Credit Unions Do a Lot Right But Not Everything
Credit unions do so many things right it might seem that it would be difficult to do a column on some of the many things they do wrong. But it is not. For example, many credit unions and those that keep stats on them are crowing again about how low the delinquency rate has sunk. A low delinquency rate to me means that too many credit unions are more interested in making safe loans than helping members in need, especially those who turned to their credit union as a last resort. A too low delinquency rate could mean members are being sent to payday lenders. While patting themselves on the back for low delinquency, some credit unions are amassing exorbitant amounts of capital. No PCA (Prompt Corrective Action) worries for this group of CUs, some with as much as 26 to 30% capital. These same credit unions also have another statistic that they don't talk about much. Their loan turn down rate. In some cases it stands at 46% or even higher. All of this definitely falls into my category of what credit unions do wrong. So does the practice of some credit union CEOs, lending staff, and boards that attempt to make moral judgments on certain member loan requests. "I never had an expensive car when I was that young. Why should we take a chance on a 20-year-old who thinks she needs a Lexus when a Ford would do her just fine?" Sound familiar? Many credit union leaders also make the mistake of underestimating the importance of convenience to members. I don't have any statistics to back it up, but I would guess that many potential members never join a credit union just on the convenience issue alone. Which financial institution has what used to be called bankers' hours versus being open when I can get there? If credit unions continue to ignore the trend of competitors to be open more hours including weekends, they are making a big mistake. Many years ago when I launched the first industry-wide compensation survey, boards were all over me. Guess they had guilty feelings because they knew in their hearts that they were underpaying their CEOs, a reality exposed in the survey. Much progress has been made since that pioneering effort. Today many credit union CEOs will readily admit that their boards are providing an equitable comp package. But the job is by no means completed. Now it is time to turn the focus to staff salaries other than the CEO. Many of the senior management people have not kept up with the progress their boss has made. The gap in some credit unions between the CEO's pay and that of his or her staff is too wide and getting wider. The excellent work of good staffers at all levels needs to be recognized in their pay envelope, too. To not do so is a mistake, one that will eventually cause the best of this breed to seek greener pastures. Another thing some credit unions are doing wrong is spitting in the face of the banking industry. A case in point is some recent publicity given to a credit union out East. They did an ad that asks, "Do You Have a Pulse?" The obvious answer is that if you do you can join the CU. Naturally area bankers are up in arms over a credit union saying any live body can join. Granted, the credit union in question can serve anyone in a well-defined geographic area. But giving bank lobbyists one more example of marketing that on the surface helps them make a point to lawmakers is a mistake. It is also a mistake for a spokesperson for that CU to defend its ad with this analogy: banks should be thought of as CBS while credit unions are PBS. Great! Apparently he has forgotten that PBS is subsidized by the government, a charge frequently leveled at credit unions! Something that more credit unions than anyone might imagine do wrong is to allow the credit union to be structured primarily around the personality and viewpoints of the longtime CEO. In these cases, the only reason why the credit union does certain things the way it does is because the CEO has convinced his or her board that their way is not only the best way but also the only way. That's why you see credit unions in different states with basically an identical field of membership serving members so differently. One CU serving state employees serves members with a branch at every wide spot in the road while another credit union for state employees employs the no branch theory. One credit union says our members want high dividends and limited services. A similar size CU down the street says our members want every new service that comes down the pike. In reality, it is what the CEO wants. Sometimes what the CEO wants is best for members. Sometimes it is not. One thing that far too many credit unions do wrong is assume that members and potential members know what a credit union is and why it is different. Those involved in credit unions every day get so caught up they tend to think members know a lot about credit unions in general and theirs in particular. They don't. Every measurement of members' CU knowledge, from surveys to focus groups, proves that point. Many credit unions, especially community charters, make the mistake of not getting involved enough in their communities and not cultivating relationships with community leaders including the media. Quick quiz: can your credit union's marketing/public relations staffer tell you the name of the correct key media contacts off the top of their head? I doubt it. As a change of pace, it might be time for every credit union to hold a novel brainstorming session to come up with a list of what the credit union is doing wrong. Then find ways to fix it. Comments? 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