The Cooperative Advantage

Cooperatives Are Unique

“The first word in credit unions always has to be MEMBER.  The second word has to be COOPERATION.

“We are a cooperative movement.  Credit unions are co-ops.  People join, agreeing to cooperative to better one another’s lives.   They pledge themselves to cooperation.

“We have seen what this spirit has done for us in the past.  From fragile, tiny groups of people a hundred years ago pledging to themselves they would save and borrow from from one another in a spirit of helpfulness to a movement of 90 million Americans and $700 billion in assets. That is the power of helpfulness and cooperation.”  (pgs. 58-59)

NoteThe Coach’s Playbook is a collection of the thoughts of Ed Callahan from his thirty years working a multiple levels including CEO of Patelco Credit Union and Chairman of NCUA (1981-1985).

Wisdom: The People’s Movement

The People’s Creation

“We don’t have to concern ourselves when people ask, “but what did Congress intend us to be?”  Our movement does not exist because it was created from the top (i.e. Congress) down.  Rather it was created from the bottom (i.e. the people) up.

We told Congress what we intended to be: cooperatives that would try to serve the needs of their members, whatever those needs might be.” (pg52)

NoteThe Coach’s Playbook is a collection of the thoughts of Ed Callahan as a federal and state regulator, innovator and credit union CEO.  The book was published by Member Value Network.

More Wisdom . . .

                     On Lending 

“The backbone of a credit union is lending.  You blow the whole thing if you make too many mistakes here.  Think back over the past 80 years of credit union history in America.  Consider the outstanding credit unions.   What sets them apart?  I believe it is their lending programs. In the long run, the rise or fall of a credit union depends on the loans it makes.” (pg15)

 

Note: The Coach’s Playbook is a collection of observations by Ed Callahan.  They are from his three decade career as a regulator (including Chairman of NCUA 1981-1985), co-founder of Callahan & Associates, and as CEO of Patelco.   The book was published in 2006 by the Member Value Network.

Wisdom from The Coach’s Playbook

                  On Members

” Most economic institutions exist for the capitalists, who are a tiny minority compared with the body of customers.   In such an economic system as now exists around the world, people do not come first.  Money does.

Credit unions are different and always have been. We never came together with notion of making money, but with the notion of helping people and improving their lives.” (pg. 7)

 

Note: The Coach’s Playbook is a short collection  of Ed Callahan’s observations.  These were collected from his writings and talks working in credit unions:  eight years as a regulator  (including Chairman of NCUA from 1981-1985), co-founder of Callahan & Associates, and as CEO of Patelco.   The book was published in 2006 by Member Value Network, a spontaneous “collection” of credit union leaders and consultants.

Credit Unions and Public Banks  

On September 18, 2023 an organizing group Friends of the Public Bank of the East Bay  (PBEB) announced the hiring of a its start-up CEO, Scott Waite.   This is a brief announcement by Waite on YouTube.

Waite is a credit union veteran having served over 20 years as Patelco Credit Union’s  CEO.  More recently he had turned around Central State Credit Union which had been operating for four years under regulatory constraints.

PBEB has raised $1 million and is undertaking further fund raising.  Four local jurisdictions – Alameda County and the cities of Richmond, Oakland and Berkeley – are supporting the effort contributing financially to the bank’s groundwork and business plan.

The intent is to seek a bank charter with FDIC insurance to open by 2024 or early 2025. The goal is to facilitate local governments’ reinvestments back into their communities. As a wholesale bank, PBEB will partner with community banks, credit unions and CDFIs to finance affordable housing development, small businesses, the renovation and electrification of existing buildings, and the ability of cities and counties to refinance their municipal debt locally.

More Efforts Underway

On September 29, the online reporting site, Next City, posted a summary of the history of public banking and the growing interest in major cities across the US.

A Victory For Public Banking

A public bank in California’s East Bay is gaining more momentum to become one of the first public banks to start operating since the state-owned Bank of North Dakota got established in 1919. It is the first public bank to hire a CEO in the last 100 years.  Interest in establishing public banks has grown significantly in the last decade but many organizers continue the long push to get one created in their cities.

In an earlier article Next City described efforts of mayoral candidates in Chicago and Philadelphia to make public banks part of their electoral initiatives.

Organizers in New York also want to create a city-owned wholesale bank which was the subject on an article in Credit Union Times, Public Banks: An Important Idea Whose time is Overdue. 

The author, Melissa Marquez, CEO of the $37.7 million CDFI Genesee Co-op FCU, pointed out the public banks are not competition but “would partner with us to increase our capacity to lend, grow and meet our communities’ needs. This partnership model is effective precisely because it leverages the proven expertise of local lenders and the scale of public deposits.”

She pointed to the century long record of the Bank of North Dakota, a public bank with over $10 billion in assets.   From its 2022 Annual Report:

BND had “a record $5.4 billion in loans to the state’s farmers and ranchers, business owners and students in North Dakota and record profit  of $191.2 million in 2022, up $47 million from 2021.”

Her article  cited statistics from the Institute for Local Self Reliance that  “the Bank of North Dakota has fostered the highest rate of community banks and credit unions per capita in the country.

She added: The New York Public Banking Act (S.1754/A.3352) would create an appropriate regulatory framework for enabling localities, such as Rochester or New York City, to apply for a special purpose charter for a municipal public bank. They will be charter-bound to reinvest in equitable economic development in low-income communities.“

The article also cites the history of the CDFI programs as a model for a new, locally focused financial institution system:

“30 years ago, the federal CDFI Fund was established during the Clinton Administration as a part of the U.S. Treasury. There were naysayers and name-callers then as well. But three decades later, thousands of successful CDFIs are operating in urban, rural and native communities across the country, and CDFIs enjoy broad public support across political and other divides.”

Why Public Banking Could Take Off

Scott Waite explained his decision to lead the PBEB as a “grass roots movement meeting the moment.”  The bank will partner with other institutions to ensure public funds are reinvested locally.  His three areas of initial support are affordable housing, renewable energy and small business lending.

PBEB cannot be a retail bank.   As a wholesale firm they will rely on other community financial institutions and firms to initiate projects for joint financing.

I believe there are two factors that suggest public banks could succeed.

The first is that the increasing consolidation of financial institutions.  This means that locally owned and directed firms are becoming less and less prominent in major American cities.

When I worked at the First National Bank of Chicago ( 1974-1977), the city had three major local banks:  First, Continental and Harris Bank plus dozens of correspondent banks under Illinois unit banking charter limits.  Today I know of no major locally owned bank that calls Chicago its headquarters.

Yet municipal and country governments manage hundreds of millions of dollars that are all deposited in for-profit institutions, whose priorities may not align with how local governments might see funds used.

Just as credit unions were formed by tapping into the steady flow of wages for military and public employees in earlier generations, public governments and authorities are now focused on the wholesale use of funds with local partners.

Secondly. government today is big business.  Public contracts for roads, health care, schools involve overseeing hundreds of millions of dollars in dedicated public spending.   Some of these same skills will be required in overseeing new institutions for local financing. In many cases the expertise is already there or readily available such as Scott Waite’s hire.

In one instance, credit unions have already chosen a public banking option. The Midwest Corporate Credit Union serving North Dakota voluntarily dissolved in 2011 after the multiple uncertainties driving the new corporate regulations. They did so because “North Dakota credit unions had access to the Bank of North Dakota that provided many of the services of a corporate credit union without having to maintain a capital share.”

Just as the FHLB system has become the preferred liquidity lender for the credit union system not the CLF, public banks may accelerate their role in local financing projects that are now too large for one institution to undertake.

Scott Waite believes credit unions should embrace these efforts as it will facilitate a greater local role for their members’ funds.  And just as important, the underserved needs are growing in cities across the country, so that innovative initiatives will be critical.

We’ll know the concept has taken hold when there is a public banking support organization such as Inclusiv for CDFI’s.

 

 

The Challenge of Being a New Coop CEO

Leadership changes are necessary to sustain every organization’s success.   Sometimes changes at the top work well; other times they come with drama and uncertainty.

New CEO’s, especially if brought in from outside an organization, will have a healthy disrespect for the status quo.

But no one wants a job they disrespect.

So the critical performance standard is the leader’s vision of the future.   Is the person equipped with the right motivation, not just relevant professional skill sets?  Or, are they chosen just to break from the past?

A  Difference, If Understood

Credit unions as cooperatives can teach and illuminate human possibility.  But it can only do so to the extent that leaders are determined to use the design for those ends.

Otherwise, it becomes nothing more than an aggregation of financial accounts in a marketplace full of options.

A Credit Union’s Calling: Be “Stewards of Humanity”

Everything in life comes around, full circle, even in credit unions.

“In 1908, Monsignor Pierre Hevey, Pastor of Sainte-Marie’s parish in Manchester, New Hampshire, organized what was soon to be known as the first credit union. The goal was to help the primarily Franco-American mill workers save and borrow money.

“On November 24, 1908  in Manchester, New Hampshire  “La Caisse Populaire, Ste-Marie” (The People’s Bank)  became the first credit union in the nation.”  (from Our Story, St. Mary’s Bank)

Today the Bishops and priests of the Episcopal Diocese of New York are following in Monsignor Hevey’s footsteps.   And for many of the same reasons, as demonstrated in these founders’ statements:

“As a diocese, we are committed to making a meaningful impact on the lives of those who have traditionally been marginalized and underserved. That’s why the establishment and launch of our diocesan credit union is such a pivotal moment for us.

“It’s not just about providing financial services, it’s about creating an inclusive space where everyone, irrespective of their financial standing, can feel valued and supported. . .

“These initiatives are more than just programs or ideas, they are a call to action, a call to embody the love and grace of God in the world.”

A second organizer:

“As a member of the inaugural board of trustees and co-chair of the Diocese’s credit union task force, I am thrilled to see the New York Episcopal Federal Credit Union open its headquarters and first branch here in the Bronx. It’s a testament to our commitment to the local community and our mission to serve everyone in our field of membership, regardless of their financial circumstances.

The existing banking system often neglects the needs of those who are underserved and overlooked, and that’s why we’re excited to offer a financial institution that prioritizes the well-being of all its members. We look forward to empowering our neighbors in Fordham and throughout the Bronx, as well as the entire Diocese of New York, with the tools and resources they need to achieve financial stability and thrive.”

The biblical calling to be “stewards of humanity” was featured in this short recording by the Diocese announcing the credit union’s formation.

In the June 30, 2023 call report, the credit union reported $477,000 in total assets, all in investments, and a net worth of the same amount.

A Long Journey

Here are some details of the charter journey from an Episcopal  News Service May 23rd story:

“The journey towards establishing the NYEFCU began in 1990 when the Diocese of New York committed 10% of donations to its endowment funds to economic justice efforts and created a task force to recommend projects. Despite initial discussions and resolutions in 2003 and 2004, the credit union’s development was slow.

“It wasn’t until 2014 when the diocesan convention voted to “authorize the establishment of a task force to prepare a charter and solicit initial grants and deposits to establish the Episcopal Diocese of New York Credit Union.”

The Diocese embraces a lively community of faith, fellowship, service and spiritual commitment across almost 200 congregations and 50,000 members.

“The task force submitted an application for a federal charter to the National Credit Union Administration in December 2020, and spent 2021 and 2022 addressing the federal agency’s requests for more information and revisions before finally receiving approval.

“The credit union was launched with an initial investment of $500,000, with $250,000 from the diocese and another $250,000 from Trinity Church Wall Street. An ongoing fundraising drive aims to secure an additional $300,000 to cover the first five years of operating expenses, including staffing, office supplies, and computer technology. After this period, NYEFCU aims to have enough members to sustain itself without further external funding.

“The first branch of the NYEFCU is located next to St. James, Fordham in a new mixed-use development (St. James Terrace) that will house 102 affordable apartments, half of which are allocated for formerly homeless individuals. In its inaugural year, the credit union aims to cater to the specific financial needs of its low- to moderate-income members by offering an array of services.”

Credit Unions’ Future as Credit Unions

No matter the size of America’s collective consumer wealth,  many still have limited access to fair financial options.  These are often the targets of for-profit financial offerings.

It’s no accident that people of faith have played a major role in the establishment of coops as a way to serve their congregations.   They remind all of the values animating credit union pioneers.  And the values that make cooperatives more than “nice banks.”

The fact that this charter application and processing will take from 2020 (when submitted) until the end of this year to raise sufficient capital,  shows the perseverance required overcoming government bureaucracy.

These spiritual founders are responding to the call to serve by creating a financial cooperative.

The major difference is that the Diocese had one hurdle that Monsignor Hevey did not have to deal with, the NCUA.  It just shows it helps to  have God on one’s side.

Members Win at SECU Annual Election & One Observer’s Reaction

Following the formal board reports and the one hour Member Feedback Forum  (comments limited to two minutes each), the Chair read the results of the contested election.

The three member-nominated  candidates won all open seats by receiving the three highest vote totals of the six candidates.   Overall 13,335 votes were cast, based on the highest total from each group.   Incumbent directors received 47% and the candidates nominated via petition, 53% of all votes cast.

The new directors, left to right, are Michael Clements,  Barbara Perkins,  and Chuck Stone.

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Why the Members Won

Voting is the essence of democracy.   All members had the chance to choose who they wanted to lead this iconic credit union.  That is a choice that rarely occurs in credit unions today.  But now the precedent has been set.

Another fascinating aspect of the meeting was the open Forum.  I counted 32 members who spoke up.  Here are several brief snippets of their remarks, addressed to the full board and CEO.  There were no  responses  given to any of the concerns.

  • A retired 47 year SECU employee:  I’m scared to death with what I see at the credit union. . .Risk based lending (RBL) and card rewards are paid by those who overpay interest.  Open your eyes.
  • Member since ’75.  Got loan as college grad and no credit score. . . against RBL. . . I’ve attained financial security. We should be a community where we help each other.
  • I’m amazed after 85 years that we cannot exist without treating members equally.  RBL is race  based lending.
  • Why is the credit card rate increasing?  If a member wants rewards go to a bank.  If the board wants rewards, they should go to a bank.
  • Transparency is lacking, especially the bylaw changes.  We have been denied democracy.
  • I’ve no prepared comments,  Just hope the board will see that the people here do not support the mindset of this board.
  • Retired 41 year senior employee:  Employees need a service heart for the membership.  Last two years has not been for the benefit of the member.   What I’ve seen breaks my heart.
  • Congratulated new CEO Brady and asked: Please report these comments online.
  • 51 year member.  There’s no term limits for those on stage. Nominating committee selected all board members-an old boys club.  We’re making money, but the members aren’t getting any of it.
  • 39 year SECU employee retired in March ’22.  New leadership wanted to turn us into a bank.
  • 36 year SECU employee.  Rarely saw a credit report without blemishes.  All members equally important.  We made life changing differences for people.

And many more.  There was no dialogue and no responses from the stage even when members posed a question.

One speaker, a new member,  stated that she wished she had known about these comments before she voted as she knew nothing about the candidates or issues except the information in the ballot.

The cumulative effect of these spontaneous, brief observations was overwhelming.  Speakers cared strongly about the credit union and its change of direction.

A long time credit union advocate who watched the meeting sent me this reaction.

This is What Credit Union Democracy Looks Like

This afternoon, my daily routine was disrupted in a good way by the annual meeting of North Carolina’s State Employees Credit Union (SECU), the  $50-billion, 2.7 million member, 85-year old credit union that is the nation’s second largest.

I became a cooperative idealist in the 1970s, first as a food co-op organizer until I was introduced to credit unions when I was charged with organizing one for the farmworker nonprofit I worked for.. . . I was enthralled with credit unions as democratic, egalitarian institutions, created to empower individuals excluded from the for-profit banking system.

I was fortunate enough to be hired by the National Federation of Community Development Credit Unions (rebranded as Inclusiv after I left), becoming CEO in 1983 and serving for nearly 30 years. . .

Over the years , , , I went to my share of annual meetings of our member credit unions, usually not very well attended (except if there were refreshments). It was great to meet members, and it was my job, but truth be told, it was not the liveliest way to spend an evening or weekend afternoon.  

My Life’s Work

The 90-minutes I spent watching SECU’s annual meeting on YouTube reminded me why credit unions became my life work. One after another, SECU members debated recent changes instituted by the board,  most controversially, the introduction of risk-based pricing—the nearly universal practice of U.S. credit unions which  charge members different rates according to the credit score-informed tier they fell into.

Not SECU. For nearly its entire history, it offered the same price for the same loan product for all members.  It was a simple, time-honored, financially successful practice, that fueled SECU’s steady growth. . .

But for some members and the credit union’s recent leadership, that was not good enough. Several speakers argued that the credit union’s savings rates were not competitive; one spoke of his children leaving SECU for better rates at a bank. How would the credit union grow and—well, compete—if it didn’t raise savings rates to retain members? . . .

Speaker after speaker—members of 30 years, 40 years, 50 years—spoke passionately about what SECU had meant to them and others, a place to get the best possible rate even when they were starting out in life, were struggling financially, or had marred credit.

True, risk-based pricing was everywhere in credit unions today—but for those with long memories, it had not always been so. They fully understood that better returns on savings were available elsewhere. But they were staying.

One-tier pricing is radically egalitarian—providing those with fewer financial means the same rates enjoyed by those with immaculate credit scores and ample resources. Except it is hardly radical, and hardly new.

One speaker denounced the strategy as “socialist”: This was North Carolina, he argued, not Russia, China, or Cuba. But I heard no “woke” or progressive rhetoric, only the testimony of people who cared deeply about their fellow North Carolinians and wanted to help them better their lives. “People helping people”—not simply a brand slogan, but an expression of human solidarity.

I spent my career working with small, community-based institutions. As the credit union “movement” became the credit union “industry,” with assets and membership disproportionately concentrated in a minority of institutions, I reluctantly concluded that my ideals and passion were nothing more than a relic.

Today, I thank the members of SECU for the inspiration and hope they gave me.

© Clifford N. Rosenthal

 

Once . . .

Yesterday the North Carolina Credit Union Commission met to discuss a member’s complaint that SECU’s recent bylaw change proscribed members’ rights.  I noted three outcomes.

  1. The chair recused under the ethics rules as he is an employee of SECU.
  2. SECU was approached about voluntarily deferring its bylaw changes until after today’s annual meeting, but declined.
  3. A Commission subcommittee was formed to review the process for bylaw changes and make recommendations as soon as practical.

The Commission’s role in this oversight has not ended. The bylaw issue will continue on its agenda.

Today at 1:00pm SECU’s Annual meeting will be held. A link for the virtual broadcast will be published on its website.  The voting outcome for directors will be announced.

This Annual Meeting will be a seminal event no matter the result. For once members have been brought into the process,  it will be hard to shut them out in the future.

Once . . .Is Today

Once to every man and nation
Comes the moment to decide,
In the strife of truth with falsehood,
For the good or evil side;
Some great cause, God’s new Messiah,
Offering each the bloom or blight,
And the choice goes by forever
Twixt that darkness and that light.

Then to side with truth is noble,
When we share her wretched crust,
Ere her cause bring fame and profit,
And ’tis prosperous to be just;
Then it is the brave man chooses
While the coward stands aside,
Till the multitude make virtue
Of the faith they had denied. . .

The Members’ Voice

Once empowered, the members’ voice is hard to still.   In a democracy people will act when they see their self interest in jeopardy.

Member rights have not been a priority across the credit union system.  Federal and state regulators have been absent and at times, negligent, when overseeing this aspect of their responsibility.

Democratic governance is a vital factor in the credit union model.  Legal equality in governance was deemed to be a precursor for economic equality.

Democratic voting is more than an organizational design.  The one-person-one-vote is a core value.   For decades credit unions have struggled to tie their cooperative moral laces.

Today as recited in James Russell Lowell’s poem above, may be a reawakening of that effort for SECU and the cooperative system.

A Hearing Today on Member Rights in a Credit Union

The credit union democratic cooperative model  is simple. The legal equality of each member’s voting role is intended to facilitate economic equality.

The intent of the one-person-one-vote in governance is that when accessing common resources, each member is on the same footing.  If one person is better or worse off than another, that should not affect their ability to access credit.

In almost all other for-profit organizations, control is exercised by who holds the most shares, or through classes with special voting rights.

Member Rights

A credit unions’s bylaws is the primary document implementing member rights.  NCUA’s bylaw description runs 45 pages. “The FCU Bylaws address a broad range of matters concerning a credit union’s organization and governance, the relationship of the credit union to its members, and the procedures and rules a credit union follows.”

But who ensures that the bylaws are followed, both in letter and spirit?   Here is NCUA’s description of their role:

The NCUA has discretion to take administrative actions when a credit union is not in compliance with its bylaws. If a potential violation is identified, the NCUA will carefully consider all of the facts and circumstances in deciding whether to take enforcement action. The NCUA will not generally take action against minor or technical violations, but emphasizes that it retains discretion to enforce the FCU Bylaws in appropriate cases, such as safety and soundness concerns or threats to fundamental, material credit union member rights.”  (emphasis added)

What happens when the bylaw procedures for nomination and election are administered so as to form without substance?  Or interpreted to enable incumbent directors to protect their positions and prerogatives?

A Live Case Study

Today, October 9,  an actual situation will be discussed.  The North Carolina Credit  Union  Commission will hold a special public meeting at 1:00 p.m. (dial in # (877)-402-9753, access code – 6601929.)

The primary purpose as published in the Notice:

“Discussion about concerns raised by a member of the public regarding recently approved changes to the State Employees’ Credit Union by-laws.”

This is how Jim Blaine sees the issue to be discussed in a recent post.

This will be another way the Annual Meeting and election of directors at SECU could have an impact far beyond this credit union’s circumstances.

The Annual meeting occurs tomorrow October 10th and will be lived stream.