We Need to Fix the Broken CU Model
If it ain't broke, don't fix it!" This celebrated chestnut causes more damage than good and delays calls for correction. It supports defective conclusions about the true effectiveness of what is seemingly unbroken. In many areas, the credit union system is working. However, for many Americans the system is seriously broken.
For years credit union leaders have sat by watching the steady decline in the number of credit unions citing aggregate asset growth, in general, as a key indicator of industry health. Little concern was given for the fact that the asset growth was coming from the same people. Lip service and fist shaking were the extent of many credit union leaders' objections as they watched the proliferation of check cashing, payday lending and other curses of the downtrodden that expanded during the last couple of decades.
One does not have to look far to see the limited success credit unions have had in helping those in need. The more credit unions look and act like banks, the greater the number of people who have to look to abusive alternatives for their financial needs. Credit unions using heartless computer-generated models have replaced the people-helping-people core value that was the foundation of the original success of the system. Many of the current leaders in the industry have never had the humbling experience of looking a person in the eye and explaining why their credit request was denied. Never attempting to walk a mile in a person's shoes makes a lifeless form letter so much cleaner and easier to send.
Yet economic, regulatory and other necessities demand an orderly, antiseptic and efficient process. You will not get any criticism for a loan denial as long as the consumer disclosures were properly filed. When the only concern for the loan request that may have helped someone in a difficult situation is that it is efficiently denied prevents a potential discovery that serves humanity, you have an unquantifiable loss for all. Sometime in the 1980s credit unions changed from wealth-storing and wealth-creating institutions to primary financial institutions. I participated and was a proponent of this concept for some credit unions and the right circumstances. It seems that the "me too" syndrome was too great for some credit unions. They either gave up because they could not be large and sophisticated, or they did not appreciate the value of their service to the members they had in front of them. The trade associations and the regulators started to foster an environment where only the PFI-type credit union would thrive. The economic and regulatory burdens placed on traditional credit unions created an extremely hostile economic environment for them.
It is a real shame that with all of the technology available today, we could not come up with a simplified credit union model that would make inroads to the plague of usurious companies that feast on the weaknesses of the less fortunate. The trades and the regulators should get together and develop a CU model that can be up and running with limited confusion.
Prior to the NCUA's obsession with protecting the NCUSIF, credit unions were chartered and up and running with ease based primarily on a group's assertion that they were volunteering to serve. Today a traditional small business, association or limited community credit union has to comply with the same levels of complexity as Goldman Sachs. Is there any question why credit union volunteers get frustrated and give up?
With so much need going unfulfilled, how can we allow for the expansion of those who damage others without attempting to respond with a creative, alternative model that is simple to operate and effective at reaching faceless persons in an already too sterile world? The lack of concern on the part of those who have expanded without regard to consequence is chilling.
Closing or merging a small credit union into a larger credit union can no longer be an acceptable solution. We should study and attempt to understand the negative impact on real people who are no longer adequately served by the all-knowing computer model with beautifully compliant disclosures. We need to stop worshiping at the altar of the PFI model. We need to reject the notion that larger is better, trumpeted because it pays the dues of trade associations and the operating expenses of regulators.
We only delay the difficult task of fixing a broken system at our peril. There will come a point where the large are too few and bank-like. The argument that we are about people helping people will become a joke. The haves will find financial services, and the have-nots will be exploited. We need to fix the broken.
Bill Brooks is a certified financial planner with CU Prosper and former CEO of Lafayette FCU. He can be reached at 302-258-4668 or ?firstname.lastname@example.org