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A Fee that Credit Unions Should Review for Appropriateness

Increasing attention is being given to all financial institution’s overdraft/courtesy-pay/nsf fee structures.   An excellent summary of many of the issues is in this article from CUSO magazine.

After the reassessments of these fees, there is another one that credit unions may want to proactively review.

The Unclaimed Property/Inactive Account Fee

A member recently told the story about learning of this fee the hard way.   She had been a loyal credit union member for over two decades and had left a small balance of $500 in case a family member needed to borrow.

The regular savings account paid interest of .05%, offered only online statements and had no activity for over two years.  When checking her 2021 yearend balance online she discovered that the amount had fallen by 20%.

The explanation: a $3 per month inactive account fee was being assessed.  She knew nothing about the fee or how long it had been in place.  In essence she felt the credit union had effectively free use of her money and was charging her on top of that!

When contacted, the credit union explained the fee and offered to refund the money for the last two years, which was as far back as their system would go.

Credit Union’s Responsibility for Inactive Accounts

When Ed, Bucky and I went to NCUA in 1981, I can remember credit unions approaching the agency about charging inactive account fees, which in essence was the step prior to forwarding these accounts to the states as unclaimed property.

In Illinois the Department of Financial Institutions was responsible for administering the unclaimed property act and ensuring funds were properly reported, returned to the state after five years of inactivity so the owners’ names could be publicly listed to  reclaim their funds.

My colleagues believed charging a fee during this inactive period was counter to both the spirit of the act and for a cooperative financial institution.

Credit unions claimed  the accounts were costing them money: maintaining the account, mailing monthly or quarterly statements and plus interest.  Even as they tried to reactivate them, they wanted to be reimbursed for the operational “costs” of the accounts.

For others, the not so hidden motive was to fee the account to $0, especially smaller balances,  close out the member, and not worry about reporting it as unclaimed property.

Others asserted that the fee was in fact an incentive for members to reactivate their accounts.

Inactive accounts come in all flavors:  parents opening accounts for their children, now long gone; accounts left when members move out of the area; the account opened for an indirect loan member, etc.

The common characteristics are there is no member-initiated account activity, the relationship is static, and there is high probability the owner is unaware of any fees being charged.   Therefore it is an easy fee to assess as it is mostly invisible to the account holder.

Other Credit Union Examples

One CEO I talked with said they charge $3 a month on about 500 accounts generating $1,500 in revenue.   At any point in time about 40% of the accounts will be sent to the state.

Another CEO said the credit union charges $10 per quarter.   In both cases the fee had not been evaluated for decades.

Both recognized that in an era of virtual accounts, minimal interest on savings and near zero marginal operating costs, the credit union should focus on contacting members, not seeing the issue as a revenue item.

I would urge credit unions to look at their current inactive account policy and fees.   It may not be as consequential as overdrafts, but if a class action attorney situation arrives, just looking up the years of records, charges and potential refunds, would seem to suggest any income is not worth the potential cost.

Also don’t forget abandoned safety deposit boxes must also be reported as unclaimed after the statutory period of inactivity.

NCUA’s Unclaimed Policy

Just as a footnote, NCUA also acquires unclaimed insured share accounts when liquidating credit unions.

It is interesting to note that the agency’s policy is contrary to the legal practice required of credit unions.

As stated on the website, if NCUA cannot locate the party after 18 months, it converts them to “uninsured” and retains the balances for use by the insurance fund.

Invariably, some items may remain unclaimed. Some checks are never cashed; or the credit union’s address information was incomplete. There are also cases when we don’t have a recent address and are unable to get a forwarding address from the post office.

Share accounts claimed within the 18-month insurance period are paid at their full-insured amount. At the expiration of the 18-month insurance period, shares that are not claimed are considered uninsured and written down to share in the loss to the National Credit Union Share Insurance Fund. Even if shares are uninsured when they are claimed, there may still be a distribution.

On rare occasions, the liquidation of a credit union may result in surplus funds. If a surplus remains, a distribution to the shareholders is required. This may occur several years after the credit union is liquidated and it is sometimes difficult to locate these members.

This is another example where NCUA exempts itself from the rules credit unions are required to follow to protect member’s assets.

 

 

 

 

 

 

 

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RBC Update: 257 Credit Unions in NCUA’s “Hotpot”

In two weeks, credit unions will be able to calculate their newly imposed capital ratios.  Three different calculation requirements are now in effect.

Using yearend 2021 data, there are 212 credit unions over $500 million that will likely have to use RBC (risk based capital) because they had net worth below 9% at December 31.  Another 45 credit unions between $400 and $500 million reported net worth below 9%.  They will be subject to RBC when their total assets exceed $500 million.

This total of 257 credit unions is probably the minimum number as credit union share growth is usually seasonal, concentrated in the first four months of the year.  That is, assets will increase faster than capital can be earned at the same pace.

RBC’s Impact

RBC has still not hit home for some. These credit unions are telling members they are well capitalized because they exceed the 7% net worth level. Those so doing often fall short of the new 9% minimum.

The impact of RBC is best described with the boiling frog analogy.  A frog put in boiling water will immediately jump out. But put the frog in a pot of cold water, slowly raise the temperature and the frog will hot-pot to death.

Many large credit unions view RBC similar to  a pond Kermit.  As the RBC multiplex calculations slowly engulf quarter by quarter many will find themselves in unfathomable amounts of  creeping normality.

Some will immediately jump to the seeming sub debt life preserver to stay above the 9% threshold.   Soon they will realize that  option itself requires more leverage just  to  breakeven.  Sub debt  just made the water deeper and harder to jump out of the pan.

RBC and NCUA’s Record of Risk Analysis

In an April 30, 2010 speech to the Illinois Credit Union League 80th Annual Convention Chairman Matz  offered these remarks on the corporate crisis:

“Let me start by assuring that I fully recognize the legitimate anger many of your feel.  The anger has come through loud and clear. . .I have heard directly about the pain you have felt. I know that many of you blame NCUA: After all, two examiners were on-site at US Central and WesCorp.  NCUA definitely shares some of the blame (and then comes the big qualifier) but there is plenty of blame to go around.”

What she forgot is that the regulator’s role is because crises are to be expected.  And when they occur, to be managed prudently.

The Irony of the RBC rule which is supposed to “protect the insurance fund” is that NCUA is often the source of the problem.  As one veteran CEO observed:

“All the losses -excluding a relatively low level of cu management  fraud – that NCUA has incurred is the result of errors in risk analysis by NCUA. They don’t like to acknowledge that fact, but the logic is inescapable.

By decreeing that most assets are now in complex credit unions, the industry is far more subject to the whims of a less than stellar team of NCUA executives who are increasingly enthralled by the “predictive” accuracy of astrologically and phrenologically based statistical models.”

The most catastrophic error in risk analysis is the Corporate crisis referred to by Chairman Matz. NCUA is now projecting a minimum of $5.7 billion in recoveries from the corporate AME’s.  Over $1.2 billion is still due shareholders of the four corporates.

This is the exact opposite result projected for years after the conservatorship when total costs of $13.5 to $16 billion  were estimated by NCUA.  The agency never revealed their analysis always referencing the results of their “engaged securities expert, Black Rock.”

 Learned Helplessness and the Actions of Others

With RBC it is easy to slip into a state of “learned helplessness.” That is  behavior exhibited when a person is repeatedly exposed to negative stimuli beyond their control.  Think regulatory burden.

The term describes experiments in which humans subject to loud noises, did nothing. seemingly helpless to change.

Not all the human participants responded the same way. Many blamed themselves for “failing,” but others blamed the way the experiment was framed. They knew it set them up for failure. In other words, not everyone is equally susceptible to learned helplessness.

Those who do not become passive when confronted with apparently uncontrollable situations are because they see others act with courage, overcoming difficult odds.  These leaders actions inspire others not to give up.

There is an initial segment of 257 credit unions who will be subject to the sophistry and real burden of RBC.  Some will throw in the towel, some will try to comply, and others will look for an “out” such as RBC or shrinking the balance sheet.

The hope is that most will have the courage and resilience to persevere until wiser heads prevail in Alexandria.

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The Credit Union Movement In Five Phases

For some time I have followed the writings of Father Richard Rohr.  He is a Franciscan friar, wisdom teacher, and founder of the Center for Action and Contemplation in Albuquerque, New Mexico.

His spirituality concepts are universal, informed by all denominations and spiritual traditions.  His focus is the search for unitary conscience.   Recently he summarized five stages that religious and cultural developments have historically followed.  He calls these the five M’s: human, movement, machine, monument and memory.

I have paraphrased his approach below to apply it to credit union evolution.  I believe the framework is useful for understanding the different motivations credit unions draw upon with cooperative design.  (Adapted from Richard Rohr, The Wisdom Pattern: Order, Disorder, Reorder )

The Five Stages

“It seems that many great things in history start with a single human being. If a person says something full of life that captures reality well, the message often moves to the second stage of becoming a movement. 

That’s the period of greatest energy. Credit unions greatest vitality  as a “cooperative  movement,” resulted in thousands of new institutions formed annually.  Each was an expression of a larger vision for community. The movement stage is always very exciting, creative, and also risky.

It’s risky because the movement in history is larger than any city, state, country or economic system. Society is unable to foresee its full scope or meaning. We feel out of control in this stage, and yet why would anybody want it to be anything less?

Yet we move rather quickly out and beyond the risky movement stage to the machine stage. This is predictable and understandable. Systems are developed to support individual often independent firms.

The Dominant Machine Stage

The institutional or machine stage of a movement will necessarily be a less passionate manifestation. This is not bad, although it is always surprising for those who see credit unions as the end itself, instead of merely a vehicle for the original vision.

There is no other way; but when we don’t realize a machine’s limited capacities, we try to make it into something more than it is. We make it a monument, a closed system operating inside of its own, often self-serving, logic. By then, it’s very hard to take risks for those most in need following core values that inspired the movement phase.

Eventually these monuments and their maintenance and self-preservation become ends in themselves. It is easy just to step on board and worship their success without ever knowing why they came to be.

At this point, we have jumped over the human and movement stages, becoming like the for-profit institutions we were meant to supplant. There is little hint of knowing who we are meant to serve. Members are often frozen out of any meaningful role other than consumers.

In this stage, credit unions are a platform for building ever larger financial firms while holding on to a memory of something that once must have been a great adventure. Credit unions are no longer serving a distinctive role. Rather they mimic the priorities of the existing capitalist, market driven competitors.

Overcoming the Monument-Memory Entrapment

Increasingly credit unions avoid addressing the most disadvantaged segments of society we were organized to serve.

To avoid becoming trapped in the monument stage with the initial vision merely memory, renewal is needed. Innovative efforts are necessary to keep in touch with the human and movement aspirations. This is not  being naïve about the necessity for machine-like competencies and the inevitable human drive to embrace monuments.

We must also be honest: all of us love monuments when they are monuments to our human ambition, our movement, or our machine.”  (End paraphrase)

Applying Rohr’s Insights to the Credit Union Movement

It is feasible to align the different phases of credit union history with this model.  The more powerful application however may be to help  leaders or institutions recognize that all five stages can be present and called upon at the same time.

Can the machine success be augmented with the human passion of the creation phase? I saw one credit union CEO attempt to connect these seemingly contrasting impulses.   He organized a public member meeting each week at a different branch of the credit union.  Fifty visits led by a senior staff person for every branch over the year.

Videos were made of the visits and shared with staff and board.   The results were not, I believe, some dramatic new product or service concept.  Rather it reinforced respect for the members and  their opinions  as well as supporting staff in scattered branches.

I believe the model’s usefulness is most helpful if not seen as linear, trending in a single direction.  Rather it alerts us to the multiple motivations which contribute to success.

If we focus only on the competencies of the machine stage leading inevitably toward monuments, then we lose the important advantages of the initial creative era.   For it is human needs and relationships that were the origins of every credit union and, still today, its most important foundational advantage.

 

 

 

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Met Opera Benefit Concert: Music for Ukraine-March 14

Mar 14, 2022

Listen Monday, March 14th, at 8pm.

Program notes courtesy of the Metropolitan Opera.

Click here for the upcoming Metropolitan Opera broadcast schedule.

The Metropolitan Opera presents a special live international broadcast on Monday, March 14: A Concert for Ukraine, a performance offering support and solidarity with the citizens of Ukraine. Met Music director Yannick Nézet-Séguin will conduct the Met Orchestra and Chorus and a roster of star soloists – Lise Davidsen, Elza van den Heever, Jamie Barton, Piotr Beczała, and Ryan Speedo Green – in a program that includes Strauss’s Four Last Songs, the stirring final movement of Beethoven’s Ninth Symphony, and works by Barber, Silvestrov, and Verdi. Vladyslav Buialskyi, the Ukrainian bass-baritone who recently made his company debut, will open the concert with the Met chorus in a rendition of the Ukrainian National Anthem.

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Jack Kerouac, Credit Union Member, Coming Home after a Life On the Road

Last Saturday, March 12,  was the 100th anniversary of American novelist Jack Kerouac’s birth in Lowell, MA.  He was an alter boy and member of St Jean Baptiste Church.

He and his family were also members of the credit union whose first office was in the same church.   Jeanne D’Arc Credit Union was organized years earlier  by the local priest.

In February 2022 Jeanne D’Arc celebrated its 110 anniversary.  The credit union’s safe is still in the church building.

Alison Hughes, Jeanne D’Arc Credit Union

The church is now closed, but the building remains. The credit union and a new community foundation are transforming the structure to become the Jack Kerouac museum and performance center.

It is an ironic embrace for Kerouac whose peripatetic lifestyle is characterized as offbeat. His artistic legacy now has a home.  A venue both to honor the past and present his continuing popular appeal.

Jeanne D’Arc and Lowell are reaffirming the power of Kerouac’s roots.

The credit union and Kerouac started  in the same sacred place.   Both shared common purpose to  support individuals  in all their diversity.

In this latest contribution, Jeanne D’Arc is adding to its ever-expanding legacy in the community by honoring one of its members.  A conversion of an historical  space into a homecoming for someone most remembered for exploring life on the road.

Christopher Porter, President. Jack Kerouac Foundation

Alison Hughes. Jeanne D’Arc Credit Union

Sylvia Cuhna, Executive Director, Foundation

Jim Sampras, CEO. Foundation

 Kerouac’s Lowell Roots

 

Jean-Louis Lebris de Kérouac[1]  March 12, 1922 – October 21, 1969), known as Jack Kerouac, grew up in Lowell, played high school football well enough that major colleges recruited him. Church and family were deeply embedded values even though his later lifestyle might be considered bohemian.  

 His parents were French Canadian;  Kerouac did not begin to learn English until he was six, and remained bilingual in his work.

A 1959 television interview with Steve Allen in which Kerouac briefly  reads from On the Road is a helpful portrait of him at a peak of his fame as a member of the  Beat generation.

Three Appraisals of Kerouac’s Work

His 100th anniversary has resulted in articles that take different views of his literary output and continuing relevance.

An article in the Guardian newspaper explores why his counter-cultural mage still resonates in contemporary society, calling him a symbol whose meaning is still not understood. “Nature-loving mystic or proto-dudebro? Untameable free spirit or reclusive mama’s boy? On the centenary of his birth, it is time to look past the icon at the ‘bleeding ball of contradictions’ behind it.”

The Wall Street Journal’s tribute celebrates his reverence for the natural world while his  characters want to abandon traditional social constraints.

Jack Kerouac lives in pop culture memory as a writer on a perpetual road trip, a shooting star riding the highways and rails of postwar America alight with Catholic mysticism, booze, bebop and outlaw liberation. That’s the milieu of his breakout novel “On the Road,” a masterpiece of widescreen travel writing populated by eccentrics “who are mad to live, mad to talk, mad to be saved, desirous of everything at the same time…who never yawn or say a commonplace thing, but burn, burn, burn like fabulous yellow roman candles. . . ”

In our time of ecological destruction and climate change, Kerouac’s Buddhist observation in “The Dharma Bums” that “One man practicing kindness in the wilderness is worth all the temples in the world” is a fine starting point for understanding that there really is a divine order to the natural world.”

An article on the Poetry Foundation’s website summarizes his literary output while alive and published posthumously, along with critical and public reaction of his counter cultural  themes.

Why Kerouac Still Resonates

Wikipedia’s describes his work as both stylistically and substantively inventive:

Kerouac is recognized for his style of spontaneous prose. Thematically, his work covers topics such as his Catholic spirituality, jazz, travel, promiscuity, life in New York City, Buddhism, drugs, and poverty. He became an underground celebrity and, with other Beats, a progenitor of the hippie movement, although he remained antagonistic toward some of its politically radical elements.

In 1969, at age 47, Kerouac died from an abdominal hemorrhage caused by a lifetime of heavy drinking. Since then, his literary prestige has grown, and previously unseen works have been published.

On the Road (from Wikipedia)

“Kerouac completed what is known as On the Road in April 1951, while living at 454 West 20th Street in Manhattan with his second wife, Joan Haverty.[39] The book was largely autobiographical and describes Kerouac’s road-trip adventures across the United States and Mexico with Neal Cassady in the late 40s and early 50s, as well as his relationships with other Beat writers and friends.

“Kerouac wrote the final draft in 20 days, with Joan, his wife, supplying him with benzedrine, cigarettes, bowls of pea soup, and mugs of coffee to keep him going.[

” Kerouac said that On the Road “was really a story about two Catholic buddies roaming the country in search of God. And we found him. I found him in the sky, in Market Street San Francisco (those 2 visions), and Dean (Neal) had God sweating out of his forehead all the way. THERE IS NO OTHER WAY OUT FOR THE HOLY MAN: HE MUST SWEAT FOR GOD. And once he has found Him, the Godhood of God is forever Established and really must not be spoken about.” 

“According to his biographer, historian Douglas Brinkley, On the Road has been misinterpreted as a tale of companions out looking for kicks, but the most important thing to comprehend is that Kerouac was an American Catholic author – for example, virtually every page of his diary bore a sketch of a crucifix, a prayer, or an appeal to Christ to be forgiven.[44]

“Kerouac’s literary works had a major impact on the popular rock music of the 1960s. Artists including Bob Dylan, The Beatles, Patti Smith, Tom Waits, The Grateful Dead, and The Doors all credit Kerouac as a significant influence on their music and lifestyles.”

The early home to both Jeanne D’Arc and Kerouac will now be used to ensure that his literary light continues to inspire.

 

 

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Ukraine: People Take Action

In the United States

A Harvard University freshman is taking a semester off to apply his technical skills to another urgent cause: finding housing for Ukrainian refugees.  And after testing their cybersecurity and showing their platform to potential users, they launched Ukraine Take Shelter on March 2.

The 19-year-old created Ukraine Take Shelter, a website that matches Ukrainian refugees with hosts in neighboring countries and elsewhere.

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Polish Moms Leave Baby Strollers for Ukraine Mothers at the Local Train Station

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A Human Roadblock

Citizens create a roadblock on a road that leads to the Zaporizhzhya Nuclear Power Plant, in Enerhodar, Ukraine, March 2, 2022.(Facebook/National Guard of Ukraine)

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Public Posters Calling for Boycott of Russian Products

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A Man In Front of WWII Monument: “Send weapons, not prayers” London

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Soldiers Care for the Helpless

A woman carried by Ukrainian soldiers crosses an improvised path while fleeing the town of Irpin, Ukraine, Sunday, March 6, 2022. In Irpin, near Kyiv, a sea of people on foot and even in wheelbarrows trudged over the remains of a destroyed bridge to cross a river and leave the city. (Oleksandr Ratushniak/AP)

 

Each of us can help make a difference.  Even if it is just paying a little more for gas.

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Ukraine: When Words Fail, Music Carries Us Through (view in browser)

The first performance of the Ukrainian National Anthem (September 1990):

https://www.youtube.com/watch?v=rnMPE_nZ-jc

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A performance by the Metropolitan Opera of the Ukraine’s Anthem (February 2022).  The sole singer without music, hand on heart, is Ukrainian.

Lyrics:

Nay, thou art not dead, Ukraine, see, thy glory’s born again,
And the skies, O brethren, upon us smile once more!
As in Springtime melts the snow, so shall melt away the foe,
And we shall be masters in our own home.

Soul and body, yea, our all, offer we at freedom’s call
We, whose forebears, and ourselves, proud Cossacks are!

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Lenard Cohen’s Hallelujah lyrics for Ukraine:

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From the US Air Force Band and Singing Sergeants with a Prayer for Ukraine (March 2022)

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A prayer for Ukraine, February 2022, by the Staats und Domchor Berlin

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From a world wide, online choir, Donna Nobis Pacem on March 2, 2022

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This March 2022 video from  high school teenagers in Europe.

 

 

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Going Public: Colorado Partner Credit Union, their CUSO and a SPAC

In March  2021 Colorado Partner Credit Union announced that Sundie Seefried, its 20 year CEO would step away to lead a new cannabis banking company called Safe Harbor Financial.

Safe Harbor was a CUSO formed through the combination of the credit union’s cannabis banking arm and its division that licenses those services to other financial institutions.

At December 2021 yearend Partner Colorado reported $575 million assets, six branches and serving 36,000 members.   Its CUSO investment, presumably all Safe Harbor, was valued at $8.2 million up from $3.8 million the prior year.   These valuations were achieved with a  reported total cash outlay of only $750,000.

In February of 2022 there was a new transaction announced: Safe Harbor CUSO’s cannabis industry-focused financial services would be acquired by ”Northern Lights Acquisition Corp, a special purpose acquisition corporation (SPAC).  

A special purpose acquisition company (SPAC) is a “blank check” shell corporation designed to take companies public without going through the traditional IPO process.

A $185 million Purchase Valuation

The terms according to one news report were that Northern Lights will pay $70 million in cash and $115 million in stock. Sundie Seefried – who created Safe Harbor – will be the CEO of the new public company.

The full February 14, 2022 press release projected the equity market value of the post-sale closing company to be $327 million.

In an interview the CEO Seefried described Safe Harbor’s competitive advantages in managing the financials for businesses conducting legal marijuana transactions:

“The amount of work necessary to manage that BSA risk is expensive,” Seefried said in July. “And the resources are demanding, in terms of the monetary system that you have to purchase. 

“We did cannabis and we did it thoroughly,” she added. “We think we have the compliance program to a good state of stability here.”

The only financial information I could find about the Safe Harbor CUSO was the following;

The company had almost 600 accounts across 20 states and $4 billion in transactions in 2021. It would appear to be a fee intensive business model in return for its compliance expertise and financial transaction management.

What Does this Example Mean for Credit Unions?

Credit union sale of all or partial ownership of a CUSO business is not a new event.  Several major examples include the sale of CUSO Financial Services (CFS) a broker dealer, with minority credit union ownership, sold to Atria Wealth Services in 2017.

Prime Alliance Solutions was a significant national CUSO offering first mortgage services to an estimated 1,900 credit unions.  It was developed by BECU, the majority owner with a limited number of other credit owners and Mortgage Cadence. The CUSO venture was sold to Accenture, in a private sale, in 2013.

Another industry CUSO model that is a frequent target for acquisition is data processing.  The largest credit union owned processor USERS was sold to Fiserv in the 1980’s.  A number of other regional DP firms have also been acquired by private companies.

What make the Safe Harbor-SPAC transaction unique is that the business will now be publicly traded.

At this time several aspects of the transaction seem noteworthy.

  1. The Safe Harbor sale is unique in that the stock will now be publicly owned.  In the past some credit unions converted to stock banks such as HarborOne, but this is the first CUSO to be traded on a public stock exchange.
  2. The creation and development of this unique financial intermediary is a tribute to the CEO who has worked on this business model since 2015. You can listen to her discuss the intricacies  in  podcasts posted on the CUSO website.  Her biography says she has served in the Credit Union industry since 1983 and became CEO at Partner Colorado in 2001.   She holds a Bachelors in Business Management from the University of Maryland and an MBA in Finance from Regis University.
  3. If the CUSO is indeed wholly owned, the transaction should produce a windfall for Partner Colorado and its members. In the FAQ’s on the Safe Harbor web site this relationship is described as: Yes! Your accounts are held at Partner Colorado Credit Union and will be insured through the NCUA Share Insurance Fund.  This would indicate an ongoing business relationship.

Wall Street Is Discovering Main Street Coops

My biggest takeaway is that this is another example of wall street firms discovering  credit unions as a source of new business.   In addition to this public listing, brokers, hedge funds and investment advisors are actively soliciting credit union purchases of banks, placing subordinated debt financing to enhance capital ratios and increasingly bringing wholesale financing and other funding opportunities to the industry such as fintech startups.

In subsequent posts I will review some of these other activities and what we can learn from them.

The Need for Transparency

One purpose in writing about these events is so they can be fully and openly talked about.   At the  moment most of the investment banking activities  are private with limited or no public disclosure.

For example two credit unions closed on subordinated debt capital  with identical structures in December 2021.   But the rates paid by the two credit unions appear to be significantly different.  Both are sound institutions but even they must rely on what their brokers and advisors privately tell them about the market which may not be indicative of other options.

The second reason is so that member owners, whose funds are used, will know how they  benefit from these transactions.   Rarely have credit unions discussed these transaction with members.

The annual meeting’s business report and election of directors would seem to be an ideal moment  to explain the financial impact and member payback on these investments.  I have yet to hear of this being done.

A Payday for Members?

Hopefully the members will be the big winners in SafeHarbor’s public offering.  The history of this effort was that it was all done with the credit union’s resources.

Partner Colorado valued its CUSO investment on the 5300 report for December 2021 at $8.3 million while reporting  a total cash investment of only $755,000.   With a SPAC cash and stock purchase of $175 million, will the members be in for a big payday?

 

 

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The Fix is In: Members Act When Denied the Right to Stand for the Board

Credit union’s democratic member voting is a critical feature of cooperative design.

However the practice of democracy can become a charade if those in control fail to follow long standing practices to make it a reality.

A Board Controlling Their Re-election

At December 2021 yearend Virginia Credit Union (VACU) reported $5.0 billion in assets with 310,000 members, 22 branches and 731 employees. The net worth ratio was 9.8%.

In yesterday’s post I shared the member Notice from my credit union’s annual meeting and the fact there would be no voting for four open board seats.  The number of nominations equals the number of vacancies.

Then I received this email from a credit union member about the board of VACU trying to control their own reappointment.  And members’ response.

“Are you aware of this? [link] It appears that VACU needs a mechanism for members’ self-nomination for board elections. Find that hard to believe but VACU is a state-chartered CU and the VA credit union act gives them much discretion.

“Although the nominating committee can send forward more than one candidate for each board vacancy, if they don’t, then nominations from the floor are not allowed and the vote at the meeting shall be by voice vote – which precludes any write-in votes!

“Under any circumstances, if only the uncontested nominees selected by the board appointed nominating committee are eligible to run…it ain’t right…talk about the destruction of cooperative principles?!?!?.

“The fix is definitely in!”

We Own VACU

The link in the email is to a petition in which four members of VACU state their interest in serving on the board.  They describe their efforts as follows:

The Virginia Credit Union Board is trying to rig their election so that YOU lose your right to vote for four amazing community leaders who are running for the board. 

Credit unions are financial cooperatives. They are owned equally by the members with a democratically elected board of directors – one member, one vote. The Virginia Credit Union (VACU) is a Community Development Finance Institution (CDFI) with a responsibility to invest federal dollars alongside private sector capital in the nation’s most distressed communities.

Four outstanding Richmond community leaders and VACU member-owners filed paperwork by last year’s deadline to run for the board in the March 23rd elections — Frank Moseley, Kati Hornung, Richard Walker, and Tori Jones — to bring a different direction, a different relationship with the Richmond community, and accountability for VACU’s atrocious pandemic response to an out-of-touch board of directors that needs all three.

VACU’s board has not only refused to allow their names on the ballot, it didn’t bother to interview or respond to the candidates. Instead the board is planning to hold a Soviet-style election at our annual member meeting on March 23rd, with three board-chosen candidates running unopposed for three seats. You can read the full story here, and learn more about the candidates here.

Tell VACU this is not democratic ownership and we will fight for our voting rights at the credit union the same as anywhere else they are under attack. 

A longer  post called We Own VACU provides the back story of their efforts.  They show the board chair appointed the nominating committee, which in  turn nominated the chair as one of the candidates for the four open seats.

Complaint Filed with NCUA

Where can members go if their efforts are denied?  Who is to call a foul on those in charge if they do not follow their own rules?

The members appealed to NCUA.  Yesterday they filed a formal complaint which can be read in full. The complaint gives the history of their attempts to be nominated starting in September 2021 and the repeated no responses or rebuffs by the board.

They attach their documentation and ask NCUA to vacate the “sham election scheduled for March 23 and require a new election with all four names included on the ballot.”

However their most important request is that NCUA make a policy statement declaring  that:

No credit unions in the country will be permitted to remove member owner oversight, participation in governance, or democratic control, thereby removing the temptation of misguided boards to try.

NCUA has published many such interpretations of acceptable bylaw implementation such as this:

  1. Nomination procedures: Under all options under this Article, the nominating committee must widely publicize the call for nominations to all members by any medium. This requirement can be satisfied by publicizing the information to a large audience, whether by newsletter, email, or any other satisfactory medium that reaches as many members as possible. The NCUA emphasizes that member participation is important during an election, and FCUs must make sure that members are aware of the nomination process. (emphasis added)

But in practice the Agency has shown no interest in member rights even when confronted with documented evidence of board manipulation of voting and annual meeting misconduct. A prime example is the denial of member rights in the Cornerstone Credit Union merger with Belco Community Credit Union.

As a result member participation in annual elections is increasingly a shadow exercise with no substance.  With more virtual annual meetings, the process becomes even more controlled.

As members are removed from the governance process, board and management are free to follow whatever course they alone believe is in the members’ interest. Even when this means giving up sound charters via merger or using member’s collective reserves to buy troubled banks.

Regulatory Leadership or Continued Neglect?

Chairman Harper in last week’s GAC address gave this view of his regulatory approach:

One of my favorite quotes by Molly Ivin’s reads: “I think government is a tool, like a hammer. You can use a hammer to build with or you can use a hammer to destroy with. Whether government is good or bad depends on what you use it for and how well you use it.

He then says how he intends to use his regulatory hammer as Chairman:

Protecting Consumers

Since joining the Board, I have focused on strengthening the NCUA’s consumer financial protection and fair lending resources. Given the consumer compliance examination program for comparably sized community banks, our program’s scope is insufficient, especially for those credit unions between $1 billion and $10 billion in assets. We should be doing more, and we can do more.

I understand this is not a popular opinion in this room. Many within the industry maintain that the NCUA should primarily focus on its safety-and-soundness mission or that the agency has not demonstrated a significant rationale for a stronger consumer compliance program.

Some also contend that the cooperative nature of credit unions prevents their lending practices from being discriminatory because their primary purpose is to serve their members’ needs. However, the logic that credit unions do not discriminate because they are owned by their members is a dangerous myth and one that should end.

Confusing Consumers with Member-Owners

Chairman Harper wants to protect consumers but not coop member-owners who are his primary responsibility.  The GAC comment suggests he has yet to grasp what it means to regulate cooperatives with their system of member governance.

The VACU members’ complaint and the ever-spreading practice of board’s ignoring the critical role of member’s franchise role will demonstrate whether the NCUA Board believes in member rights—or just wants credit unions to see their owners as only consumers.

The VACU members requested a straight forward policy statement that all credit unions could embrace.   It’s much shorter than a GAC speech. It doesn’t require a hammer. Just a reminder of who credit unions are.

I bet such a statement, recognizing members’ governance role,  would also enhance whatever shortcomings there might be in consumer compliance!