Category: Cooperative Design

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One Photo, Hearts on Fire, a Credit Union and Community Respond to a Vital Human Need

Clearwater Credit Union, Missoula, MT, is involved with solutions to one of the most difficult challenges facing their community, the nation and the world: refugee immigration.

Every day this story moves from Afghans on the front page to Haitian migrants huddled under a bridge over the Rio Grande.  Politicians pose and procrastinate while hundreds of private organizations, individuals and communities respond to this never-ending need for human relief.  The temptation to stir up public fear is never far away.

This is the story of how Clearwater and its community joined to respond to this on-going human tragedy .  

Founded in 1956 by eight police workers, Clearwater Credit Union is the second largest of Montana’s 47, with over $850 million in assets plus a $250 million mortgage servicing portfolio. 

It is the state’s largest Community Development Financial Institution (CDFI).

In 1979 Missoula was a resettlement community for Hmong refugees from Southeast Asia, allies during the Vietnam war.  Today, that community includes farmers, food service operators and active vendors in local open markets.  The forty year history of this immigration experience is described in this 2016 article  in the Missoulian:

While their contributions to the outdoor markets are perhaps most visible, first-generation Hmong immigrants and their offspring are bankers and real estate agents; decorated war heroes and high school valedictorians; sports standouts and chefs; entrepreneurs, business owners and probably a dozen other things around town.

The Need Arises

In 2016 the refugee resettlement needs rose again in Missoula with people from Syria, the Congo, Iraq and Eritrea trying to find a new place to raise families, often following harrowing escapes.

The turning point for the credit union and many in Missoula was the picture of Alan Kurdi, a three year old lying on an island beach off the coast of Turkey.  His mother and brother also perished-all Kurdish refugees hoping, somehow, to get to Canada.

In memoria aeterna erit justus  (The righteous-innocent-will be in everlasting remembrance)

The still boy beside moving waters. This face of tragedy energized a community.  

Mary Poole, who had been a tree-climbing arborist before her first child, found the photo gut wrenching.   She was determined to do something and raised the topic with her local book club. They began research to find out what worked well in other successful refugee programs. Montana was one of only two states that did not have a path to welcome refugees. 

This grassroots group invited the International Rescue Committee (IRC) to open an office in Missoula and serve as the city’s resettlement agency, creating that path.  They then founded a 501(c)3,“Soft Landing Missoula”, to support newcomers and connect them with all aspects of community life.  

Her story and this remarkable organization, can be seen in this 2017   8 minute video.   

Transforming the Credit Union

Jack Lawson became Clearwater’s CEO in 2013.  His prior roles included Founder and CEO of Brooklyn Cooperative FCU (1998-2008) and COO, Self-Help FCU ( 2008-2013).  After making sure the trains ran on time, Jack posed the question how the credit union could differentiate itself for its employees, members and from competitors.  The credit union chose to implement a values-based approach to business strategy.  

The history of this transformation and what it meant for the credit union’s priorities  is described  in their 2018 Annual Report.  As Montana’s largest CDFI and their strategic repositioning, refugee settlement was exactly a situation for which the credit union intended to have a positive impact.

Jack too had been moved by the photo. The credit union was chosen by the local office of the International Rescue Committee (IRC) to be the designated provider of financial services for refugees.

As Jack related: “It was an easy fit for us.  We saw it as a way to improve the financial well-being of some of our most vulnerable new neighbors.” This support involved the following initiatives:

  • Becoming a financial services provider for both Soft Landing and IRC
  • Coordinating with IRC to provide financial accounts for all incoming refugees
  • Adopting telephone bank translation services, at the credit union’s expense, to help each branch team serve people speaking languages they do not know-for example, Swahili, French, Tigrinya, and Arabic.   
  • With IRC, developing financial education classes for refugees to help them understand the US financial system, products, and services
  • Providing credit builder loans to build credit histories for the new arrivals
  • Contributing tens of thousands of dollars of philanthropy toward Soft Landing and IRC
  • Publicly celebrating the credit union’s work with the refugee community to help normalize their presence as neighbors

Refugees typically have no credit or personal financial history. The credit union teaches them how to participate in the financial system and establish a personal record.  The credit union has now hired its first refugee employee from among those  who have resettled in the community over the past five years.  

But the credit union’s role was much broader than offering financial services. As related by Mary Poole, CEO of Soft Landing:

“I met Jack on a soccer playing field.  He is part of the community and attends multiple public events. He knows the community and cares for its people because he is a part of it.  He came to us and asked what the credit union could do.  They supported local sporting events, annual fundraising, provided volunteers–we now have a CCU employee on our Board.  

There is a whole culture at the credit union reflected in their support for our work.  This is not just part of Jack’s job or the credit union’s service efforts.   It is how they interact with everyone and view their mission.  They are a thought leader in the local and world community-it’s the culture of the credit union.”

In the new federal fiscal year starting October 1, Soft Landing anticipates 75 Afghan and 150 other country refugee arrivals will be resettled in Missoula by the International Rescue Committee.  When Soft Landing first announced the idea of welcoming new neighbors in 2015, over 300 community members signed up to volunteer to help with school, housing, learning English, transportation and the dozens of other immediate personal needs of new arrivals- all before a single refugee came to town.

This interest has not faded, and has recently been  invigorated by the needs of  incoming  Afghan evacuees. Community connections are what makes these life transitions effective. The programs also celebrate the diversity, skills and experiences refugees bring to their new community.  

The Credit Union’s Strategy

Having moral imagination is expected of leaders, but nonetheless difficult to fully practice. Many in positions of authority ignore the imperatives of ethical truth in moments of life’s difficult choices.  It is much easier to follow the utilitarian pragmatism which suffices for many a leader’s everyday decisions.  

But there is another model.   To be moral is to be oneself.   Instances of compassion multiply and attract others of similar purpose. A person with this leadership capability is celebrated in the oldest of all literature:

Beatus vir, qui timet Dominum. . .

Generatio rectorum benedicetur.

Et justitia eius manet saeculum saeculi.

Exortum est in tenebris lumen rectis

Blessed are those who fear the Lord. . .

The generation of the upright will be blessed.

And their righteousness endures for ever and ever.

Unto the upright there arises light in the darkness. 

That is the vision Jack has set for Clearwater.

An Example of One Refugee Family: From the 2018 Clearwater Annual Report 

A refugee family moved to Missoula from Eritrea, Africa. Thanks to the credit union, they had the help they needed.

On average, it takes a refugee two years to resettle — that’s two years of waiting and wondering what’s next. Here’s how we helped Desbele and his family make themselves at home.

Desbele Tekle and his family came to Missoula from Eritrea, Africa, in May of 2017 during the magic of a Montana springtime. His sister and her family came too, and they all quickly grew to love the mountains, the people, and the “long-running river.”

Staff from International Rescue Committee (IRC) Missoula met the family at the airport and brought them to their new home. After settling in, Desbele and his wife Samrawit attended our “Understanding the U.S. Banking System” class for refugees, which IRC Missoula and Clearwater Credit Union created together.

This class teaches families like Desbele’s how to write a check, use an ATM machine and debit card, and understand the difference between a savings account and checking account, with trainings offered in Arabic, Swahili and Tigrinya through on-site interpreters from IRC Missoula.

The Family Needed a Car

Some challenges of resettlement are distinct, like language and culture.  Others are universal.  In a family of six, everyone has different schedules, Desbele’s children (ages 5,8, 13 and 15) go to daycare, elementary school, middles schools and high school.  Any parent will tell you that four kids in four schools plus after school activities, will make transportation tricky.  

Clearly they needed a vehicle.

Desbele went to a dealership first, where he tried to navigate a car purchase with a $500 credit card in hand. When that didn’t work, he called a friend (our translator for this interview) and together they went to our credit union.  Because of the banking classes he had taken, Desbele knew we would be able and willing to help with his first purchase here.

With a loan from the credit union, Desbele was able to purchase a minivan Now he can run errands and transport his entire family to church and school.

He can also get work.  Back in Eritrea, Desbele was a midwife.  Now, because of the car, he can make the commute to the Village Health and Rehabilitation Center, where he’s now employed.   Desbele is thrilled to be working again in the medical field. 

“So happy getting a loan because otherwise, it would take a very long time to get money to get a car, which would distort our plans.  This opportunity allows us to dream.”

With his family all together, a reliable set of wheels, and help from the local credit union, Desbele and his family are finding their place here in America — a place where their dreams can come true.

Recently, that dream led them across the country to join up with long-separated family and friends and a life in another city.  The start and “soft landing”they experienced  in Missoula provided them a solid foundation for success in their new home as well as life-time friends to return to visit in this little mountain town.

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“Institutional Memory” Keeps a Student Co-op Relevant for their Community

NASCO is the acronym for the North American Students of Cooperation.   The organization serves student cooperatives, primarily those providing housing and dining options on college campuses.

Their monthly newsletter presents stories about their members.  This month’s edition linked to an article in The Oberlin Review, the student newspaper published on October 8th.

It opened as follows: After temporarily closing its doors during the pandemic, the Oberlin Student Cooperative Association (OSCA) has resumed housing and dining operations.  Harkness House member Tal Clower says, “It’s so important that we make first-and second-year students aware of OSCA because it gives people a sense of place-a special community that makes you feel like you belong.”

The full article is here.  

I found several points insightful as an example of the appeal of cooperative solutions.

  • It is a student-owned, nonprofit organization that offers housing and dining services to almost a quarter of Oberlin’s students.
  • An OSCA member since 2018, a senior, said the co-op experience provides an intimate, close-knit community, and has given her skills she feels will inform the rest of her life.
  • Preserving co-op traditions is the most important way to attract returning students now. In house meetings, older students are presenting Harkness House’s “personality” to potential members.
  • So vital is preserving OSCA’s historical role, that campus co-ops such as Harkness and Tank (another dining option), have created “institutional memory” positions. These story collectors document newsworthy events, take pictures, record oral histories, write articles, and tell the co-op’s role as OSCA reintegrates into daily life on campus.

What Credit Unions Can Take Away

While this story is location and business specific, the re-introduction of the coop option to a new generation is an ongoing challenge no matter the service provided.

Re-presenting your organization after a partial or full closure due to Covid is a universal challenge.   How do you restore the “sense of place” where members feel they own and belong?   Do you have a process to document your institutional memory?   What kinds of creativity will be necessary to reintroduce yourself into member’s lives, especially as they have become more proficient in on-line search options?

How might a credit union partner with these student led coops to broaden their experience with other coop services?  NASCO has a list of these campus-based student owned housing efforts.  This feels like a win-win situation for a credit union seeking the next generation of members.

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Combinations, Corporations, Culture and Credit Unions

Are credit unions corporations?   Not in the technical legal sense, but in the way they see their role in society as they grow?

A critic of many aspects  of corporate activity is writer Jared Brock.   His posts cover many segments of endeavor, but always come back to an institution’s impact on individual lives.

Here are some of his recent assertions:

The entire point of multinational corporations is to shatter local resilience and self-reliance, disconnecting people from land and place and generational skillsets, creating a system of utter corporate dependence.

But as you can see, much of our shopping is human-scale and relational.

If you’ve ever been to a corporate “community event” or witnessed a corporate-created “grassroots campaign,” you know exactly what I mean. Everything’s a bit sanitized and clean and proper and nice and… off.

That’s because corporations aren’t relational — they’re transactional.

They can’t give freely and creatively.

Their legal fiduciary reason for existence is to take.

And human beings can smell it from a mile away.

People create culture → Corporations kill culture.

A question for credit unions:   Given his critique, do mergers of financially sound and long serving credit unions promote cooperative culture? Or are they examples of the transformation to a corporate mindset?

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Would Your Competitors or Peers Invite You to Talk to their Senior Management Team?

Yesterday Kelly Evans, a CNBC host, reported a meeting last week between Elon Musk and the senior management team at Volkswagon.  And no, it had nothing to do with merger or buying technology.  Here is the opening of her story:

Here’s a headline that should stop you in your tracks: “Tesla’s Musk dials into Volkswagen executive conference.” My first thought, when I saw this, was that it must have been either some kind of quirky Elon Musk prank or a weird fluky accident.

But it was neither. It was, in fact, an invitation by the CEO of Volkswagen for Musk to address a meeting of 200 top Volkswagen executives in Austria, in order to “galvanize [their] top brass for a faster pivot to electric vehicles,” according to Reuters. I’m sorry, what?! Can you imagine, circa 2015, “Microsoft invites Adobe CEO to talk about transitioning to the cloud,” or today, “Facebook invites TikTok CEO to talk about their success in short-form videos and algorithms.” Or maybe, “Jacksonville Jaguars invite Patrick Mahomes to talk about success on offense.”

Anyhow, Volkswagen’s CEO, Herbert Diess, confirmed his invite and Musk’s “surprise” Thursday video appearance on Twitter and LinkedIn. “Happy to hear that even our strongest competitor thinks that we will succeed [in] the transition if we drive transformation with full power,” he wrote. You have to give Diess credit. He sounds like a disgruntled CEO who sees the future but can’t pivot his company fast enough, and is now pulling out all the stops to get there–including inviting his “strongest competitor” to give his own employees a pep talk.

How did this happen? How could the CEO of the world’s largest automaker for much of the last decade be calling a company that won’t even deliver a million cars this year his “strongest competitor”?

The Credit Union Analogy

Would your credit union’s success be such that a bank or other financial institution (mutual fund, insurance  firm or broker dealer) would invite you to share your vision for the future of financial services?

Or, is the bank just inviting you over to see if you would like to buy them out at a multiple of book value?

Unfortunately, banks are unlikely to ask for an Elon-Musk kind of briefing thinking they there is little to learn from credit unions.  They believe coop success is due to an uneven playing field, especially the tax exemption.

A good test of how your competitors, local and otherwise, view your effectiveness is not the dollars they spend lobbying, but rather whether they seek to emulate your credit union’s perceived advantage.

Unlike Volkswagen, I have not heard of any banks trying to become credit unions in practice or by conversion.   But I read a  lot about credit unions buying banks.

Which model do you think has the real competitive edge? And which is most likely to transform financial services as they exist today?

When competitors respect you, then you know you are doing something special in their eyes.

Even when interest in your business initiatives are only from your co-op peers, that is one indication that your credit union could be “driving transformation with full power” using Elon’s criteria for strategic advantage.

 

 

 

 

 

 

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Re-examining the Inequity of Risk Based Loan Pricing

Most credit unions today used risk-based pricing when granting loans.  That means the rate paid by each member is tiered from lower to higher based on their FICO or other scoring matrix.

This change from the initial co-op practice that all members be charged the same rate for the same loan was considered a major innovation by credit unions.  Consultants showed how to implement the program in the 1990’s. Compliant scoring models were empirically validated by experts.  One long serving CEO of a top 10 credit union said that implementing risk-based pricing for members was one of his most important contributions.

The practice is defended with two logics.   It expands credit union lending opportunities by qualifying more borrowers at the lower end of the risk scale.   Credit unions also claim they save these members money by charging a lower rate than other lenders would, if the credit union had not made the loan.

Today the vast majority of credit union leaders routinely accept these propositions.   Members deserve the rate their economic or past borrowing behavior merits.  Members with perfect credit should get better terms than members who have struggled with their finances.

The Reason Why Some Coops Do Not Follow Risk Based Pricing

The most public critic of this approach to consumer lending is Jim Blaine the retired CEO of State Employees (SECU) of North Carolina.

His reasoning follows:

The issue with risk-based loan pricing based on credit scores is that it imposes a real dollar penalty unjustly on folks in “the lower” credit tiers (tiers are usually A,B,C,D,E).

An easy example would be that say “D paper” with a statistically sound, model-projected 10% default rate might pay 12% for a car loan, while “A paper” folks with a projected 1% default rate pay only 6%. The real world penalty for the “D paper” folks is a 6% higher rate – not a minor cost!

The injustice arises because modeling cannot predict which 10% of the “D paper” folks will actually default. But, a substantial, unjustified interest rate cost (+ 6% in the example) is imposed on the entire D tier! Or in other words, 90% of the folks in the D tier (who the model has empirically proved will not default!) are paying an undeserved up charge – because, again, the model has validated that 90% of folks in the tier will actually pay!

 These folks have been unjustly charged because the model has profiled them into a class.

“Redlining” is an example of a financial “tiering” practice for real estate lending that has been discredited (and made illegal). “Redlining” imposed an unjust penalty on generally African Americans who lived in a particular neighborhood – many of these folks were unable to obtain loans at any cost – effectively a 100% profiling penalty!

Two Reasons To Review This Policy Now

Recent political dialogues have raised awareness of systemic inequalities that can accrue in society in critical areas of life: health care, employment options, education and housing.  These lead to structural inequity passed from generation to generation as accepted wisdom:  that’s just the way things are.

Financial services incorporate these histories when they underwrite members who may need financial assistance for one or more of these activities.

America is in an era of examining many past practices to understand the origins of present inequities.  Historical interpretations and beliefs are being re-evaluated.  New interpretations and additional data can lead to better, more equitable policy today.

Is risk-based pricing locking in systemic bias or is it fairly equating a member’s risk of default and pricing?   Each credit union will make its own decision.  It is far easier in moments of uncertainty to automate judgments via an impersonal model than to take time to understand an individual’s situation.

But shouldn’t every member-owner be evaluated on their character, capacity and circumstance? And if credit worthy, pay the same as other credit worthy members?

Should credit unions be more self-critical of lending practices that perpetuate disadvantages for those who have the least or know the least –and are frequent targets for predatory lenders?

The second reason to revisit this practice is that credit union have many years of portfolio performance from several economic cycles. Just as the impact of overdraft fees on members is now being reassessed, might it also be worthwhile for a credit union to review its risk-based loan pricing results?   Which members pay the highest rates? What is the loss rate of various credit tiers?  What might be the outcome if members in each class of loan had paid the same rate?  Should our policy be modified?

Finally, which members are most likely to need and use the credit union for their borrowing needs?    Is that group one for which the credit union is most able to make a real difference in their lives?

I don’t know the answers.   But if a credit union or analyst has done such an evaluation, I would be glad to share their analysis and any actions they may have taken.

 

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Marketing: A Critical Credit Union Advantage-Lost, Forgotten or Misunderstood?

My initial class at the Navy’s Supply Corps School in 1969 was inventory management.   The instructor opened the first session by passing out membership cards to Navy Federal Credit Union. As new officers, he encouraged all of us to join.   He said that it was an important benefit of being in the Navy.   The credit union would be available no matter where we were stationed-even at sea in some cases.

At that time my wife and I were living in a trailer home.  Base housing was not yet ready.  We lived paycheck to bimonthly paycheck. I didn’t want to split our only cash flow into two separate accounts.  So, I didn’t act.

However I still remember his friendly advice and effort to sign us all up.  Later we became members of United Credit Union in Yokosuka, Japan when needing cash for an R&R trip during an extended deployment.

Traditional marketing practices have an ambiguous history in coops.   The 5300 call report line item under which marketing expenses are listed is labelled “educational.”

One of State Employees North Carolina’s (SECU) contrarian tactics is eschewing all traditional marketing media and advertising efforts. At mid-year SECU reports total “educational” expenses of $185,000 out of a total operating spend of $490 million.   The intent is that SECU’s foundation’s many good works and press releases, plus word of mouth, provided the public messaging necessary to communicate its availability and value to potential members.

Rethinking “Marketing” as a Competitive Advantage

In September 2021 Bank of American announced it would eliminate the Chief Marketing Officer’s position.  Henceforth all marketing will be under the head of digital channels.

In a recent analysis by Visual Capitalist, its comparisons showed that Tesla spent $0 on marketing per car sold, whereas all its major competitors expensed from $400 to $660 per car.   The strategic advantage Tesla developed was in R&D.  Tesla spends almost $3,000 per car sold; the closest competitor of the big four, Ford, spends $1,100.

Word of mouth is Tesla’s marketing “strategy.”  The article summarized its market leading reputation as:

And while Tesla technically spends nothing on advertising, the company is a marketing machine that is rated as the world’s fastest growing brand, and Tesla often dominates press mentions and social media chatter.

Two Recent Examples of Credit Union “Marketing”

One of my credit unions recently mailed an expensive marketing package offering free $1,000, no-questions-asked term life insurance, plus the option to buy more at a fixed price.   My only question was why did I receive this marketing message at the age of 77?  Life insurance is not only unneeded, but a waste of money.

A second experience. Terminal C is United’s primary location for gates at Dulles airport.   To get to this outer terminal requires travel by underground, up an escalator and a 200 yard tunnel walk to the next up-escalator and the gates.  Along the walls of this walk are panels maybe 15 feet high and wide completely covered with ads for two products only.

The first is Capital One’s Credit Card.  Panel after panel announces its advantages. The second effort, right alongside,  is for PenFed’s Platinum Rewards Visa Signature Card.  Both offer no fee, initial bonus miles, multiple extra points for certain purchases,  cash back, and other benefits that the moving sidewalk traveled too fast to compare.

Both institutions have head offices close to in each other in Virginia.  The difference ends there.  Capital One has $370 billion in assets, the 10th largest bank in America.  It is the fifth or sixth largest credit card issuer in the US with approximately 75% of total revenue from its card program.   PenFed is $27 billion in assets with a card portfolio of $1.7 billion, or 8% of its total loan portfolio.

It hardly seems like a fair ad fight on the walls of this Dulles corridor by  two firms seeking business from the traveling public.

How do Credit Unions Win? Or Why Market?

The 5300 line item calls marketing “educational” expense for a reason.  Most credit union start with a common bond.  Members were most often employees who knew each other, recognize the board and shared a familiar place of work, worship or gathering.

Marketing was not needed to inform employees  about the credit union.  It was often referenced in new employee orientation as a company benefit. The credit union’s role was to inform members about fair value for financial products (educate) and be convenient to their place of work.

Once credit unions expanded their ambitions to larger areas these personal connections no longer existed.  Credit unions tried to reach these new groups by emulating the public marketing efforts of competitors.  The commonality shared by early groups was often lacking.  It became imperative to find new ways to attract members; so, why not do what everyone else does?

As this evolution continued, credit unions even shied away from  their unique design urging consumers to see them as “better than banking.”  Instead of replacing the competition, credit unions mimicked the institutions with which they compete.   Trying to beat the competition by becoming its shadow.

The challenge is not size, expansion or even growth. Navy Federal has been able even at $150 billion to focus on “members as the mission.”  With an added inference, not everyone can join-which is why you should.

Every organization wants fans, not just consumers who can be wooed away with a better price and slicker commercial.  Members are the roots from which every credit union grows year after year.  When the focus becomes the tree and not the roots, that’s when credit unions lose a critical advantage.

Credit unions will rarely out-market competitors.  The two largest credit unions in the country retain the connection with members as the center of their strategy and messaging efforts.   Their belief is that great organizations create great brands; great branding does not build great firms.

 

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How Are Credit Unions Different from Banks? Three Powerful Words

During a week this summer at Chautauqua Institute one of my fellow attendees asked what’s the difference between a bank and credit union?

The question was from a very successful executive who had been the senior staff director for four consecutive DC Mayors.  I felt an opening to give her the full 100-year story.

I described credit union’s progressive origins, the dramatic expansion after passage of the 1934 FCU Act, and their current role as the second largest depository system in the US.

Later, thinking back, I realized I hadn’t answered her question.

What I should Have Said

The difference between a bank and a credit union is three words:  You own it.

That distinction will mean different things to people.  For some it indicates better rates.  For others it means convenience, or trust, or serving the local community.

When one hears about a local grocery, hardware store, bar-brewpub, day care center or even a restaurant option that is a coop, we instinctively believe there is something different from  other choices. The inference is that organizers are doing more than just trying to succeed in a business.

The Other Side of the Coin

The fact that You Own It generates consumer expectations is important.  But the other responsibility of “ownership” is nurturing  opportunities to be more than a consumer.

In some situations this means taking turns serving in a daycare coop; in others it may mean patronage refunds (REI); in some grocery coops, members can sell their own baked goods.  Or it can mean voting for directors at the annual meeting.

This unique customer/owner design anticipates that coop leaders will be open to engage with members beyond transactions.  The coop advantage depends on members willingness to participate in events and other activities to realize this unique potential.

This week, Geoff Johnson became CEO for the CUSO cooperative CU*Answers.   He expressed this member-owner advantage as follows:

A cooperative will only ever be as good as its owners, and we have great ones.

To that effect, my message for credit unions is to never be afraid of wanting more from your members. The more involved they become, and the more they act like owners, not just consumers, the better off you’ll be.

At their most successful, credit unions create fans with lifetime loyalty.   Efficient, reliable transactions are important, but most institutions meet those minimum table stakes.

What makes credit unions special is their ability to transform the three words into  interactions that provide value for both the coop and the member.   You Own It is an opportunity to put this advantage front and center in every member interaction.

 

 

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Harper’s NCUA Priorities: “Fiddling While Rome Burns”

Chairman Harper’s Senate hearing for a second term confirmed his intentions for NCUA.  In his opening statement and when answering questions, he reiterated his regulatory to-do list.  Along with prior speeches and proposals these include:

  • Establishing a separate consumer examination force (he stated NCUA is working on a white paper to validate this need).
  • Eliminate all current legislative constraints on NCUSIF funding and premium assessments.
  • Seek authority for examining and supervising third party vendors serving credit unions.
  • Climate change risk must be included when evaluating safety and soundness.
  • And the need for multiple agency investments to “continue prioritizing capital and liquidity, cybersecurity, consumer financial protection, and diversity, equity, and inclusion.”

His opening Senate statement reflects his experiences as entirely within the “legislative, regulatory and policy” arena.  He sees the scope and purpose of his role as running a government agency, not facilitating the relevance, role and reach, i.e. the sustainability of the cooperative system.

Since the late 1990s, I have worked as an advisor, manager, and executive on banking, insurance, and securities legislation and regulation. These jobs have given me broad knowledge of financial services policy and a deep understanding of the many issues facing our nation’s $2 trillion credit union system. 

One Vote Short to Enact Harper’s Agenda

Sooner or later all of Harper’s desires to expand NCUA’s authority and resources will receive a second board vote.  Either by convincing a current member that “bipartisan compromise” is the correct leadership response, or due to the expiration of one of the other board member’s term.

Harper’s positions are not driven by facts, data analysis, or even trends.  He has been advocating for risk-based capital (now linked with CCULR) since 2014 despite all the factual evidence that it is both unneeded and does not work.  He persists in immediately imposing this 400+ page rule even in the face of statements such as this by former board Member McWatters at a June 2019 board meeting:

Board Member McWatters: Okay, so there’s work to be done on the rule. And I should also note that when this rule was proposed and finalized, I dissented from it. And I dissented from the rule because in my view, as a lawyer for over 37 years, the rule violates the Federal Credit Union Act. I said that twice in written dissents in some detail in some legal analysis.

Now, I understand that reasonable minds may differ. Other people, other people in this room have a different view. I respect those views, but I also think that if this delay passes, we should look at that. We should go through that analysis again. I don’t want a rule on the books that in my view as a lawyer dealing with issues like this for a long, long time simply does not comply with what Congress told us to do. So I hope that, I hope that we can do that.

The Danger of a Misguided Regulator

We all see what we want to see.

Harper has spent most of his professional life working on legislative and regulatory policy. His goal is to enhance government’s role, not sustain the cooperative movement that created the agency in the first place.

His position on issues is to promote a regulation- heavy outcome.

His lack of credit union experience, knowledge and operations is a serious blind spot.

Today the credit union movement faces growing challenges. They have nothing to do with Harper’s understanding of safety and soundness, forecasting the next recession or even competitors overwhelming the movement through innovation or scale.

There are two wildfires burning uncontrolled throughout the cooperative environment. Both were started internally, and each is continuously fed by NCUA’s actions.

Not “Mergers” but “Collective Euthanasia”

The first wildfire is the increasing use of self-interested mergers, allegedly for economies of scale by managers of sound, stable and long-standing credit unions to become part of a larger one.  The increasingly brazen appropriation of credit union members’ common wealth is exemplified by a CEO’s arranging $35 million in funding for the non-profit organization he will run after his $650 million credit union is merged.

These acts of the CEO and senior leadership cashing out via merger are not new.  But they are increasingly promoted by third parties who draw up “change of control” clauses for CEO contracts.  Then the same CEO’s go out and negotiate their own change to collect the bonus.

NCUA routinely signs off on these self-serving charter cancellations.  The problem is more than self-enrichment.  Every merger of these long serving credit unions rips out roots feeding the cooperative model. Members’ accounts, loyalty and common resources are transferred to a third party which has little to no relationship to the community which loses their decades old local financial institution.

These mergers destroy the credit union system at its roots.  Members leave and the entire basis of the credit union’s soundness, the member relationship, withers and dies.

The continuing credit union may seem strong, but that is a temporary illusion.  Loyalty, trust and confidence cannot be bought.  They are earned via long standing service relationships.

The common bond which first brought the credit union to life is now transformed into an act of  cooperative euthanasia in these merger manipulations.

The rot then shows up in the continuing credit union even when it tries to regain former member’s allegiance. The roots have been severed.  As a result  the solution is sometimes to ask its own members to approve this collective merger death ritual by the continuing credit union— the story of Xceed CU.

Using Member Reserves to Buy Banks

The second challenge is credit unions using members’ accumulated reserves to buy banks.  Often these are outside the credit union’s existing network and market influence.  The reasons are to grow faster than might otherwise occur, especially in new markets.

However, paying $1.50 to $2.00 for each $1.00 of book assets sooner or later will lead to a financial dead end.  Unlike mergers, these purchases are for cash.  There will have to be a return over years to support the premiums being paid for these assets.  The results of each purchase will not be known for some time.  Meanwhile, credit unions will have to convert new employees, customers and  products and services in a process different from the credit union’s traditional member-chosen relationships.

The jury is out as to whether these financial investments will ever payout.  But one trend is apparent.  Bank purchases to pursue growth becomes a narcotic.  It is like an opioid that a CEO and board become addicted to when their own efforts at internal expansion no longer seem enticing. Some credit unions have completed more than one bank purchase.  It is not unusual to see a credit union undertake two transactions back-to-back or in a current case, two at once.

The Common Source for these Growing Cooperative Wildfires

Both of these activities are failings of fiduciary duties.  The common characteristic in both is  credit unions have lost touch with their own members.  Their leaders believe the credit union is their personal fiefdom to do as they like, even when the decision is to ask members to commit cooperative suicide by giving up their generations-old charter.

As institutional growth and performance is prioritized over member well-being, the credit union model becomes more and more like the competitors’ it was meant to replace.

In both activities members are kept in the dark- told nothing about bank purchases. Or in mergers, members are given  a series of assertions about better products and services that omit significant information or misrepresent the entire situation—and given less than 45 days to act before voting.  Few vote, rightly sensing the system is rigged against them, which is often the case.

The solution to these two failings is as straight forward as the cause—empower members to be truly informed and engaged about their credit union’s activities.  Transparency is critical whenever members’ collective wealth is used outside the normal business model.

In mergers members are given nothing more than PR cliches.  Should ending a successful, sound charter be so much easier than what is required for a new charter in the first place?

Harper sees “consumer protection” as crossing every “T” and dotting every “I”.  That approach is  fiddling while the cooperative industry burns down.  In the meantime, members’ collective legacies are stripped away by their boards and managers.

Sound, well run credit unions are losing their cooperative roots and purpose.  No one is willing to address the situation for what it is and stop these extermination.  Unfortunately, we know how this movie ends.  The original version was called the S & L industry.

 

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 Be Like Mike

Mike Dickersonby Jim Blaine

Mike Dickerson recently retired, after 41 years, as the CEO of Oxford Credit Union. Under Mike’s leadership, the Credit Union has grown year over year – every year for 40 years! During Mike’s tenure the Credit Union increased in assets ten-fold to over $20 million; but funny, no member ever asked Mike “how big” the CU was. Oxford Credit Union was not about size; it was far more valuable than that. Oxford CU focused on service.  Mike Dickerson was one of the finest leaders in our community. In case you didn’t know that, I wanted to let you know why.

Folks usually have an opinion about CEOs – mostly not that favorable. CEO-types often appear a bit too self-important, are not known for humility, and seem to have spent way too much time in front of a mirror. Mike Dickerson was not that kind of leader. He thought common sense was better than an executive coach; he never tried to buy a bank; and he didn’t need a corporate jet to prove he was a leader – because he was the real thing. Mike never took himself too seriously as a CEO, but he was deadly serious about his responsibility to serve the best interests of his members, his staff, and his community. As with all strong leaders, Mike was also called upon to lead in his church, in our electric co-op, and in business and civic organizations.  Mike Dickerson believed life was about serving others. He spent a lifetime doing just that. It was as simple as that.

As leader of the Oxford Credit Union, Mike Dickerson worked hard to help local folks succeed – staff and members alike. He felt that every position at the Credit Union was important; he pushed his staff to discover who they were; he expected everyone to lead. Mike knew that fine folks come from all backgrounds and in all shapes, sizes and colors. The package really didn’t matter; it was what was inside your heart that counted. People knew Mike cared about them. And best of all, he would listen to them! It was as simple as that.   

Small, community-focused credit unions are home grown financial cooperatives – owned by the members who use their services. Access to credit is important to most folks in a small town, because “making ends meet” can be a struggle, there is never enough money to go around, and rich uncles are few and far between. As opposed to other financial institutions, credit unions operate on a non-profit basis and try hard to find ways to leave money in local folks’ pockets. Oxford Credit Union did just that; it practiced what it preached. So did Mike Dickerson – “frugal” was Mike’s middle name. Mike Dickerson took good care of “his stuff” – who else waxes their lawnmower? – and took even better care of his members.  Great leaders always seem to “take it personally”. It was as simple as that.

Mike Dickerson has spent his entire life in Granville County, N.C. and knew his members well. They were his friends, his neighbors, his family. In fact, Mike Dickerson was kin to over a third of his members, over half of them if you counted “by marriage”  – and all of them if you counted their second marriages! That’s the way it is in a small town.  Mike well-understood that when applying for a loan some folks “don’t always look good on paper”, because life can be messy, people make mistakes, things sometimes get out of control. Mike knew how to say “No”, but always sought for a way to say, “Yes”. In lending, “They’ve always done right by us “, was better than a credit score and character was more important than collateral. Mike Dickerson always kept his promises and he expected you to keep yours. If you broke your promise, there were consequences. When funds were short, folks always paid “Mr. Mike”. It was as simple as that.

Mike Dickerson was committed to the folks in our community for over 40 years and worked hard to make our lives better. Mike Dickerson went about his work in a quiet, humble manner. He was faithful in his stewardship as a leader. Mike Dickerson charted a sound path for the Oxford Credit Union; he never lost his way.He probably thought we didn’t notice, – but we did.  Mike Dickerson trusted his members and we trusted him. It was as simple as that.

Credit unions: It should be as simple as that.

 

 

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Tongass FCU: Microsites and Relevance

A long-time financial consultant wrote me last week:

I will share what I know for a fact: market relevance trumps scale every day of the week. I will concede that part of maintaining market relevance requires continuous investment in your business and scale can help pay for that investment. But scale is not economy of scale. You can be big, inefficient, and fail spectacularly. You can be small, focused, and efficient and blunt competitors all day long.

I have multi-generational clients that are not massive in terms of scale, but they serve their communities better than anyone else. It’s a relationship business. People tend to forget that. Banking is not a transactional business, although people try to make it that way. If you are going to be in the transactional business, then you better have scale and be efficient.

An example of this observation is Tongass FCU ($131 million in assets) founded in 1963 by teachers unable to receive loans from banks because of their seasonal income. Today the credit union headquartered in Ketchikan establishes “microsites” partnering with local sponsors to bring financial services to Southeast Alaska’s coastal villages and towns.

Its motto is offering a credit union where no bank will go. The following are stories by the CEO, Helen Mickel carrying out this financial services mission.

Our First Microsite, then Branch at Metlakatla

Metlakatla is the only Native Indian Reserve in Alaska. It is located on Annette Island, a 12 minute float plane ride from Ketchikan.

Metlakatla was suffering from an economic downturn back in the early 2000’s which caused the only bank, Wells Fargo to shut their Metlakatla “store” in May of 2005. Wells Fargo Regional President, Richard Strutz, explained that, “With the economic decline in the area since 2000, it was difficult to maintain and staff a store.” Wells Fargo has a minimum asset requirement for their stores and the $4 million branch was well below that minimum.

Because Metlakatla is on an island, accessible only by boat or float plane, cash was received only once or twice a week. Following Well Fargo’s closure, the community employees struggled to cash payroll checks through their tribal government office typically running out of cash well before the last person was served. This was in a town that primarily used cash for their purchases. One enterprising resident tried to run an ATM machine, but had difficulties keeping cash in the machine which ran out within hours of being reloaded.

The transportation of cash to the community was a constant problem. The community struggled and asked various financial institutions to come in, but found no takers. Then some community leaders visited Tongass’ then CEO, Susan Fisher, to ask about the possibility of a branch in Metlakatla.

The Credit Union’s officers and staff met with Metlakatla residents in June of 2005. Susan explained the difference between banks and credit unions and described the importance of their involvement for a credit union to be viable in their community. We needed affordable space for the credit union and residents willing to become members who would borrow and save at the credit union.

The credit union began offering services once a week at the Metlakatla Indian Community council chambers in the summer of 2005. Staff members flew to the island, opened accounts and transacted business with new members.

The residents gave us a warm welcome. One member waited for over an hour so he could show us his artwork and his small gift store at the artist’s village. Another member took staff to his house so we could take pictures for a home equity loan. We met his wife who was baking pies that day. She sold them once or twice a week as a small in-home business. Their daughter ran a take-out pizza restaurant out of their converted lower level.

Another member gave a tour showing us Purple Mountain – which brought new meaning to “purple mountain’s majesty, above the fruited plain” from “America the Beautiful.” We saw Yellow Hill – which would look more at home in the Arizona desert.

I fell in love with Metlakatla that day. It reminded me a little of Ketchikan when I was a kid and working at Steamboat Bay on southeast Alaska’s west coast. I felt welcomed and honored.

A New Office

Within months we opened a small office in the old Wells Fargo building doing all our transactions without the aid of computers. A staff of three part-time employees worked just two hours a day during the week. The ATM at the office was re-fitted and fired up right away. Two more ATMs were purchased over time and placed in the mini-mart and bingo hall. In the fall of 2006 computers were installed in the tiny office and our staff began doing real time posting.

In 2010 TFCU was approved for a secondary capital loan that allowed us to invest in a new building in Metlakatla. The new branch was completed in 2012.

Early in our outreach to Metlakatla we established a local advisory board. This board helped TFCU work toward providing services in their unique community. Listening to the community members has been a foundation for our progress on Annette Island.

A sign was requested by the local advisory board for the branch’s exterior. They wanted something that would reflect their culture and their “house of money” which is the Smalgyax translation for bank. In 2017 TFCU was able to connect that request with reality in the form of David R. Boxley’s “Spirit of the Tongass” logo, shown below in Smalgyax .

As of 8/31/21 Metlakatla Office’s numbers:
Members: 1,272
Shares:       $8,037,007
Loans:         $9,574,664

THORNE BAY – THE BLUEPRINT

In 2006, we began offering financial services in Thorne Bay.

Our first space was located inside a sporting goods store that was in the lower level of the store owner’s home. The cash was kept in a gun safe and transactions were noted on paper.

Since that time, we have created a more sustainable model, hiring employees, using computers and eventually finding a home in the City of Thorne Bay building.

Thorne Bay became the blueprint for future sites.

NEW COMMUNITY MICROSITES

In September 2019 TFCU opened our Hydaburg site in their local school with an offer to use an office in the common area. Then in December of 2019 we opened in Kake, sponsored by the Kake Tribal Corporation and located in their office building.

Our most recent community microsite is in Hoonah, opened during the pandemic in June 2020! Our TFCU promise and Hoonah’s commitment made it happen. Before, these communities were “banking deserts” with no available financial services.

We brought financial services to Hoonah in partnership with the Hoonah Indian Association – serving the community from their beautiful canoe shed.