Guest Opinion: CUSOs Are Still Essential
In the 15 years or so prior to his retirement, former NCUA Chairman and Patelco Credit Union President/CEO Ed Callahan probably told me at least 100 times that if one or more credit unions can work together to bring better delivery channels, services or prices to their members then they should and must do so.
For Ed, it was always about the member first. His career proved that driven by that solemn promise to the member, we could build a regulatory environment that seeded a period of unprecedented expansion and health in the credit union community and as a CEO, build a multibillion credit union meeting the needs of thousands of members.
Over the last 30 years, the man who provided the regulatory capacity for credit unions to form a CUSO and who should be included on the list of the greatest credit union leaders, along with Bergeron and Filene, cajoled and harangued us to leverage that authority into the many successful collaborative CUSOs that exist today. The networked business model that Ed predicted 25 plus years ago would necessarily predicate the success of credit unions in the 21st century is alive and working in the nation’s CUSOs today. But even today I think, if we could ask him, he would say the model is greatly underutilized and at some considerable risk.
I usually cringe when I hear credit union professionals say that there are too many credit unions. My response is that I don’t think there are too many credit unions; there are too many accounting departments, too many HR departments, too many collection departments, etc. Most of today’s credit unions could continue to manage their local brands and identities if they eliminate and reduce the redundant costs that each and every one replicates.
We are much less than half way home in solving that problem. We have evidence of great success in card processing, shared branching and brokerage services. But much more can and should be done. Our great strategic advantage as credit unions is that we are not only cooperatives by structure, but cooperative by nature. We need to maximize the leverage of that advantage.
The collaborative CUSO model that has been so successful to date still faces challenges at every turn in many of our credit unions. The most significant internal barrier to the success of the model is the lack of strategic commitment and the necessary change in management styles in individual credit unions to teach and recognize the power of a networked business environment.
The success of a collaborative CUSO depends on the trust of partners, the sharing of common strategy and the acknowledgment of the collective management ego to accept that it may not get 100% of what he or she wants but that the objective will be accomplished in an economic fashion that once again, best benefits the member.
It is serendipitous that the other challenge today to the future success of the collaborative CUSO comes from the same regulatory body from which we received the authority to exist during the Callahan chairmanship of the 1980s. The current comment letter, which suggests that NCUA needs more oversight authority, is evidence enough that the current administration does not recognize that “systemic risk” can be managed simultaneous to identifying and supporting “systemic opportunity.” The lesson learned by the NCUA in the 1980s, and obviously forgotten today, is that when regulating a cooperative/mutual system, the goals to manage the former can be best achieved by not strangling the latter. Instead, we have a regulator that fears the concentration of business operations that are necessary for credit unions to compete and succeed.
The explanation by the board that it needs this authority for CUSO oversight in order to give it the same powers as its brethren bureaucrats is a disappointing admission that they themselves do not understand the fundamental philosophical, strategic and business differences between credit unions and for-profit financial entities. Given what we have all experienced in the last three years, it is only common sense to ask just what exactly did that same authority over third parties do to help their fellow agencies in preventing the mess we’ve been in lately?
Both credit unions and CUSOs must ask themselves what other consequences will come from additional CUSO oversight. How is the agency going to build the expertise to be able to professionally evaluate the business plans, balance sheets and income statements of businesses that look nothing like that of a financial intermediary? There is already evidence that field personnel do not clearly understand the unique operating income and expense strategies that a CUSO can provide a credit union for future growth and success.
As many of us know, you cannot simply collect CUSO data and create an equivalent evaluation baseline like the 5300. What happens to that data when it arrives at the NCUA and how is it used, and of course that pesky little issue, what is this all going to cost us? How much does the NCUA budget grow? How many new staff? Who can get confidential business information through Freedom of Information Act requests?
The NCUA could well benefit from utilizing the resources of today’s CUSOs to identify and implement innovative, efficient solutions to today’s regulatory challenges. The best way for the NCUA to learn what’s happening in CUSOs is not to collect data but to engage CUSOs to help identify solutions. The power of collaboration works for both regulated and regulator when it comes to what’s best for the member. I really wish I could tell you, “just ask Ed.”
Victor Pantea is president and chief operating officer of Member Gateways LLC. Contact 574-532-0167 or firstname.lastname@example.org