Biting the Hand That Feeds You
Eighteenth century political theorist and philosopher Edmund Burke is credited with being the first to use the idea of "don't bite the hand that feeds you" in print. Despite this long heritage, which likely has roots going back even further than that, it's still a 21st century problem.
Times are tough for credit unions. We often focus on the NCUA assessments and new regulatory and legislative burdens. Credit unions are also having difficulties in large part because their members are having a tough time, and those members are often their employees who are too ashamed or afraid to discuss their personal financial situations. They're ashamed because they're working in a financial institution or just general pride. Or they're afraid they'll lose their jobs over financial problems that can make them suspect to their employers. Others are just outright deceitful. Take your pick.
Bankruptcies are on the rise, according to nationwide statistics. Credit unions are taking a one-two punch with these. Certainly it affects lending. How about your employees? How many would be tempted to stick their hand in the cookie jar in a moment of weakness and financial strife?
On page 6, you'll see an article providing guidance from an Aite Group report. Financial institutions are prime targets for obvious reasons, and according to the report, 4% of all financial institution losses can be blamed on internal fraud. However, the report further stipulated that it's likely far greater than that.
A former NCUA executive confided to me that it was amazing how many credit union employees that end up being banned from working in financial institutions are 1) women and 2) they're just desperate to pay for their child's dialysis or their mother's cancer treatments. That does not make them any less culpable, but, especially in a prolonged down economy, these are the decisions people are making.
Credit unions are also taking a harder look at expenses. As expendable funds are pinched by narrow net interest margins, low loan demand and NCUA assessments, they may be taking a closer look at the value they derive from their trade group affiliations.
Though citing several reasons other than the economy, Texas Dow Employees recently disclosed its intention to disaffiliate from CUNA and the Texas league. The credit union has been criticized for making such an announcement at a critical time in credit unions' advocacy efforts while other credit union execss have told me they believe it could embolden others to follow.
The fact of the matter is the trade associations are not perfect and could use reform. The letter to CUNA, signed by TDECU's CEO and chairman, raised legitimate concerns. Perhaps some could be more responsive and nimble. CUNA and the leagues should revisit its structure and CUNA should look at its member-only attendance for educational events. Additionally, the educational and lobbying needs of a $5 million employer-based credit union are vastly different than a $2 billion, community-based shop.
On the other hand, the trade groups are 100% critical to the industry. If credit unions think CUNA or any group for that matter is high-dollar and subpar, imagine going it on your own. All of the lobbying support, the vendor discounts and lower cost education opportunities are of very high value to credit unions as a whole.
TDECU plans to contribute to efforts it supports on a case-by-case basis. The problem with this move is if every credit union did that, then nothing would get accomplished. Just reflect on the issue of member business lending. Even though the trades are pushing hard for it using all their membership numbers on the Hill, it's not been accomplished in several years. How much harder could that effort be-how much longer could it take-if only a couple thousand credit unions were individually supporting it? At best, coordinating efforts would be a nightmare.
Another matter credit unions may be exploring is a mutual savings bank conversion. A peek at the credit unions' financial performance does not show any particular hardship. Check out my column from Feb. 16 for stats on why credit union-to-bank conversions may not be in the members' best interest.
But that's not the whole story. There may come a point where the curbing of income and assessment of fees becomes too much for credit unions that cannot access supplemental capital, and conversion is truly the only option.
Har-Co FCU recently announced to its members that it was considering a charter change to a mutual savings bank, and it is yet to be determined whether this is truly in the members' interest.
The Har-Co disclosure makes this statement: "The simple truth is, credit unions and banks are the same in that they exist to improve the financial health and well-being of their owners." REALLY?
It also states, "As a federal mutual savings bank, however, Har-Co could raise additional capital by changing from the mutual to the stock form and selling stock to members and the public, although a change to stock form is not part of the current Conversion Proposal."