A World Without Corporate Credit Unions?
See Jan. 3, 2012, update: ProDraft Services Says It's 'Doing OK'
Picture a credit union universe without corporate credit unions. Not a one. ProDraft Services, a Bismark, N.D., CUSO, insists that such a world is not only possible, it may actually be better for credit unions.
"It is realistic to talk about a healthy credit union system without corporates," said Douglas C. Wolf, a ProDraft vice president. Wolf is the former CEO of Midwest Corporate FCU.
The sticking point in reviving the corporate credit union system is as bottom line as it gets: money. "What we are offering with ProDraft is access to the correspondent solutions traditionally provided by corporates without the demand that credit unions recapitalize us, as they are being asked to do with corporates," said Wolf.
That argument is finding interested listeners in ProDraft's North Dakota base where Midwest Corporate Federal Credit Union already has formally notified its members that it will cease to provide services. It directed members to ProDraft, which had been a division of Midwest Corporate Federal dating back to 1985. ProDraft was spun out as a CUSO in April 2009 and in 2010 it began offering most of the services Midwest Corporate had.
"We came to believe that what credit unions need is a new business model," said Wolf, "where they get a full range of services without assuming the risks involved in capital deposits."
For many of the services it offers, ProDraft contracts with Cincinnati-based Fifth Third Bank. "Fifth Third has a history of working with credit unions. It is very credit union friendly," said Wolf, who added that he believes ProDraft will be able to aggregate a sufficient volume of transactions so that its participating credit unions will pay charges comparable to what they had been paying corporates.
But all this raises questions. First, how do early adopters of ProDraft assess the services they are getting? "We have had no transition issues in using ProDraft," said Leslie Heisler, CEO of Genie-Watt Credit Union in Bismark. "Costs are comparable, possibly a little higher, but we trust ProDraft and that is important to us."
Paul Brucker, CEO of Railway Credit Union in Mandan, N.D., said much the same. "ProDraft has been working very well for us. We shifted to ProDraft a couple months ago and have no issues."
The second question, will credit unions outside the Dakotas sign on with ProDraft? Wolf is optimistic. "We believe we will have 75 credit unions from outside North Dakota signed up with us by year end plus 25 from within North Dakota. We are getting calls every day."
But the fact is that, so far, ProDraft remains an exclusively North Dakota entity.
Another issue, raised by David Savoie, CEO of Louisiana Corporate Credit Union in New Orleans, is that the ProDraft approach misses a key corporate credit union function. "I disagree that corporates were formed to secure volume discounts for members on correspondent services. Corporates were formed to provide a source of credit within the credit union industry that could be relied upon in times of tight liquidity. I am hopeful that we can arrive at a solution that will not place credit unions at the mercy of banks for their credit needs."
Savoie's concern is one that remains to be addressed.
Another question takes Savoie's worry to the next level. Is reliance on a traditional bank a large break from the underlying credit union philosophy? Jim Blaine, CEO of State Employees of North Carolina Credit Union in Raleigh, N.C., said that credit unions need corporates. Blaine, citing unfamiliarity, did not comment on ProDraft in particular, but he stressed that throughout the credit union industry there is a philosophical bias to turn to other credit unions. "Corporates provide important functions, we need them."
Railway's Brucker agrees: "I hope there is a future for corporate credit unions. I really do."