Category: Cooperative Design

Access to cash is members’ top financial worry in a crisis. Some are fortunate to have savings, steady income or retirement to draw upon. Others, living paycheck to paycheck, must rely on credit. These two options are illustrated from actual events. In person lobbies are closed. The CEO directs members to one of two “drive-throughs” serving everyone, regardless of circumstance.

Born in a Crisis

In 1932 during the national depression, workers at Wright Field in Dayton, Ohio decided to chip in 25¢ a week to help an ailing co-worker and his struggling family. Recognizing a great idea, they later took a quarter each payday to create a fund for fellow workers who might one day also need help. It was called “The Sunshine Fund.”

That shoebox of money became Wright-Patt Credit Union, Ohio’s largest, with over $5 billion in assets.

Those seeds planted 90 years ago now serve 400,000 members in central and southwestern Ohio during an economic shut down some are comparing to the Great Depression.

Managing a crisis like COVID-19, without any playbook or past experiences to draw from is challenging. The issues that come up are things most wouldn’t have imagined a few short months ago. For CEO Doug Fecher, there are only two rules: “Try to do the right thing as best you see it; and, do those things the very best you can. If we do those two things, we’ll be okay.”

The following excerpts from Fecher’s April 15 board crisis update documents the intensity of added activities undertaken in this “essential service.”

From CEO Fecher’s WPCU Weekly Board Update (with permission)

The big news this week is the government’s release of stimulus funds.

• WPCU today received and posted about 81,000 ACH deposits for $147MM of government stimulus funds

Lending

• We’ve processed 10,700 skip-a-pays for about $3.6 million in payment relief.
• We’ve made 211 disaster relief loans totaling $260K.
• First mortgage activity, especially refinancings due to lower rates, continues brisk with 240 closed mortgages so far this month.
• We release full government payment proceeds to members even when members may have a balancing owing or negative deposit account balance with WPCU.
• As of Friday, April 10^th, we’ve processed 128 forbearances on 1^st mortgage loans in the WPCU portfolio.

Commercial Lending

• We have obtained SBA approval on 180 PPP applications for a total of $37MM in funding.
• The PPP loans approved so far support nearly 4,600 jobs. Loan amounts range from approximately $300K to $2.8MM.
• An additional fifty PPP applications are in process raising our total to $40MM.
• About 300 commercial applications are in queue as of April 14^th.

Partner Update

• We have no employees confirmed with COVID-19.
• Thirteen employees are in physician-directed self-quarantine.
• We pay COVID-19 medical expenses for employees and family members on the WPCU health plan.
• Absenteeism has decreased as more Partners have been moved to work from home. For example, member help center absenteeism fell to 1% this week, from 14% on March 30^th.

Operating Updates

• Transaction volume is much higher this week across the board. We received 7,376 calls into the member help center on April 14^th, compared to 5,780 calls as of March 30^th.
• Member center and member help center activity jumped this week with the release of government stimulus checks. This is resulting in longer than usual lines in drive-thru lanes and on telephones.
• We are seeing increased attempts at fraud.
• Marketing communicates on everything from encouraging use of remote services, to fraud avoidance, to helping members with their government stimulus checks.

Liquidity as of April 13th

Our liquidity coverage ratio is 3.46.

This means we have almost three-and-a-half times the maximum cash draw down in the last thirty days in available liquidity.

The following is a coronavirus action plan from Doug Fecher, CEO of Wright-Patt Credit Union in Beavercreek, Ohio. He opens by honoring all those serving on the front lines, outlines changes in operations (details omitted) and summarizes the waiving of many member fees. The member actions below could reduce income by $50 million or more depending on the length of the crisis. This, he says, is why we have capital. “I’m sure there’s more we can do, and will do, but this is where we’re starting.”

Partners,

What is a hero?

No matter what the dictionary says, for me it is someone who simply answers the call. Often we think of saving a life, but actually most heroic acts are things we don’t usually think about at all. More often than not, heroes are those who take care of their neighbors when nobody else will.

Some people put themselves in position to perform heroic acts. Others find themselves thrust into the role– finding themselves at a crossroads of time, place, and opportunity where a decision must be made. Do I step up or not?

Being a hero doesn’t mean we don’t have fear – it means we do what we need to do despite being afraid.

Imagine life without our everyday heroes.

First responders, members of the military, nurses, and doctors are clearly heroes. But they aren’t the only ones. So understand me when I say, with all due respect to those obvious heroes, that I consider people like us – people who work in grocery stores, pharmacies, and other typical businesses who never thought that what they do is provide essential community services – those people can be heroes too.

And make no mistake – this includes all of you! You and your colleagues at WPCU who work in a business that provides one of the most essential services of all – peace of mind. At a time when you are worrying about your own families you are also being asked by the credit union to step up for others – to make sure members don’t run out of the cash they need to manage their own way through this terrible and unprecedented event.

None of this is easy. Everybody wants passionately to get it right. I want to assure you that we are doing everything we can to balance the interests of all our stakeholders to make the best decisions we can. Things are changing daily, even hourly, and so as they change so will the decisions we make to navigate our way through each day.

Heroes. That’s what I think you are, and I don’t think I’m overstating it. I cannot thank you enough.

Now let me update you on where we are today: [internal operations omitted]

Member Temporary Emergency Relief Services

We are putting in place a set of emergency relief services to help members cope with the economic hardship of job loss or reduced income. These services will be available as soon as practical (some require programming, etc. that may take a few days).

Emergency relief services include:

• Temporary unemployment loans are available at 4% interest
• Early withdrawal penalties on share certificates of deposit are waived (daily cash withdrawal limits apply).
• Late fees on loans are waived.
• Consumer credit card limits for creditworthy borrowers are automatically increased by $1,000.00; higher limits may be available by request.
• Commercial credit card limits may be increased upon request.
• Members are permitted to skip up to three consumer loan payments without penalty (Skip a pay may not be available on certain loans). Additional skip-payments may be granted upon request.
• We are temporarily suspending new foreclosures and automobile repossessions. If you are having trouble paying your bills we urge you to contact us so that we can help.

We are also implementing a temporary change to member fees in order to provide further relief:

• Share transfer fees for NSF/overdrafts are suspended.
• NSF/overdrafts fees are suspended.
• Member choice transaction fees are suspended.
• Foreign ATM fees are suspended.

Thank you …

These are difficult times, but they are temporary. We will get through this even if we don’t know just how long it will last. Our community will become more used to a new normal way of doing things including accessing cash, and this will happen even before the crisis ends. Every day that passes brings us one day closer to this being over.

I hope you understand that the actions we are taking are to protect our partners and members as best we can. Truth be told I personally hate that we can’t just close shop and have everyone go home to wait this out. But if a home catches fire the firefighters will show up. If you go to a hospital there will be doctors and nurses waiting to care for you. If you need food or medicine there will be grocery and a pharmacy open to help you. And if you need cash or can’t pay your bills, buy basic supplies, or take care of your family, we are your credit union. We will be there for you too. Closing our business is just not an option.

And that’s why I think you all are heroes. It’s not something I say lightly, and so when I say thanks for all you’re doing, I hope understand the emotion and force of those words. I simply can’t thank you enough.

Doug Fecher, CEO

Everything Cancelled! That is the economic and social reality today from the coronavirus crisis. Except for one critical capacity-to learn at the speed of change.

Credit unions have three distinct strengths in the current crisis:

1. They focus locally. Regardless of national guidelines or initiatives, all execution is local. Schools, businesses, health care and all services are led and delivered specifically for each community The community is the “home field” advantage of every credit union.
2. Members come first, not a stock price or buybacks, or jousting for a corporate takeover as competitors weaken. Members are why we exist. Their financial health is each institutions’ “social capital” of trust.
3. Collaboration, based on the principle of self-help, is our competitive advantage. Working together even with “social distancing” is integral to our system’s design.

Turning to Action

When asked about knowing the peak of the curve tracking the virus spread, NIH infectious disease expert Dr Fauci stated: “We don’t know about it until after the fact.”

In contrast to this post-event knowledge (hindsight is always 20:20) the cooperative advantage is the ability to share and learn from each other to proceed with confidence through each phase of a crisis. Real time sharing brings insight and foresight.

Every crisis, externally imposed or internally caused, goes through a similar, predictable cycle: Discovery/incident, growing realization of impact, uncertainty creating fear and doomsday predictions; responses-local and national; slow recovery, and step by step return to normalcy.

The greatest danger is to get stuck in judgments in one part of the cycle and assume that will be the situation forever. The best example is NCUA’s actions to the corporate investment portfolios in2008/09.

Learning occurs from first-hand intra-industry sharing about credit unions plans and actions. Often in real time webinars.

“Uninterrupted Service” and “There’s a lot we can do”

One CEO’s focus in his staff communications is to ”deliver uninterrupted service to members.” He further observed:

We are offering members a variety of ways to help them. We have a temporary income replacement loan with an interest rate of 2 or 3 percent. Also a few extra free skip-a-pays (we offer one free skip-a-pay per year as a matter of routine). Our Governor closed our schools for three weeks which is creating a childcare nightmare for our mostly parent-age employees so we are considering an interest-free loan for any extra childcare expenses they incur during the crisis (we need them to come to work if they can). 

So far not much of an issue for members – we’re getting some requests for assistance but only a handful so far. I expect this could increase significantly in coming months.

Our crisis team is meeting every day to re-assess and make new decisions. I’ve been around a long time and have never seen anything like this – this is worse than the great recession because of the panic around health. We will be fine – this is what we have capital for, right? We have a lot of it so there’s a lot we can do.

Keeping Credit Flowing-Lowest Borrowing Rates Ever

The Federal Reserve’s actions lowering short term rates to zero creates a potent borrowing and member lending opportunity for credit unions This morning’s fixed rate term loan advances from a FHLB ranged from .81% for one year to 1.02 for five years.

With this historically low cost of funds, credit unions can leverage their balance sheets to assist members to refinance outstanding loans. Refinanced loans have a payment history and can be secured. Lowering rates puts more cash in members’ hands or enables faster loan spay offs. Refi’s of home mortgages can benefit members years beyond the crisis.

Creating low cost short-term financing for those members and businesses subject to uncertainty is vital to an economic rebound. Credit unions have the local knowledge to direct their lending priorities where it is most needed in the community.

“An Essential Service” and “Being Good Neighbors”

I received the following excerpt in an email from a credit union:

Financial institutions are considered an essential service, so our branches are open to serve you during the shelter-in-place order impacting six Bay Area counties.

In a crisis, recovery starts from the bottom up, not the top down. While national funding can counter market’s liquidity panics, recoveries in retail sales, business re-openings and restoring normal patterns of commerce must occur locally. Dependable financial services are the oil to keep the wheels of commerce turning.

On Sunday I participated in a Zoom church gathering. The order of service was the same as if we were in the sanctuary, some music and congregational interaction through Zoom’s “gallery view.” The technology provided all regular service practices. By doing so it renewed a sense of community even without physical presence.

Learning inspires innovation. Another congregation announced in the midst of city-wide church closures in DC: “The church is not closed, but the church is changing its practices for the time being.” 

When everything is postponed or shutdown in our daily lives, all routines are unsettled.

Crisis can breed fear, even panic. One credit union reported a member who withdrew his entire share balance: $500,000.

Learning new ways to be good neighbors for our members, community and the coop system could be the most important outcome of this crisis experience. That would be an “essential service” lasting much longer than facilitating daily financial transactions.

Since the era of deregulation, the credit union system has navigated multiple national and local crises. These include the October 1987 stock market shock, the meltdown of the S&L system, the bankruptcy and government rescue of the FDIC and FSLIC, the Y2K uncertainty, the 9/11 terrorist attack, and the Great Recession of 2008/09.

Now the coronavirus threatens national physical and economic security.

There are three vital responses that characterize credit union capabilities in a crisis.

1. Liquidity

The number one priority for both credit unions and their members. As economic uncertainty mounts, markets begin to tighten, there is no longer rational pricing, and everyone starts to hoard cash. Consumer spending slows, job losses mount and business revenue becomes less certain.

The most important action credit unions take is to keep credit flowing. Actions include supporting members’ credit requests, financing purchases such as cars and housing, and marketing lower interest rates to help members refinance higher rate loans.

2. Act Counter-Cyclically

Credit unions are designed for crises. Cooperatives’ unique structure enables them to act counter cyclically and therefore stand against the market pressures to put institutional financial priority ahead of member interests. Credit unions are the solution to many of the individual and community economic strains a crisis brings. By keeping the loan windows open and liquidity available at normal rates, market failures can be ameliorated and the time to recovery shortened.

3. National Legislation

The national legislation that accompanies a crisis should be an opportunity to enhance the cooperative model, not queue up at the federal trough seeking taxpayer funds for an industry built on the concept of self-help.

Significant legislation to upgrade the cooperative system historically occurs once each decade. Given the rivalry with banking groups and conflicting treasury priorities, it is difficult to predict when and how any opportunity will occur.

Rather than being caught up in the bailout legislative frenzy, this is the time to upgrade the cooperative system. Necessary bold changes could include:

1. 1. The redesign of the CLF to bring governance by the member owners and to enhance purpose by enabling cooperative access to the secondary market via the CLF.
   2. Explicit recognition of member-owner rights in cooperative governance.
   3. Enhanced accountability and transparency by NCUA for use of member funds and the agency’s responsibility in advancing cooperative solutions.

Not Letting a Crisis Go to Waste

The urgency of a crisis can cause responsible parties to focus only on the immediate challenges and not broader opportunities. Restoring the status quo can dominate the immediate agenda.

Credit unions were created to transform market options for members. During the Depression they were a national policy response resulting in the passage of the FCU Act.

Credit unions can respond to crisis in ways firms worried about share prices and market reactions cannot. Their member ownership structure ensures credibility by placing members’ interest first. The cooperative financial structure permits patience to persevere through the cycles of value that accompany every crisis.

Leaders Who Believe in the Power of Self-Help

These features mean that credit unions, in crisis, can demonstrate practically and forcefully why America needs cooperative solutions more than ever.

The key to realizing these crisis advantages is leadership. Can the persons responsible avoid getting caught in the panics that ensue? Will leaders listen and collaborate with credit unions on the front lines already responding with creativity and resilience? Will they promote the cooperative solutions or revert to practiced roles promoting personal or political advantage?

The cooperative message is that we are not prisoners of fate in a crisis. Credit unions demonstrate the many ways to overcome the doubts of today for a better tomorrow.