If Credit Unions Can't Do It Themselves, Congress May have to Police the Industry
The recent U.S. House Committee on Ways and Means hearings coincided nicely with my efforts to get the industry refocused on serving the members instead of acting like for-profit banks. Had I been asked to testify before the committee, I would have said all credit union volunteers and paid management must examine how their credit union uses the tax-exemption. And, I may have offered these examples of how credit unions betray the trust and confidence members grant, perhaps naively, management: * A credit union in the Northeast has 29% capital. Based on NCUA code 1 level capital of 10% as a more-than-sufficient capital level, this CU has unnecessarily withheld about $130 million from its membership - approximately $8,667 per member. Is the credit union so much smarter than its membership that it knows how to spend the money better than the members that paid in the $130 million? Paying an average of $139,000 in annual salary/benefits is one way the CU spends its members' money. * There are some credit union CEOs making approximately $1 million a year. Simply because a credit union has the resources to pay a CEO $1 million, does not mean it should. Credit union CEOs are not solving world peace, curing cancer or educating our next generation. Any CU CEO thinking he/she is worth $1million/year should move on to the for-profit, tax-paying free market. Don't expect U.S. taxpayers to subsidize your ego. * A credit union CEO in California convinced his volunteer credit union board of directors that massive fee income is needed to lead the $700 million credit union to greatness. The credit union will generate over $16 million in fee income in 2005. This works out to more than $100 per month per member. Can members of modest means really afford $100/month? Is it any surprise that salary/benefit packages at this credit union are 50% above its peer group? * Credit Union Times recently ran a Top-50 "Fee Income per Member" list of credit unions. Each CEO of these not-for-profit CUs should put on his/her 2006 To Do list an action item to get off this list. Apparently wanting to move higher up the list, one of these fee-focused CEOs convinced the board that its industry-average NSF fee was not sufficient and raised the fee even higher. Instead of increasing fees, the CEO should address the credit union's expenses, which are double its peer group average. I've been accused of taking a few isolated instances and trying to create a much-bleaker image of the current credit union industry. I wish that was the case, but the fact is there are hundreds, maybe thousands, of credit unions blatantly overcharging their own members, wasting the tax-exemption on ever-increasing expenses, and operating as for-profit, "customer"-focused financial institutions. Record high expenses have put the credit union industry in such a precarious position it actually needs its collective membership to keep writing NSFs and courtesy pay items. Without the unregulated member-paid fee income thousands of credit unions' Return on Average Assets (ROA) would be an NCUA code 3, 4, or 5. The hearings of the House Ways and Means Committee focused on credit unions serving people of modest means. While that is a justified goal, equally important to who you serve is how you serve. Payday lenders serve people of modest means, but I doubt too many credit union folks think that's necessarily a good thing. Yet, I've already had a number of credit union CEOs defend $25 NSF/courtesy pay fees with the argument that their courtesy pay program is cheaper than payday lenders. If payday lenders are the credit union industry's new performance benchmark, what an embarrassing reality check as Congress evaluates the need to continue our tax-exemption. Committee Chair Bill Thomas also indicated more transparency may be needed in the CU industry. With due respect, more onerous disclosures have not stopped credit unions from converting to banks, and more transparency will not lead to any significant changes in the industry. Ample 5300 call report data and credit union Web site information already tell anyone willing to take the time that credit unions claim success if they merely beat for-profit, tax-paying banks by a few cents or basis points. Members are complacent because their credit union is better than a bank in relative terms. Congress needs to reach beyond transparency and require accountability, which can be implemented with some minor legislative amendments to CURIA. A few suggestions: 1) cap NSF/courtesy pay fees at three times the federal minimum wage, 2) cap the amount of capital a credit union withholds from its membership, 3) no CEO benefiting from a congressionally issued tax-exemption needs to earn a salary greater than the President of the United States, and 4) require a minimum attendance of 1% of the membership at a credit union's annual meeting. Credit unions truly operating as not-for-profit cooperatives and respecting the tax-exemption will not be materially impacted by these simple, straightforward "accountability" requirements. CUNA, NAFCU, and other trade associations do an excellent job of serving the credit unions' best interest, but no unified group protects the member that pays $25 for an NSF, prevents a credit union from withholding $130 million from its membership, or keeps a CEO from gouging its own credit union with an over-the-top salary. Lacking the industry's willingness to self-police, Congress must be the member advocate group that holds credit unions accountable and forces us to operate in a manner worthy of tax-exemption. Lastly, I expect the American Bankers Association to prove the validity of my efforts. How is that, you ask? The ABA will not support any of my suggestions because it knows the suggestions will strengthen the credit union industry in the long run, and that is not in the best interest of the ABA. Dale Kerslake President/CEO Cascade FCU Kent, Wash.