The credit union industry faces an inherent dilemma: credit unions are drawn to work cooperatively yet they are responsible for their own shops. In the credit union industry today, the ongoing saga of Mission SF FCU and Toledo Urban CU is playing out quite publicly. Executives at credit unions of all shapes and sizes are coming down on either side of the issue: should credit unions be soliciting donations?
The answer is yes and no.
Low-income credit unions–by the nature of who they’re trying to serve–are not going to have the same resources or growth other credit unions can muster. They also are likely to experience somewhat higher delinquencies as they nudge the boundaries of which borrowers represent prudent risks. This is the purpose of these financial institutions.
It must be a fine line to walk, providing financial services to empower single parents in need or to someone who simply needs a car to get to a new job. Many have no or poor credit histories. However, just like every credit union in the world, LICUs owe it to their entire memberships to thrive. They should make enough to balance against their anticipated losses and a little rainy day fund.
That’s the not-for-profit part of the credit union mantra.
A lot of assistance is available. Grants from private and public sources can be obtained by healthy credit unions to continue performing their good and necessary work in underserved areas. The NCUA offers free, regional training sessions for small credit unions so there is minimal cost involved. The national and state trade associations offer zillions (What, you’re in financial services and never heard of that technical figure?) of training options on everything from disaster recovery to ALM. Less-resourced credit unions can also capitalize on the cooperative industry by purchasing used equipment or borrowing expertise from better resourced credit unions as I wrote in last week’s column.
Part of the trouble is many of those credit unions don’t know assistance is available or where to look for it. If they’re truly serving their members, they should.
There’s also secondary capital assistance available to low-income designated credit unions. This is entirely appropriate as a good investment for other credit unions. And if the LICU is thriving and merely looking for funds to expand its services and do more good deeds that is awesome. That is exactly what supplemental capital is about.
What it is not intended to do is bail out credit unions that are failing because they became overextended. Part of being a financial institution is being able to ride the economic tides, and unfortunately, that point becomes particularly sharp in less economically advantaged areas during a financial crisis. Sometimes a merger with a more sophisticated credit union that has the resources to better judge creditworthiness could be the best answer for the members in the long run.
Credit unions are not charities and LICU members are not charity cases. They deserve assistance with financial education, or if their credit is messed up from a recent divorce, the member might deserve the benefit of the doubt at loan approval time. Trying to save everyone will only deplete a credit union’s resources, human, capital and otherwise.
That’s the not-for-charity part.
Then there’s the final part of the credit union mantra: But for service. The sticking point there is that more often than not it seems the farther the organization becomes from the people it’s serving, the lower quality of service it provides. A small segment of the business can be neglected because the ROI isn’t there.
More modern, decentralized corporate structures could help alleviate fears of this problem to facilitate a merger. Empowering mid-level executives to make decisions about their branches or local regions would help provide a more local feel while bringing in other resources of a larger operation at the same time.
Yes, these employees would have to be trained properly and that will take time and money. It is not an expense line item but an investment that will create greater service for the membership and thus growth. Training that can further someone’s career provides a sense of loyalty to the organization because upper executives believed in their abilities and it will help save on turnover costs. It will also help determine and develop the future top leaders at the credit union. Proper succession planning could help your credit union from becoming the institution being merged out of existence.