Pacific Marine Credit Union Battles Ups And Downs of Military Membership that is Tied Closely to War in Iraq
CAMP PENDLETON, Calif. - Imagine this: your credit union will sign up 20,000 new members this year, all in the must-have 18 to 25 age group. All of them have two years guaranteed employment, and are automatically signed up for direct deposit and an ATM card. Spend a few minutes talking to Brad Smith, vice president of strategic development for Pacific Marine Credit Union, and you learn that each day at his credit union is like the war in Iraq: a mix of shock and awe. Pacific Marine is headquartered on the Camp Pendleton Marine base about 50 miles north of downtown San Diego.
Although the 70,000-member credit union expanded its field of membership in 2000 beyond Marine and select Navy units to include the counties of San Diego, Riverside and San Bernardino, the vast majority of Pacific Marine members are either active or retired military. Smith said the credit union's community charter "exit strategy" was only to prepare for the always-present threat of base closures.
"Our board is made up of former Marines, we have retired Marines who work here, so that's who we are, that's what we do, and our institution was created to serve these men and women," Smith said.
Serving west coast Marines will become more difficult this month, as 20,000 Marines - nearly two-thirds of all troops assigned to Camp Pendleton - will deploy to Iraq this month to support the war. There are two major Marine bases in the U.S.: Camp Pendleton and Camp Lejuene in South Carolina. Recruits from west of the Mississippi River are sent to Pendleton, while those from the east go to Lejuene. "(Camp Pendleton Marines) did about 21 months in Iraq, then Lejuene took over the heavy lifting for awhile, so we've been through a full cycle already," Smith said.
Much of pre-deployment financial preparations include setting up automatic loan payments and updating power of attorney designations. Pacific Marine's call center takes the hardest hit, with an increase of monthly calls from 20,000 to as high as 40,000. Because the credit union is headquartered on base, it has limited civilian access. As a result, many front-line employees are Marine spouses, who often move back home to their families during deployment, resulting in skyrocketing turnover rates. "It makes it very difficult to provide a great service level when you've got a call center that is experiencing 100% turnover in a matter of six months," Smith said. Although call center staffing is a challenge, Smith said branch attrition actually solves the problem of reassigning employees during deployment due to reduced traffic. Thankfully, turnover is balanced by a steady brigade of employees with decades of service. "We have so many folks here that have been through this tap dance before, I can pull four random FSRs (financial services representatives), and any one of them can tell you what needs to be done," Smith said. Many Marines get their financial houses in order, but, as can be expected with young members, many do not. "These guys do silly things, like they'll tell their buddy `I'm deploying, so you can drive my car and make the payments on it while I'm gone,' which, of course, doesn't often happen," Smith said.
The credit union also encounters a higher instance of fraud during deployments, as spouses and family members abuse power of attorney privileges and fleece member accounts. Because deployed Marines have little to no ability to access or spend their paychecks while in war zones, enlisted men and women accumulate about $10,000 in their accounts during deployment, tempting those they trust to handle their affairs. If Pacific Marine has a secret weapon in the war on financial education, it's membership development officer Bob "Camo" Gleisberg, a retired Marine who provides financial education to new recruits. "Camo" also works directly with Marine commanders to address financial issues facing the troops, like power of attorney abuses and payday lending.
"When I hired him, I hit a gold mine," Smith said. "He does a great job with our Marines, develops an immediate rapport with them because of his background."
According to NCUA statistics, as of Sept. 30, 2005, Pacific Marine had 24,896 outstanding loans totaling $217,325,422. Of these, 445 were delinquent two months or more, totaling $2,725,512, or a 1.25% delinquency ratio. The credit union had also charged off $5,892,062 worth of loans, or 2.70%. Smith said the charge-off figures are higher than normal this year due to indirect lending underwriting policies that have since changed. "I'm sure our delinquencies and charge-offs are higher than at other credit unions, but we take more risk because we believe we're supposed to loan to these young Marines. That's our job, so we're going to put that money out there," Smith said.
The credit union is quite strong financially, despite loan losses. As can be expected with young members, the credit union has strong non-interest and Visa interchange income. Smith also reported the credit union has a 14% net worth, and 1-1.2% net earnings, which he said allows the credit union to absorb losses and continue serving its sometimes challenging membership. A statistic more sobering than charge-offs is a human one: Pacific Marine members represent more than 200 casualties from the war in Iraq, a number that is expected to rise during the 2006 deployment. "Our credit union has probably taken more losses than any other credit union in the country, including Navy Federal," Smith said. The credit union suffers so many casualties, it employs a full-time person dedicated to processing deceased accounts. Additionally, an administrative assistant visits war casualty Web sites each day and compares it against the credit union's membership database. When military personnel are killed in action, families are awarded $250,000 from the U.S. Government. This money goes directly to families, who have no obligation to pay off the Marine's outstanding debt. "We usually end up eating those loans. Although there's a good portion of family members, especially a spouse, who want to keep the car or the house, so they'll take over the loan," Smith said, adding, "but those loan losses, that's just a cost of doing business for us."
Now, about those 20,000 new members a year. In 1997, Pacific Marine assumed administrative management of the Recruit Direct Deposit Program, which allows new recruits to "purchase" sundry items during boot camp, a time when troops are not allowed to access payroll funds. The government was spending $1.5 million each year to maintain a labor-intensive manual program. Pacific Marine automated the process using ATM cards, limiting access to only approved items on base. The program has been so successful, Pacific Marine was awarded the "Hammer Award" in 1996 from Vice President Al Gore for reducing government waste. Of course, the program does not just benefit the government: half of all the nation's Marines must join the credit union upon entering boot camp. The result is an influx of 20,000 new members each year, each with two years guaranteed employment. Because the U.S. military no longer issues paper paychecks, all new members must also sign up for direct deposit. Once out of boot camp, however, Marines can transfer their direct deposit off base, resulting in considerable attrition. Marines also tend to take their accounts with them when they leave the Corps.
"There's always a pretty good chunk of accounts out there that don't have $50 in them; of 106,000 we have on the system, 36,000 are considered inactive," Smith said.
Smith said the credit union receives 6,000 returned statements each month, although the introduction of electronic statements last year is helping to relieve the problem. "Without phones and the Internet, I don't know what we would do," Smith said.