"A fiddler on the roof. Sounds crazy, no?...You may ask...'How do we keep our balance?' That I can tell you in one word: tradition!"
Those are the opening lines of the great musical "Fiddler on the Roof" sung by the lead character Tevye. His work, his family, his life are all founded on the cornerstone of tradition. The same might be said of credit unions. Arguably, the "tradition" of credit unions is based on seven cooperative principles recognized by cooperatives worldwide and as adopted in 1995 by the International Cooperative Alliance. Those principles are: (1) voluntary and open membership; (2) democratic member control; (3) members' economic participation; (4) autonomy and independence; (5), training and information; (6) cooperation among cooperatives; and (7) concern for community.
"Be real!" you say. Today's fast-paced, bottom-line oriented financial services marketplace demands nimbleness, ruthlessness and pursuit of profit. How can credit unions ever reconcile tradition with the requirements presented by modern realities? And, you may ask, what opportunities exist in this highly-regulated environment for credit unions to thrive in their "tradition" ?
As to the first question, I would argue that if credit unions do not adhere to the cooperative principles, the "tradition" outlined above, they should ask if the credit union structure is still appropriate for their operations. As to the second question, below are three opportunities that exist for credit unions to keep true to tradition within the context of today's regulatory environment: Field of Membership
Regardless of your charter type or whether you are state or federally chartered, your credit union has voluntary and open membership within the context of defined groups, service areas or geography. The challenge and opportunity, even in today's regulatory climate, is to offer services to all segments of that field of membership and to make that membership valuable.
For example, are you meeting your members' needs where they are in life? Or, are you meeting the needs you think they have? Your credit union has a myriad of opportunities to serve Gen Y, Gen X, Boomers, the underserved and retirees. But each group has different needs. Are you serving up the tradition of membership in a way that appeals to these different groups of members, that offers value the way they define "value"? There are a whole host of examples of innovative programs by credit unions to reach out to all their members in nontraditional ways. These efforts successfully bring the value of membership, democratic member control and members' economic participation to a wider array of consumers. That is credit union tradition.
Despite litigation and changes to NCUA's regulations on service to the underserved, conversion to community charter at the federal level is still a viable option. This charter type often provides the diversity of membership sought after by credit unions faced with stagnant membership growth. However, it does come with a catch. Serving a community can be a very different experience from serving multiple select employer groups or even a single sponsor field of membership. A credit union seeking to convert needs to commit its staff's creativity and time to reaching out to all segments of the community the credit union wants to serve. Other charter types, like the "Trade, Industry or Profession" charter, also offer credit unions flexibility to expand. Incidental Powers Regulation
Cooperation amongst cooperatives is another traditional cooperative principle. And yet, how effective are credit unions at committing to and executing collaborative approaches to serving members? Are these collaborative efforts given the resources and focus necessary to make them succeed? One can point to select examples throughout the country of such successes. But is there any regulatory impetus or flexibility to support such collaboration?
The incidental powers regulation (12 C.F.R. 721) provides credit unions with significant opportunities to collaborate and leverage resources for the betterment of members. The rule defines "incidental powers activity" as one that is "necessary or requisite to enable you (the credit union) to carry on effectively the business for which you are incorporated." This broad definition includes a variety of pre-approved activities ranging from financial counseling to finder activities to operational programs. Moreover, if a particular activity is not pre-approved under the regulation, a credit union can apply to have it approved by the NCUA Board.
So, whether trustee and custodial services, tax payment services or electronic financial services, the incidental powers rule offers credit unions a mechanism to serve the great diversity of their memberships. That is a tradition worth keeping. Member Business Lending
Look at the tradition of credit unions as they were originally conceived in England and Germany in the mid- to late-1800s. These credit cooperatives were founded on the principles of lending to individual member businesses so that the community as a whole could thrive. It is no different in the 21st century. Members have an increasing need for a source of funding to help those businesses grow. They can and should turn to their credit unions to realize such dreams.
The Federal Credit Union Act limits the percentage of member-business lending that a credit union can do to 12.25% of the credit union's net worth. As efforts continue to modernize these provisions, there is another opportunity to manifest this credit union tradition. Small Business Administration lending. Qualifying as an SBA Certified and Preferred Lender opens the doors to offering 7(a) and 504 Program loans to members looking to finance their businesses. The insured portion of 7(a) loans do not count against the FCUA cap noted above and allow credit unions to meet a traditional need nontraditionally.
Tradition is and has always been an essential part of the credit union difference. The challenge in today's marketplace is to serve up tradition in nontraditional ways. Regulation does not and should not drive credit unions. Members drive credit unions. I believe NCUA does its job as regulator and insurer best by ensuring the long-term success of credit unions. This requires a balanced approach using sound risk management practices, not an ultra-conservative or no-risk tolerance one. That is a tradition NCUA can foster to enable credit unions to stay safe and sound and to succeed far into the future. --Editor's Note: Gigi Hyland is hosting an "SBA 101" Webcast scheduled Sept.14 at 2:00 p.m. (EST). For more information, visit www.ncua.gov.