STOP THE PRESSES: MEMBERS VOTE DOWN MERGER 66% TO 34%

Yesterday the Credit Union Journal broke a unique story. The members of N.W. Iowa CU ($58 million) voted against a merger with Siouxland FCU ($206 million) by an overwhelming margin of over 2 to 1.

Unprecedented Event

Every year, several hundred voluntary mergers of sound, well-run credit unions occur. Under the cooperative democratic structure, these mergers must be approved by a majority of members voting on the request to end the charter.

However, the voting can hardly be described as democratic in any traditional understanding of the term. For the process is akin to a “one party state.” All of the narrative, timing, ballot and ongoing messaging are controlled by the credit union’s board and management, backed by all of its resources and marketing capabilities. There is no “opposition party.” No contrary information or alternatives are ever mentioned.

The majority of ballots are submitted by mail. The “campaign period” is 45 days or less. Anyone opposed has neither resources, time, or expert knowledge to counter the party line. The decision is a simple yes or no vote on the merger. The option to remain independent is not even present on the ballot.

Members overwhelmingly mail in ballots, as requested, approving the board’s recommended action. After all, if members didn’t believe in the board leaders they elected at some point, why would you trust them with your money to begin with?

Since becoming involved with credit unions in 1977, there have been over ten thousand such voluntary mergers. I am unaware of any time that members turned down this board/CEO recommendation to end a credit union charter.

Information Provided to Members

The public information from N.W. Iowa follows this traditional process. The required Notice of Balloting dated April 20, 2020 was sent to the 5,000+ members outlining the reasons for merger.

These included the convenience of five Siouxland branches and “advanced products and services with competitive rates.”

Other details noted the credit union would continue to operate under its own name (as a division of); the current CEO would retire but continue to work as an advisor; employment would be offered to current staff; two directors would join Siouxland’s board; and a charitable account would be set up to receive “at least 51% of earnings” to build engagement with the Iowa community.

The four-page document lists the new main office in South Sioux City, Nebraska, and its five branches.

The required merger related financial disclosures included bonuses for all merged employees plus severance if terminated without cause in the next two years. Four senior loan managers would be entitled to additional benefits totaling over $330,000.

The credit union’s Facebook page (https://www.facebook.com/NWIACU/) still shows the video of the two CEOs promoting the merger as well as an announcement from the chairman: Thank you for being engaged. Your credit union will remain independent.

Why the No Vote?

We don’t yet have information why opposition developed their point of view and how they organized to overwhelmingly reject this merger event.

N.W. Iowa is a very strong credit union. Its growth of shares (8.4%) and loans (7.9%), operating expense ratio (0.53% of revenue) , ROA (0.94%) and delinquency (0.35%) are all better than Siouxland’s March 2020 numbers. By any standard, this charter granted January 1, 1966, is a strong performer.

Was it some information in the notice? A perceived lack of any relevant benefits from the merger? The payment of employee bonuses in a time of economic uncertainty?

Outsiders generally know two things about Iowa: It is the first state to hold a presidential primary every four years, and it grows lots of corn and hogs. The state is middle west conservative with a legacy of rural small towns and farming communities–not the likely source of a populist uprising.

Le Mars, the home of the credit union, is called the Ice Cream Capital of the World. Were residents upset at the loss of a community pillar with its local focus, relationships, reputation and over 50 years of service?

Reemergence of the “Grass Roots”

In this time of crisis, is this event another example of popular protest emerging in other areas of society. The traditional obedience to authority and status quo behavior is being challenged as COVID concerns and economic uncertainty grow. The people want to be heard, not taken for granted. They want the institutions to serve them not the parochial interests and rationales of their leaders.

The no vote was announced on July 1, just in time for Independence Day. Can this be the spark for a revolution to return the focus of credit unions to serving their members? And challenge the unprincipled pursuit of mergers when members need their credit union relationships more than ever?

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Issues Bigger Than Regulator’s Rules

In 1978, Sangamo Electric Company announced the closing of its Springfield, IL manufacturing plant and head office to move to Georgia.

The company had its own credit union. I had been Illinois Credit Union Division Supervisor for one year. My dad had worked at the company in the 1950s, so I felt an interest in the situation. The issue: what should happen now to Sangamo Employees Credit Union?

For me, the answer was simple. The sponsor and all its direct support, plus the members’ jobs, no longer existed. The employer-based “common bond” was gone. Therefore, it no longer complied with the state’s chartering requirements . It should be closed.

That was not the view of my boss, Ed Callahan, the Director of the Department of Financial Institutions. His logic was that with the company’s closing, the members needed their credit union more than ever. Their jobs were gone. The credit union would be more vital to their future than before.

He suggested we find a way to modify the charter so that the members, not the company or the regulator, could determine their credit union’s future. And that is what we did ­.

Regulators and the Current Pandemic

This incident came to mind when a CEO sent me NCUA’s interagency joint announcement: “Examiner Guidance for Assessing Safety and Soundness Considering the Effect of COVID-19 Pandemic on Institutions.”

The purpose of its eleven pages: “to promote consistency and transparency across the agencies, examiners will continue to assign supervisory ratings in accordance with the applicable rating system. . . CAMELS.”

“. . .it is essential that examiners maintain a clear understanding of the financial condition of each institution.” And “. . .examiners will distinguish between problems caused by the institution’s management and those caused by external factors beyond management’s control.”

Why is NCUA Sending this “Guidance”?

The paper appears self-serving, citing circumstances familiar to everyone. It reads more like a warning notice, than “guidance.”

Its bottom line is “we are telling you, be careful.” Is this a prelude to circumventing normal supervisory due process, using the pandemic’s uncertainty as an excuse?

There are three concerns with NCUA’s forwarding this directive to “promote consistency and transparency across agencies.”

  1. Why did NCUA believe this bank-drafted warning message was even appropriate for credit unions?

Credit unions are different from banks in fundamental ways. Their cooperative design, tax exemption, “common wealth” and reserve/capital options are intentionally unlike privately owned firms created to profit shareholders.

Credit unions fulfill a different purpose, one of which is to be an antidote to the shortcomings of for-profit financial options. The CLF and NCUSIF’s designs incorporate these cooperative differences.

  1. At this time every other arm of government including Congress, Treasury, the IRS, SBA and even the FED are crossing all their traditional “red lines.” Why is NCUA joining bank regulators to announce “business as usual” contrary to the activities of every other government entity?
  2. This “examiner guidance” makes no mention of the special credit union role in times of economic distress. Every day credit unions are waiving fees, lowering rates, providing forbearance and other special accommodations for members. These actions reduce a credit union’s “normal camel ratio ” outcomes. That is what coops are supposed to do with their members’ collective savings.

A current example is how 15 Vermont credit unions have provided $385 million in member relief, so far. Isn’t this the special “guidance” NCUA should be highlighting?

Rising Above Rules

While hitching NCUA’s wagon to other regulators may seem to enhance NCUA’s image, it diminishes credit unions’.

Credit unions were well positioned financially entering this crisis. The cooperative regulator is most effective when knowing how to see beyond the letter of the law and support the spirit of the movement. That is the Sangamo lesson Ed Callahan helped me to see.

This instinct to put members first lives in most credit unions. In this time, shouldn’t NCUA’s “examiner guidance” be to promote this essential mission? And even co-develop special programs with the industry to help members recover financially?

Credit Union CEOs Speak Up

America is confronting three difficult problems: a health pandemic, economic downturn and systemic racism.

After George Floyd’s death many felt the call of conscience to state clearly our values–personal and institutional.

Two veteran CEOs have provided thoughtful perspectives. The first message reinforces the vital role credit unions have to ameliorate systemic inequalities and provide hope. The second is a call to action by the CEO to his partner teammates.

These have been edited with permission of the writers. Their full statements can be read at the link following each excerpt.

What Protests Teach Us –Local Government FCU/CIVIC FCU CEO Maurice Smith:

The recent protests taking place around the country over the death of George Floyd is an opportunity to learn important lessons.

Protesting is an American right.

Protests awaken in all of us a reaction that should be addressed. First, we observe and learn about the underlying issues that brought about the protests in the first place. Second, we are forced to look at our world and develop an opinion on sides, morality and messages. Finally, we must decide what action we should take. Even if we choose to not react, inaction is a decision.

What is clear about protests, nobody is happy. Everyone has a motivation to find solutions.

Credit unions were invented to address a social problem. Let’s not be dismissive to the real mission of credit unions. To reduce the role of credit unions to mere commodity peddlers is missing the point. The reason we offer financial services is to remedy social conditions.

There is a connection between social determinants of poverty and the protests we see around the nations.

Financial wellness, literacy and education empowers households to be good consumers. Community wealth draws stable neighborhoods, retail outlets, access to healthcare and better schools. These opportunities build hope and a positive outlook for the future.

Now imagine a community that lacks the basic ingredients for financial enablement. Credit unions came along to fill this gap.

Credit unions use their cooperative principles of member empowerment to supercharge community involvement. We offer viable solutions. We give members choices. The most important benefit we give a community is a sense of hope.

Social unrest is an opportunity for us to meet a real need for productive change. Let’s show the world what credit unions really stand for.

https://www.cuinsight.com/what-protests-teach-us.html

Taking Action -Wright-Patt Credit Union CEO Doug Fecher

Partners, 

I want to acknowledge on behalf of myself and our credit union the pain that many in our community are feeling. And I want us to do something about it. America is better than this. America must be better than this. I know America can be better than this.

To make WPCU’s position clear, earlier this week I authorized the release of a statement via social media:

Wright-Patt Credit Union was built on the fabric of people helping people. This means all people. We are committed to an inclusive environment and respect people of all backgrounds and experiences. We acknowledge the impact of racism and unequal treatment of African Americans which has gone on for far too long in our country.

We condemn all acts of racism, injustice, hatred and violence. More importantly, we recognize that it is not enough to just voice these words – we must back them with positive actions that seek to understand, heal, and grow towards an inclusive society for all. The undeniable truth is that all people are created equal and deserve to be treated with dignity and respect, in a world free from injustice and hate.

We recognize that there is a long way to go in the quest for justice for all people of our community. The first step is to stand up and be counted: Injustice in all its forms must end today. Wright-Patt Credit Union is committed to promoting equity and inclusion throughout the communities we serve.

People are the strength of Wright-Patt Credit Union. We embrace the diversity of the world around us and seek justice for all. This is our promise to all.

We take very seriously the idea that “without action, words are just words.”

The only way meaningful change will happen is for good people to stand up and say “enough”.

There is a lot we can do. we have been working on a broad plan to address diversity & inclusion at WPCU. Our work in that area now takes on even greater meaning and urgency.

America is a great country, but not a perfect one. It is up to us to make it a place that serves everybody on the same terms.

We are all in this together, and together we can all make a difference. We are nothing if we are not a force for good … we help people through life.

 https://www.facebook.com/WrightPattCreditUnion

Local Loyalty: A Meaningful Cooperative Advantage

From Farm to Table

The words community, communication, communion and the phrase common good share similar linguistic roots. Our community, literally common unity, depends on the relationships with those around us.

This shared experience was, and still is, the foundation of a cooperative. Knowing our neighbors, learning their stories, and supporting individual ambitions.

Crises enhance how these “normal” interactions expand to reinforce connections and shared purpose.

Summoning Local Spirit

This cooperative spirit was again called forth in this message from Patelco Credit Union:

Support your local businesses and non-profits

If you’ve already paid your bills, have an emergency fund, and taken care of your immediate needs, consider how you can use the rest of your stimulus payment to benefit your local community.

Non-profits are being called on to do more than ever before, so consider donating to them. We continue to partner with food banks throughout the Bay Area and Sacramento area, many of whom need extra donations right now.

Anchor Institutions

In economies dominated by large national firms who source from global supply chains, the importance of local anchor institutions is magnified in this crisis. Cooperatives along with hospitals, colleges, churches and myriad local businesses create self-supporting “eco-systems.” These institutions can leverage their assets and revenues to promote local development by:

  • Directing their purchasing power toward local vendors.
  • Hiring their workforce locally.
  • Providing skills training for people in the community.
  • Incubating the development of new businesses.
  • Serving as community leaders and network builders.
  • Financing development to promote local retail, employer-assisted housing, and community land usage.

Credit unions are an essential anchor for long term community sustainability.

The 100% Local Pledge

When the sweeping small business closures were ordered throughout California in March, the publication Inside Sacramento was concerned about the many small business owners who serve the area’s neighborhoods who were featured in their publications.

The COVID crisis heightened the many challenges small businesses face every day. So as a community champion, the publication began a city-wide effort to urgently support local firms with The 100% Local Pledge. This campaign included yard signs, social media messages, filmed TV spots and the support of local elected officials.

The first business partner to sign on was Safe Credit Union providing funds and marketing support. (https://www.cutoday.info/Fresh-Today/SAFE-News-California-CU-Signs-On-With-100-Local-Pledge-Campaign) CEO Dave Roughtan explained his credit union’s action: “. . . we can make a difference – but we have to work together. Things may have felt a little out of control. But we – together – can take back the future of our region. . .”

Relearning in a Crisis

The COVID crisis reinforces basic facts about the American economy.

One lesson is that consumers have figured out that food does not come from grocery stores. As farmers destroyed crops, livestock and dumped milk due to disrupted supply chains, local farmer’s markets show us the importance of a direct farm-to-table option.

While the pandemic crisis is national, even global in scope, the health care response must be local.

Another recognition of the vital role of “local” is the bipartisan Payment Protection Program (PPP). The purpose was to support local enterprise. One estimate is that 80% of credit union PPP advances went to firms with fewer than 10 employees.

In good times and crises, cooperatives are anchors.

Our actions around inequality, wealth, and power create alternatives in society which empower individuals via collective efforts. These cooperative, group-centered solutions help underwrite local choices necessary for meaningful lives.

Directing Traffic For Essential Service

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 10th, we’ve processed 128 forbearances on 1st 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 14th.

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 30th.

Operating Updates

  • Transaction volume is much higher this week across the board. We received 7,376 calls into the member help center on April 14th, compared to 5,780 calls as of March 30th.
  • 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.

Schools and Credit Unions Serving Communities Together

Under the US Constitution the primary responsibility for public education rests with the states, not the federal government.

The result is that K through 12 education is overseen by a fragmented system including local school boards, county level agencies and state departments of education.

Financially, approximately 90% of funding is from state and local taxes. The federal government’s share of education fluctuates between 12-15%.

Effective public education encounters all of the major issues of society: race, income disparity, immigration, technology access, financial resources and even political ideology.

The local school systems are a daily example of the major demographic, political and economic issues each community must deal with.

An Indicator of Economic Needs

Some credit unions such as NET Credit Union actively partner with school districts in their educational and outreach strategies.

Most credit unions today have community charters. One of the most useful indicators of the need for credit union services may be from the economic data provided about K-12 students.

Public information on each community’s K-12 student population is abundant.

Here are three examples of data points about the economic circumstances of students in the greater Washington DC area:

  1. In Montgomery County, Maryland, with 144,064 students, the percentage that have received free and reduced price meals (FARMS) is 42.4%.
  2. In Fairfax County, Virginia, with 187,000 students, the number considered economically disadvantaged is 34%.
  3. In the District of Columbia’s public school system of 94,503 students, 77% are considered economically disadvantaged.

These three school systems have some of the most affluent housing areas in the country and, due to government employment, some of the steadiest levels of employment.

Yet significant percentages of students are from families living in circumstances where the school system provides free meals.

Investing in the Next Generation of Members

School statistics can inform credit unions about the economic circumstances of local families especially those that are just be getting by. Financial education and access to reasonable credit is critical for lower income families achieving financial stability, if not independence.

Partnering with schools and students is a way to introduce the cooperative option to the next generation of members. Every community has a school system and most are under local control. A first step could be to ask the school board for the public statistics on their student’s economic and demographic trends. Then open a dialogue for how to reach those families who would benefit most from credit union service.

Forming a collaborative relationship with the single most important institution families’ consider when moving into an area, could give credit unions a long term partnership that enhance opportunities for those most in need.

US Economic Growth by 50 Largest Metropolitan Statistical Areas

Economic conditions across the US are very uneven. The Bureau of Economic Analysis of the Commerce department has released the growth rate of the country’s top 50 metropolitan statistical areas (MSA) through September 2019.

At the high end are Las Vegas-Henderson at 8.6% and San Jose-Sunnyvale at 7.44%. At the other end of the range are Allentown-Bethlehem at -1.2% and New Orleans-Metairie at -2.52%

Knowing your area’s economic circumstances should help you understand members’ expectations about their economic outlook.

Heroes In a Time of Crisis: Investing in Staff and Members’ Well Being

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

Learning at the Speed of the Crisis: A Cooperative Advantage

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.

The Cooperative System’s Unique Capabilities In a Crisis

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. 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.