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America’s credit union museum has begun an oral history series of recordings about critical events in the 110 years of the movement.

Episode 16, my contribution, is in two parts.   Part 1 tells the story of deregulation.   I described this approach as a pragmatic response to the disruptive economic and political forces changing many areas of American enterprise in the late 1970’s:

“Deregulation was not a political ideology, strategic blueprint or onetime response to a changing economy.

In credit unions it was nothing less than building a better system of “cooperative credit in the United States.” It turned upside down the practice of government making everyday business decisions for credit unions.

Rather that responsibility was now in the hands of those closest to the members-management and boards.”

Callahan’s Calling Card

In part 2, I recall the reasons Ed Callahan gave when asked why he was leaving the NCUA Chair with over two years remaining on his term. One was to help credit unions take advantage of the opportunities provided by deregulation.

In founding Callahans, the firm’s first effort was to establish a database of all US credit unions.  In 1986 this became the source for the first and only annual Credit Union Directory. Volume 36 was released this past quarter.

This data resource became the multifaceted Peer-to-Peer database and software that is the go-to, most advanced analytical tool for understanding the industry today.

The Ending of an ERA

Part 2 discusses the ending of this fourth chapter of credit union history–deregulation–in 2009 as the Great Recession financial crisis occurs.  Each of these four ERA’s is approximately a generation long.

While the following 25 years have yet to be fully lived, I suggest the initial decade’s dominate activity could be described as a time of “regulatory backlash.”  The mutual regulatory-industry approach to change and response to disruptions was ended.  NCUA emphasized its “independence” from the credit unions and undertook a series of unilateral regulatory initiatives to re-regulate and impose greater restrictions on multiple areas of activity.

When an NCUA Chair today testifies before Congress that his oversight North Star is FIRE, the cooperative system has been put on notice.  The Chair is just one board vote shy from throwing credit  unions into the pit of regulatory damnation.

The presentation is 22 minutes.   I refer to both recent history and current topics such as mergers, the idolization of size, and the ever-present temptation to become “bank-lite.”

Whatever name sticks when the current 25-year chapter is closed, I trust reviewing these initial years of NCUA activity in the light of prior ERA’s experiences will be educational.

 

Most people believe their life has a purpose.  In John Calvin’s theology every person’s work is a responsibility assigned to him by God.

So in the Presbyterian Church’s Calvinist doctrine of occupational calling, becoming an ordained pastor is a response to this belief. Here is one pastor’s story of the experience, with a moral.

“It was late Spring 2011. Adrian had graduated from Princeton Seminary, our student housing had expired, and I was still in the process of finding a job. Maewynn was 6 months old. We sold nearly everything we owned, even my beautiful Camaro (some people thought it wasn’t “car-seat friendly”), and packed up what little we had left on the top of Adrian’s parents’ hand-me-down Toyota Corolla and headed west. We were moving back in with my parents in California.

We were making good time. Every morning I checked the oil and made sure we had water and food and diapers in the car. Every morning except, of course, for one fateful morning. We wanted to visit Devil’s Tower and get all the way to Cody, WY, an 8+ hour drive, that day. We left early. The car was running rough. We stopped in a small town in Wyoming and asked for a garage. The mechanic looked at our Toyota with a sneer: ”Don’t do imports.” We pressed on.

The oil was leaking, I was sure of it. There were no towns now, just 360º of grassland and cows in the shadow of the Big Horn Mountains. We had run out of water. And diapers. We made it down a big hill, and coasted to the top of the next before a sickening mechanical noise whined from under the hood, and the car came to a dead stop. We were alone with the wind.

I grabbed my flip phone – one bar of service! I called the number for AAA. There was a town only 35 miles away! We waited thirsty, hungry, and alone. Our shining knight came an hour later in a tow truck, missing three front teeth. We were elated.

I held baby Mae in one arm as I tended a stress-induced bloody nose with the other, and we rode in the tow truck.

At Stan’s Auto Body we got the bad news: the engine block was cracked and our car was totaled. The nearest car rental was 40 miles away in Sheridan. I called the Avis at the regional airport there: “I’m sorry, hon, but we don’t have any one-way rental cars available. Oh, and don’t bother calling the Hertz, I answer that phone too.”

Somehow we ended up at a Mexican restaurant, and I looked at Adrian and said, “We will be no more than 24 hours in Buffalo.”

Then my phone rings. It’s Agnes Schneider! Co-chair of the GPC search committee! “Rachel, we’d love to have you come down from New Jersey for a final interview for the job!”

“I’m a little farther than New Jersey at the moment, Agnes,” I said, and I filled her in.

“Well, get to LA as soon as you can and we’ll get you out to DC.”

We found a place to stay: a series of tiny log cabins run by a 7’ mountain man and his 4’6″ wife. The next morning we returned to Stan’s, and sold our car to Mike’s Bottom Dollar Auto. As we filled out the paperwork, the garage phone rang. A mechanic looked up and said, “It’s for you.”

“Hi, ma’am? It’s Cheryl from the Avis. Turns out we have a Malibu that needs to get back to San Francisco. You can rent that if you can get to Sheridan today!”

Bottom Dollar Mike, may God bless his soul, loaded up all our worldly possessions in his gigantic Chevy truck and drove us the whole way. We loaded up the (Chevy) Malibu and finished the trip. I flew out to DC and was offered the job as Director of Christian Ed. at Georgetown Presbyterian Church. The rest, as they say, is history.

Pastor Rachel

P.S. The moral of the story is: I should have kept the Camaro. ”

A question for readers:  When telling your call’s story, what will be the moral?

PSS:  Rachel has a new future as the SeniorPastor of Capitol Hill Presbyterian Church in DC starting this month.

 

One way to get reader’s attention is to declare some activity, celebrity, business or popular style “dead.”  No more growth.  The hype is over.  The transitory fascination revealed.

One widely published writer using this headline is Jared Brock (jaredabrock.medium.com) who in January wrote a blog declaring that Uber and Lyft are Dead.

His essay focuses on the $200 million “dark marketing” campaign the delivery companies used to defeat proposition 22 in California which would have classified gig workers as full-time employees.

The Business Model Critique

After describing the ride-hailing services efforts to kill the new regulation, he also points out their “predatory” financial strategy which  is how others have characterized the firms’ business models:

Luckily, Uber and Lyft occupy a very precarious perch in the taxi universe. Like Airbnb, they’ve extracted a huge amount of value from their employees and stock investors, but what real value have they contributed in return?

If you strip it to the core, you realize the only thing any of these predator app companies actually do is build pretty-looking booking services and then weaponize colossal amounts of debt and private equity to strangle their competition, as while marketing the myth that they’re doing no harm.

 The Meaning of “Dead”

But Brock has another, more fundamental interpretation of “dead” than corporate demise.   More than a rapacious business model, it also refers to the absence of an underlying contribution to society.  He tells the story of returning to his hometown after years away. The main street is full of chains that have replaced the local shops, cinema, and restaurants.  He remarks:

And it hit me: this place is dead. Spiritually dead. Morally bankrupt. Worthless in all the ways that truly matter.

 That’s Facebook. That’s Instagram. That’s Airbnb. That’s Uber and Lyft and Robinhood. Predator companies, leaders in the menace economy. They create nothing, contribute nothing, mean nothing. They just take, broker, skim, flay. They’re dead in the future, yes, but also dead to me right now, and dead to a world that wants to flourish.

When People are Left out of the Calculation

Brock’s critique is that these companies leave people and their communities out of their business calculations. Gig, not full-time employees.  Rental housing, not owner occupied. National versus local solutions.

When challenged they follow the tactics one economist described as the menace economy:  “the pursuit of wealth at the expense of other human beings.”

Is there a Lesson for Credit Unions?

Time will tell if this interpretation of dead accurately foretells the fate of Uber/Lyft.  Brock’s concern is broader than platform technology companies.  What happens when organizations become “spiritually dead, morally bankrupt?”

These are human failings, not limited to organizations built with new technology.  Companies can easily equate financial performance, market appeal or innovation with sustainable success.

Credit unions were formed with a different focus: does what we do benefit our members?

Recently I received the following member assessment of a pre-pandemic merger of two strong, long-serving credit unions:

I have found no personal benefit in the combination of the two organizations.

 The employees I hear from are frustrated in numerous ways and lack a sense that their jobs are still secure. 

  I attended the virtual Annual Meeting . . .A highly scripted meeting seemingly meant only to satisfy the requirement to hold it.  Incumbent board members were re-elected by acclimation as there were no other candidates on the ballot.

 I am keeping a checking account open but transitioning other relationships over to another credit union.

 There are numerous examples of well-capitalized credit unions merging to benefit  executives or using members’ accumulated reserves to buy out bank owners.  Several very large credit unions have even adopted the fintech model of just an online platform, few or no branches. The token rhetoric for these initiatives refers to corporate growth, technology advantages and/or diversification goals, not member value.

Is the future of credit unions these cooperative merger combinations within, bank asset purchases from without, or the total embrace of digital-only?  Is it possible these options are merely the last hurrah of credit unions that are already “dead”?

 

 

My June 2 blog ended with this hope:

Two factors suggest this decline in small credit unions can be addressed.

The places of economic disparities and need are as numerous now as any time in our history.  The human spirit of solving problems and the values of cooperatives align with many seeking to bring change for a more equitable America.

From Great Britain came this response, used with permission:

Your published pieces are forwarded to me across “the pond” by a valued co-operative credit union sister at American Airlines Credit Union Ltd.

The last sentence of your piece of 2^nd June is a killer blow – a killer blow that spells out the co-operative credit union difference: “The human spirit of solving problems and the values of cooperatives align with many seeking to bring change for a more equitable America.”

Our leaders, both lay and professional, should “do” because they want to, not because they “must”.  Our leaders at all times must think “we” and not “me”, must be humble “servant” leaders and not imperial ones.

As shapers it’s our role to prospect for, discover, encourage and develop those folks regardless of their histories, as most often they will have talents and gifts that we have not got, nor ever had!!

Co-operatively,

Barry Epstein, M.IFT, I-CUDE

Co-Trustee – ICULD&E Foundation/Director ICULD&E Co.Ltd

Awards Office – “Edward Filene” & “Joe Biden” Credit Union Awards for Excellence

Act Local-Impact Global

As in many areas of life, America’s example for good or otherwise, has implications beyond our borders.  The world is watching how our cooperative financial system responds to today’s members as a unique component of the globe’s largest capitalist economy.

A CEO recently shared his response to the question: What are you optimistic about for the future of credit unions?

My optimism lies with the “human spirit” in us all.  We believe that our communities need new solutions.  We believe that local is the best place to start new initiatives that count on people as the capital.  We believe that volunteers are our most critical resource.  We believe that we must forge relationships as the bond for problem solving.  We believe we are the catalyst to securing our families and communities futures.  

This answer was inspirational, but was it realistic?  Then I learned of the efforts to launch a new coop called The Deep Grocery.coop.

It is a worker-owned grocery cooperative dedicated to bringing to the East Oakland community fresh organic produce and general food items, education on a healthy food choice, and local control.

The Year-long Effort to Launch

I talked with one of the four lead organizers Erin Higginbotham.  All are college graduates with backgrounds in education, technology, food and restaurants and one with a food coop.  They live in the community they serve.   The effort evolved from conversations with their neighbors including a survey and an Instagram post seeking participants.

A model for their vision was Mandela Grocery Cooperative serving West Oakland.  In 2020 the organizers began training with this established firm.   From that experience the group tested their products at farmer’s markets.   In December, they began crowd funding to raise capital.   Almost $100,000 was collected from grants, community donations and local support to begin the first steps of their independent launch, an online grocery service operating from a commercial kitchen. Additional plans include converting a shipping container into a functional store prior to finding a brick-and-mortar location.

The produce listed on their web site is from local farmers.  Through trial and error, they have learned how to meet the community’s needs while also trying to educate the buyers on healthy food choices.  They have begun filling online orders and are seeking a site for a store/ community center that will be welcoming and inviting.

Why a Coop?

I asked why the group choose a coop structure.  Erin replied “it was all about our neighborhood, to spark entrepreneurs and to give everyone a voice.  We want to empower and impact the whole community.” Only one organizer had experience with this option.

They work with a local branch of Provident Credit Union which has always been “super responsive and helpful.”  By the end of the year, they want to expand the number of East Oakland families served, attract more people to better food options, and promote local participation in this alternative economic system. DEEP is an acronym for “Deep East Oakland Empowering People.”

Acta Non Verba, a local 501 C3, has been a sponsor.   “Actions not words” is a fitting description as these organizers learn by doing and visiting other coops.

The Key to this Effort

This startup demonstrates the critical nature of the “human spirit” at the heart of heart of every coop and a key factor in credit union expansion.  Will they succeed in their efforts to create a Mandela grocery clone in East Oakland?

I go again to the words of the CEO above:

Everyday new leaders want to step up, seeking new ways to address old problems.  They do so in the face of pressure, in the face of economic times, in the face of community challenges, and not based on the personal financial motivations.

It is far different, far harder for both the volunteer and the needy consumer-owner searching for their community’s best options than it is for paid professionals to run an existing solution.

Coop professionals must support these people’s efforts with the balance, creativity, and respect for their drivers as artfully as we can.  

His response to the question of whether this startup, or any coop, will endure is: People are why I am optimistic about the future.

 

 

 

 

The end was quick.  Like all hidden executions. The 60-year-old Indianapolis Newspaper FCU was conserved on January 14 and liquidated on March 31.  The $6.3 million credit union served 1,143 members.  In December 2019 it reported 10% net worth and a breakeven operation with 1% delinquency.  One year later the credit union reported a $990K loss primarily due to a $741K loan loss provision expense.

NCUA gave no explanation except the “unsafe and unsound practices” mantra in the January 2021 press release.  Why is this minor event worthy of any further attention?  A local credit union, Elements Financial, took over “most” of the members’ savings.  NCUA retained “a portion of members’ shares” and all the credit union’s loans.   The loans are being collected by a small private company, Statebridge in Colorado.  An unusual arrangement: why did Elements not also collect the loans? And only a portion of savings?

What’s to be gained spending more effort to understand this credit union’s demise?

Why Transparency Matters

The most powerful action NCUA can take is to close a credit union.  The agency has refused to say how or why it acts in all such cases.   By not providing any detail the press then speculates about circumstances using the last call report. Or more common, the true story comes out years later as a result of legal actions against bad actors. The agency vacuum creates an impression of covering up its own supervisory shortcomings.

How can a small, easily examined credit union that has been in business for over 60 years suddenly fail and lose every cent of its capital?  The lack of specific facts and any NCUA person willing to take public responsibility suggests there is something to hide.  No “body cameras”– Vice Chairman Hauptman’s suggestion at the April NCUA board meeting–for these closings.

NCUA’s silence reminds me of a college student’s essay addressing the difficulty people and organizations face when something goes wrong.  The brief paper was titled Mistake-aholics Anonymous and reads in part:

“Ah, mistakes. Such an ugly word that carries quite the negative connotation. However, if you ask people if they regret their mistakes or would go back in time to change them, more often than not the answer is no. So why do we not like mistakes?

And why is retrospect so important to be able to see the true beauty in these unfortunate circumstances?

As a human I am inevitably a member of mistake-aholics anonymous; mistakes simply aren’t a choice; however, what you do about them is.

One learns that mistakes are essential to one’s evolution. But – like in AA- the first step is to recognize the problem and admit we are powerless to prevent them, so start there.

A second challenge is failure to ask others for help. However, a person must be ready to listen. Part of the journey with mistakes, is coming to these realizations personally and then seeking assistance.  Step 2 in AA: come to believe and accept that we need strengths beyond our awareness and resources.

Another obstacle, I can’t seem to stop taking things personally. Whenever someone criticizes or critiques something I have done, I feel as though they are criticizing or critiquing me.

Fast forward to last week when I received non-ideal feedback from my manager. I noticed feeling demotivated and internalizing that I was not good at my job. However, the keyword here: I noticed. I relate this recognition in AA step 5: admitting to ourselves the nature of our wrongs.

             Mistakes are important. They force us to re-think previously held beliefs and assumptions as well as encourage us to explore alternatives and pivot.

How easy would it be to just live life and never mess up? Never be wrong? I think we can all agree life would be boring. We learn by experience that mistakes are natural.

They are what it means to be human, yet we often shun those who own their mistakes. When that occurs, everyone loses. Mistakes owned, offer insight for making all things better.”

Action Required

No one expects perfection from NCUA supervision.  But as described by this student, it is reasonable, even necessary, for a responsible person or firm to learn from its failures.

Today NCUA just buries its mistakes.  Indianapolis Newspaper is just another incident hidden in a pattern of silence.  How can a credit suddenly suffer huge losses on a portfolio years in the making?  There are no postmortems.  Institutional failures become accepted, a way of life, a cost of doing business.

Is anyone at NCUA willing to enroll in Mistake-aholics Anonymous?  The entire credit union system could benefit if NCUA followed AA’s step one: recognizing it has a problem.

Police body cameras  were necessary when  transparency was avoided and after-the-fact explanations  proved self serving.   Is this the accountability process NCUA wants imposed on its most critical supervisory activities?

 

The British writer on religion,Joseph Pearce, used the period of Lent to write the following observation on life.  His distinction between owe and own is helpful in understanding how cooperative value is distinct from private sector intent. And how easy it is to confuse the words in practice.

The following is from a longer essay on Lear and Shakespeare.

“The paradox at the heart of Lent is that life itself is lent. It is not owned outright by those who possess it. If it were, we would not relinquish it when our life’s sand is sifted softly away.

“Off, off, you lendings!” Such is King Lear’s exclamation as he strips himself naked on the heath, the moment of madness being the moment when he comes to his senses. Lear, powerless in the face of elemental nature and stripped of his political power by unscrupulous treachery, realizes that the very clothes on his back are but lent to him. We can take nothing with us when we shuffle off this mortal coil. We will leave as naked as the day on which we arrived.

“Shakespeare knew this, as the “lendings” scene on the heath shows; but most of his critics seem oblivious of this elemental fact of life. It is, for instance, all too common that Shakespeare’s use of the word “owe” in relation to human life is glossed as “own,” an egregious error that exposes the pride and ignorance of those who consider themselves experts. As Chesterton quipped, it didn’t matter how much he made the point of a story stick out like a spike, the critics would still go and carefully impale themselves on something else.

“As Shakespeare affirms in his multifarious works and manifold ways, we do indeed “owe” our lives. And this stark reality has practical ramifications. It means that life is not simply a gift; or, in any event, it is not simply a free gift. It comes at a price that we are obligated to pay. To put it bluntly, if our lives are lent, we are debtors.”

On March 25, I published an analysis of Infinity FCU’s proposed merger with Deere Employees CU in Moline, Il whose tagline reads, “Exclusively for the John Deere family.”

Infinity is Maine’s oldest credit union, founded as Telephone Employees in 1921.  The analysis highlighted the absence of facts supporting any member benefit.  Most importantly it pointed out members will lose their ability to vote annually  for credit union directors or on any future mergers due to the use of proxies under Illinois credit union regulations.

April 15-Voting Ends

Federal credit unions purport  to be “democratically controlled” with a statutorily defined one member, one vote governance structure. No proxies permitted. Member ballots must be submitted by the date of the special meeting or by voting in person on April 15.

The member’s comments below augment the many shortcomings outlined in the above initial analysis.  The most concerning critique is of the board’s role outlined in detail by a former Infinity board member.

If Infinity’s 18,000 or more members do not participate in this critical decision to give up their charter, then the democratic process has been circumvented.   A motivated few will impose their way on the unorganized majority.

Ben Franklin’s once observed: “It takes many good deeds to build a good reputation, and only one bad one to lose it.”  Or in this situation, a century old successful $350 million local cooperative.

Infinity Members Comment

All merger notices include an option for members to post comments via a site managed by NCUA.  Three members have posted their concerns.  Names are required with these posts.

John McGinn: I went with Infinity that was then Telco over thirty years because it was a Maine based credit union. I absolutely do not want to be joined with an out of state large corporation credit union. I do not like or support this merger. If it happens, I will be reviewing all my options.

John Lander:  The CEO has changed the culture of the Board of Directors (BOD) during the last six years. Directors must be committed to on-going education to be able to make “best practice” policy decisions. The current BOD is averse to on-going education and has, as a result, become dysfunctional in many areas. . .

About ten years ago, The BOD hired a local Board Source consultant to help the BOD with governance. Using a Filene Research and Board Source collaboration we developed roughly 12 principles of good governance to guide the consultants’ work. The BOD accepted the concepts and directed the Governance Committee to implement the recommendations with the consultants help.

Unfortunately, the Governance Committee chair relied only on advice from the COO ignoring the consultants. A few years later, the committee quietly reported their satisfaction with our governance. Now dysfunction is present in the development of mission and vision, strategic planning, BOD evaluations and succession planning.

Directors must be committed to on-going education to be able to make “best practice” policy decisions in the best interest of members. . .

Nine months before my term expired, I attempted to join the Governance Committee, but Board Chair and the Governance Committee Chair said no. During my many years on the board, directors have always been welcome to join a committee. . .

A few months before the end of my term, I requested a discussion on governance be put on the agenda. At that meeting the CEO brought an attorney. The hiring of an attorney was not approved nor previously discussed by the BOD. The Chairman did not give notice if he approved it. The CEO asked the attorney to comment on my governance discussion. The attorney agreed with me in his own words. After this BOD meeting the Governance Chair withdrew from her BOD position.

She is now on the Supervisory Committee. The committee usually has had an odd number of members to avoid ties, but not now. As a Board Director and Treasurer, I tried to meet with the Supervisory Chair; I wanted to discuss governance including member service. He would not meet with me. Board members said, “I can only talk to the Supervisory Committee if I file a complaint.” This is dysfunctional governance.

Effective directors maintain an attitude of constructive skepticism; they ask incisive, probing questions, and require accurate answers. This BOD does not have a culture of inquiry because of its lack of commitment.

In 2020 Infinity’s capital was strong. We have opened two branches in four years and ROA is low. Membership growth is also low. We had better loan growth than five larger credit unions in our area.

We don’t need to give away control of our credit union so that we can open another branch soon. We need the BOD to commit to good governance. Please vote against the merger and demand the BOD fulfill their responsibility. John Lander, MBA, NAFCU Certified Volunteer Expert, 2017

Joe Mottershead: I Have Been a Loyal Member Since Infinity Was Telco Credit Union 1990s. I can Not Imagine what Benefits there are to Merging with John Deere CU That is a Billion Dollars in assets Larger? Are any of the Officers of Infinity Getting Stock or other Benefits From this merger? I am TOTALLY AGAINST this Merger!!!

Both are on April 13, but at different times.

I. Rochdale & The Early Co-operative Movement
 (from: National Farmers Union)
Description: Working People and Business Owners. Weavers and Socialists. Democracy Activists and Abolitionists. Over 170 years ago, a small group of people founded a humble grocery co-op in the North of England with an ambitious vision for a better world. Building on earlier experiments in co-operative enterprise, their ideas soon spread around the world, complementing local struggles, traditions, practices of mutual aid to help inspire what became an international movement for economic democracy.

What became known as the Rochdale Principles were taken up by groups such as the National Farmers Union, forming the basis for organizing successful agricultural co-ops, and other organizations focused on their adaptation to consumer, worker and other co-operative models. In this webinar, we will discuss the origins of the Rochdale Society of Equitable Pioneers, the challenges that they were trying to address, and how their legacy remains relevant today.

Submit any questions to: elindberg@nfudc.orgDate Time: Apr 13, 2021 02:00 PM Eastern Time (US and Canada)

II.  Cooperative Board Self Evaluation
(from: UW Center for Cooperatives: Fostering critical thinking and understanding about cooperatives.)

Description: Board evaluations are a critical component of maintaining a healthy, functioning board of directors, however they often fall to the backburner. This session will explore why and how to conduct board evaluations. It will also explain different methods for conducting board evaluations and their respective advantages and disadvantages.

Submit any questions to: mawebster@wisc.eduDate Time: Apr 13, 2021 10:30 AM Central Time (US and Canada)