was renamed Flagler Credit Union, a Division of Dort Financial.  Dort also shows over $68 million of goodwill in its latest call report, presumably the premium paid the bank’s owners in excess of its net book value.

Dort gave no data to support the number of members who visited this part of Florida.  However it follows a pattern of two other Michigan credit unions, Dearborn and Lake Michigan, who purchased banks with a similar rationale.  It makes one wonder what Michigan members who vacation in Arizona think of these justifications.

Subsequently, CBS News reported in a December 16 article that:  Florida Atlantic’s board of trustees is expected to approve a $22.5 million, 15-year deal that would give Flagler Credit Union the naming rights to the school’s football stadium.

The deal — both in terms of total and average value — would be the biggest publicly known naming rights agreement for any school in the American Athletic Conference currently with an on-campus stadium.

The Flagler bank purchase and naming rights with FAU means that the Michigan based Dort will have invested almost $100 million of members’ money in their Florida expansion.

Reversing the Plot Line of It’s a Wonderful Life

 

The most memorable movie replayed again and again this time of year is the story of George Baily’s savings and loan.  It is the story of a local financial institution which served its community faithfully, only to face a takeover by Potter, a financial predator to whom George owed money.

Credit unions are increasingly reversing this whole story line.  It shows Potter’s fundamental negotiating error.  Instead of just paying off George in a private deal, he tried to take the mutual direct from its local owners who turned up to support George when he most needed their cash.

Here’s how the reversal plays out in credit union land now. Two days ago the $2.6 billion Addition Financial Credit Union in Lake Mary, Fla., and the $871 million Envision Credit Union in Tallahassee, Fl announced their intent to merge by the end of 2025.

As reported in the Credit Union Times article the reasons for this $3.5 billion  combination according to each CEO include:

“This merger will significantly increase the ability of Addition Financial to serve more members, and support both communities,” Addition Financial President/CEO Kevin Miller said in a prepared statement. “By joining forces with Envision Credit Union and the people-first culture they have cultivated for 70 years, we can provide even greater value to our collective members and team members and continue our shared mission of supporting our communities.”

And, “This merger enables us to provide more access to services, broaden offerings of innovative products, and deliver personalized support to every member and future member.” 

The final paragraph of the article may best describe the motivation behind the rhetorical flourishes in the announcement:

If the consolidation is approved, Worrell is expected to continue on in a strategic role with Addition Financial through his planned retirement in 2027, according to an Envision spokesperson.

Just another example of a CEO who reached the peak of credit union leadership, and then pulled up the ladder so no one else will have the same opportunity.

It should be noted that in this as in most mergers, members are promised nothing that they don’t already have the capacity to receive from their own independent cooperative. 

An even larger merger announcement of two successful credit unions was announced earlier in this Christmas, Wonderful Life, season.

On December 5, the members of LA Financial Federal CU were sent a formal letter by the Board chairman announcing the credit union’s intent to merge into the Credit Union of Southern California, creating a $3.9 billion combination.  LA Financial’s official Member Notice can be read here.

Members will receive nothing from the merger that they do not already have.  However, the CEO Carol Galizia, who has worked at the credit union for just 11 years will receive a 7-year contract for giving up her leadership role. Her new title: Chief of Strategic Initiatives. Four other senior executives will receive various bonus amounts for helping complete the merger, but the member letter makes clear they are “at-will” employees.   A term that undoubtedly extends to all other employees of the credit union.

Chartered in 1937 the member-owners will receive nothing for their 87 years of loyalty, their collective shavings of $483 million, $409 million of performing loans and accumulated net worth of over $ 47 million.

If this privately negotiated deal had been a public transaction at true market value as in the Flagler Bank purchase by Dort credit union, the owners would have been paid upwards of two times their net worth in cash.  Or one can compare this to the member-owners of  Thrivent FCU which received their entire collective reserve plus a premium at 12% of each members total savings in selling to Thrivent Bank.

Instead, the CEO gets a 7 year contract, at an undisclosed amount, for turning over the entire credit union’s resources and members to a credit union they know nothing about and had no role in their success.  This change of control is the exact opposite of the Wonderful Life outcome.  Potter’s approach was all wrong—all he had to do was to payoff George and he could have controlled the mutual for free.

Except in this case Credit union of Southern California is getting paid almost $50 million for merging this very stable, long serving and successful credit union.  The member-owners get nothing.

Which Credit Union Mask Will the Public See

Both tragedy and comedy are present in Greek theater.  But which face will the public see in these corporate announcements? Is Aaron Klein’s critique fair?

Tomorrow I will describe some of the member facing announcements by credit unions.  Then the reader can decide which mask best expresses their credit union’s circumstances.

For the stories that resonate with the public, professional analysts and ultimately political leaders are the ones that will shape the future of the cooperative option for America.

 

 

 

 

 

 

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Was the CLF’s Mini-Budget Discussion a Prelude to Today’s Omnibus Spending?  We Should Hope Not

I had the opportunity to listen to a very small slice of NCUA’s Board’s public budget process for 2025-26 by watching the video of the November 21 discussion of the CLF’s spending requests for the next two years.

Although extremely small in the agency’s overall spending totals, I fear we see clearly in this simple example, the board’s inability to substantively assess spending requests.

A Brief Background

Several items from the CLF’s  board action memorandum for November 21 provide some background for the hearing including these two points:

The purpose of the CLF is to improve the general financial stability by providing member credit unions with a source of loans to meet their liquidity needs and thereby encourage savings, support consumer and mortgage lending, and provide basic financial resources to all segments of the economy. and, 

“(CLF) is owned by its member credit unions and managed by the NCUA Board”

CLF’s  budget proposals were for $2,307,863 for 2025 and $2,448,263 for 2026.  Salaries and benefits are 96% each year’s requests.

Several facts put this credit union owned public-private effort in perspective.

Total membership is 430, an increase of 32 in 2024, and 9.4 %  of all credit unions.  CLF’s balance sheet is $966 million and includes $44 million of net worth/retained earnings.

The Board’s Policy Failure

Each board member remarked on some aspect or other of the financials.  Otsuka had no questions.  She made an unexplained reference to “protecting the insurance fund.” Hauptman called the CLF a “buffer for the American taxpayer” and cited a vague reference to $18 billion of loans sometime in the past.

He reverted to his standard routine of demonstrating how to improve the “user experience” when contacting the CLF.  He showed how staff had “made it easier to access” the CLF by removing the on-hold music replaced by an automated telephone routing message.  He confirmed that a credit union inquiry would ultimately end at the CLF President’s desk, if no one else picked up the call before then.

He also pointed out that 3,300 credit unions (95% of those under $250 million in assets) had lost access when the special CLF-Corporate membership authority expired.  Hauptman opined that credit unions should have multiple liquid cash sources which is how he arranged his personal financial management: “a credit card, home equity line and  a margin loan established with a broker.”

As Chair Harper led off the discussion, one would have hoped for a focus on CLF policy and whether its purpose above was being carried out. Instead, he supported the budget in full and noted the 31 increase of members. He did ask about the cost of membership.  The 4.46% third quarter member dividend was the only recognition that the CLF’s return to the owners was below market rates including the overnight Fed Funds yield. He again complained about Congress not renewing the special CLF authority for corporates to join by funding only a subset of their members.

Business as Usual While Failing the Owners

A critical capability of any NCUA board member is discernment.   What is their understanding of the key issues in a staff presentation, especially when focused primarily on budgets?  Is It really about numbers? Or should it be about whether the CLF is serving its owners?

All three board members stated that the CLF existed for the benefit of NCUA and the NCUSIF, not for the credit union funding owners.  What are credit unions getting for their direct support of the CLF?  In the presentation the number one productivity indicator and primary 2025 Planned Activity goal is to  Provide CLF Advances as needed.

However, the CLF has not issued a loan to credit unions since 2009. Almost all of those advances, 15 years earlier, were to two corporates via the NCUSIF.  They were very short term and not part of any overall recovery plan.  I am ignoring a token $1.0 million mini-advance made to a small credit union in December 2023 and paid off early in 2024.

A Time of System Stress

The lack of credit union support and CLF membership is not a statutory shortcoming. It is a management one, an NCUA responsibility as stated in the staff memo above.  During the 2022 and 2023 rising Fed rate cycle, liquidity pressures increased throughout the system.  This concern peaked when the Silicon Valley and other bank failures occurred. However the CLF was totally missing in action this entire cycle.

Instead, credit unions borrowed in record amounts from the Federal Reserve’s Bank Term Funding Program (BTFP) and the FHLB’s.  For example, the September 2023 call reports show 307 credit unions with Federal Reserve borrowings of $34.9 billion, an average of  $114 million.  For these credit unions, the Federal Reserve represents 66% of their total borrowings.  For 112 of this group, the Federal Reserve is their only source.

Credit union total assets of $2.25 trillion at 3Q 2023 were just 9.7% of total banking assets.  However, their participation in the special emergency Federal Reserve lending program equaled 27% of the BTFP’s loans at yearend or three times cooperative’s share of total industry assets.  And this Federal Reserve borrowing was only a quarter of all credit union borrowings at the quarter end of $130.3 billion.

During this entire liquidity crisis, the CLF was nowhere to be found, or even heard. No programs, no outreach, no public discussion.   And it was not due to a poorly designed website or failure to target market.  Rather the CLF’s credit union owners were completely left out and shut out of any role except sending in capital—for a below market return. The agency made no effort to assist credit unions because the board and staff view the CLF as a liquidity partner for the NCUSIF, not the industry.

Why the CLF Has No Interest is a post from May 2024 which shows that the credit union owners have been subsidizing the CLF due to its below market dividends.  The CLF’s return is much less that paid by the FHLBs and corporates on their capital accounts.  Even though the CLF has investment authority similar to FCU’s, its own portfolio was underwater at 2023 yearend and its yield trailed the overnight FF rate the entire year.  But the board ignored those facts.

Credit unions do not view the CLF as a reliable partner in times of balance sheet stress.  They have plenty of tested alternatives.  Ones that don’t impose supervisory judgments on top of collateral security. The Board’s view of the CLF to serve the NCUSIF has made it a “vestigial organ” within the NCUA body serving no credit union owner-members.

What the Board Could Have Asked Staff

Following are some questions that board members might have asked if they had really focused on the CLF’s policy failures in this most recent period of liquidity need.

  • How many of CLF’s current members have outstanding loans elsewhere? How much and for how long?
  • What unused lines do CLF members report on the latest call reports?
  • Has the CLF developed any proactive lending programs in the two years since the Fed began raising interest rates in 2022? If yes, how were these communicated to owners?
  • Given the dramatic increases in credit union borrowing in both total dollars and numbers as shown below, what did the CLF do during the crisis? The chart below would be updated as context for the question.

Total Credit Union System Borrowings    (June ’22 to June ’23)

  • Why should the CLF continue as a separate department with a staff of six and overhead charged by the NCUA board, when it could easily be a collateral responsibility with other senior examination and supervision staff?

The failure of NCUA board members to ask the most basic questions about CLF’s non-activity while routinely continuing to increase its spending is disappointing.  It undermines the NCUA’s capacity to serve the owners of the fund.

The board has failed in its policy oversight role. With zero lending productivity, why is there any reason for a staff of six to keep lights on?  The entire system shows increased liquidity demand and draws but relied entirely on every other contingency funding source while its own funded resource was moot.

If credit unions are to get their money’s worth from the CLF, the agency must show leadership by working with the owners. Contrary to one board member’s assertion, CLF effectiveness does not depend on its members; rather it depends on the management by NCUA.  Otherwise, just merge the shop back into the bureaucracy from which it came. Save the credit unions money.

Editor’s footnote:  If you want to see how another cooperative designed liquidity lender communicates with  its owners, read this latest update from the FHLB’s newsletter.

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The Strategic Advantage of Being Local

The Institute for Local Self Reliance (ILSR) has turned 50 years old.  Its mission is to build local power and fight large corporate control through research, advocacy, and community assistance to advance vibrant, sustainable, and equitable cities and towns.

This 11-minute video below provides its history from founding in 1974 in D.C. to its present multi-faceted efforts.   The organization became national in the early 1980’s when it  opened its head office in Minneapolis.

(https://www.youtube.com/watch?v=Wp_DNUXVDt8&t=108s)

In the 90’s It was an outlier in the world of “bigger is better” and the pull of the global economy on large corporate growth ambitions.  However, its focus on local self-reliance regained momentum and focus as the power of monopolies became increasingly questioned, especially its impact on local economic communities.

The Institute’s  approach is decentralization emphasizing local control and resisting corporate displacement of independent options. The goal is enhancing freedom and democracy with self-reliant economic projects  and political control.  Today it has four areas of focus:  community broadband efforts, composting, energy democracy and promoting independent locally owned businesses.

While the advocacy and research efforts would seem to make the ILSR a natural ally of credit unions, there appears to be no overt participation in this cooperative financial sector.

Why Local Matters

In an era in which many tout scale as the most important competitive necessity, the real sustainable advantage for most credit unions is their “local” character, identity and related service advantages.

At September 2024, the industry’s call report data suggests that over 87% of credit unions offer some form of on online transaction access.  The Internet advantage, no matter how sophisticated, is rarely a sustainable or unique delivery channel or even special user experience. However, being local is.

An Example of a Large, Local Advantage

Recently Jim Blaine has posted several articles on the founding of the country’s second largest credit union, State Employees of North Carolina (SECU).  The post below details the founding character and common bond of the credit union.

Almost every state in the country had at least one or multiple credit unions with state employees as their core FOM.  But only SECU made the breakout to record this growth achievement versus many states with much larger potential in their employee base.

How was this breakout accomplished?  As the credit union’s operations expanded to locations and counties throughout the state, the critical advantage was keeping local input, oversight and responsibility at the branch level.  Loans were made and collected by each branch; local advisory boards and committees were formed; employees were local; and the various aspects of community involvement were locally determined.  Out of this local self-reliance, the second largest credit union in America was constructed.

Here is SECU’s brief founding story from a post on November 19, 2024 SECU Credit Unions as An Employee Benefit:

“No one questions that credit unions were created in the U.S. to provide access to credit for working men and women – particularly those of “modest means”. Why? Because “back then” many payroll offices were confronted with regular, recurring employee requests for “a short-term advance” prior to payday. Money is always in short supply for most folks – both “back then” and now.

“Not helping an excellent employee in a time of need was “bad for business” and employee relations. Sending them to a loan shark was worse. “Payday lending” at rates usually exceeding 100+% – both “back then” and now – creates a death spiral of financial dependency for a consumer. Shackles not made of iron, but shackles just the same.

.

. …” I owe my soul”... that can be a problem, … beware.

“Employers embraced “company credit unions” as an added benefit which could be used to assist and retain employees. Employers liked having an independent, employee-owned and led lender making the decisions on which employees qualified for loans – choices the employer did not want to make. Employers didn’t want to be in the lending business, nor have to “advance” company funds. To help out, employers frequently provided back office support, payroll deduction, office space and assisted employee-member volunteer leadership of the credit union.

“SECU, although a separate, independent organization, was “the company credit union” for North Carolina state government and the North Carolina school systems. The idea of a credit union as an important employee benefit caught on! 

“Other N.C. companies also formed credit unions – R.J. Reynolds, AT&T, IBM, Champion Paper for their employees – as did many municipalities, local post offices, our military, and churches. At its peak, there were 360+ different credit unions in North Carolina, today just 60 remain. 

“Is SECU still “the company credit union” for North Carolina state workers? What has changed?  In order to know where you’re going, it often helps to know where you have been.”

(End Quote)

SECU’s Relevance for Today

Some of the companies and many of the 360 credit unions referenced in Jim’s blog no longer exist.  However, the local communities and their residents are still present—even if now in separate lines of work.  Local does not go away.

Local does not mean an effort must remain small.  No, local wins because it is built on the ultimate credit union advantage of relationships and self-reliance.

A billion dollar credit union’s car loan, savings account or even mortgage are often a commodity, no different from similar products offered by a ten million dollar institution.  The difference is personal, being able to talk with a real person who is familiar with your community and circumstance.

The ILSR has continued to present the power of local solutions and control in its newsletter.  A recent article was on grocery prices:  High prices are a problem. Here’s how to solve it.  Perhaps its opportune for credit unions to align and participate with the work of the ILSR.  For it appears to capture the ultimate advantage of a member-owned cooperative-its local identity. control and focus.