It's all About Location, Location, Location
Location is important in nearly all businesses for various reasons, whether it be accessibility or security or tax treatment. It's a cost of doing business. At its December meeting, the NCUA Board issued a proposed rule that would require federal credit unions to operate out of commercial buildings zoned for retail use. The very fact that the agency has to issue a rule about this is preposterous.
Running a credit union out of someone's home presents major safety concerns. Any mentally unbalanced or criminal member could threaten the manager with no one else around, or worse yet, with family present. Examiners could be attacked by managers with no witnesses to what happened. Managers have challenged that examiners have no right to access home-based credit unions. While an extreme case that actually did occur in a commercial building, the Taupa Lithuanian Credit Union scenario was a huge eye opener to the safety issues examiners could face, and stockpiling a weapons arsenal would be much more likely and potentially legal in someone's home. Other less dramatic safety issues are of real concern for members and examiners, such as rickety staircases or dog bites. Really, who wants to see a rabid examiner?
Privacy concerns are another obvious problem for a home-based credit union. It is difficult to ensure the credit unions’ records are safely locked up and that precautions have been taken to avoid accidental destruction by fire or flood in the manager's basement. Additionally, other members of the household might access these documents, inadvertently or for nefarious reasons, in violation of privacy laws.
The NCUA proposal provides a two-year window upon approval of a final rule to find a suitable location. In the meantime, credit union managers are permitted to bring required documentation to a mutually agreed upon public location, such as a restaurant or a library, which addresses the examiner safety issue, but creates possibly a greater information security risk from eavesdroppers or dropped documents.
In addition to providing federal credit unions ample time to move their headquarters, the NCUA is also paying them to do it. The agency plans to offer grant money to assist with location moves for small credit unions, as it did with the requirement for credit unions to file call reports electronically (which has not closed any credit unions to date). The Office of Small Credit Union Initiatives has already contacted the 95 home-based credit unions offering viability assistance, which they have turned down. That tells me the managers don’t care for their credit unions to survive. The OSCUI also will offer guidance for affected credit unions.
This administration, while I have disagreed with much of the regulation in general, has done too much to assist certain credit unions that do not want to be saved. As mentioned previously, OSCUI “contacted” the 95 home-based credit unions. I used that word very deliberately, because the NCUA had no other way of contacting some of these credit unions other than showing up at the door. The icing on this ridiculous cake is that the agency's proposal also would require that federal credit unions provide the NCUA and members with a phone number and email address for the credit union. Think about that! The agency has to demand that members—and regulators for that matter—be able to call or email the credit union.
The regulation spurred an email to me from a former examiner and credit union regulator. The arguments presented were the same old “this is how we’ve always done it,” similar to Board Member Michael Fryzel's comments at the board meeting. Credit unions already have been shown that that attitude won’t keep the industry from shrinking and membership continuing to grow more slowly than the population growth, even after the post-Bank Transfer Day surge.
Board Member Rick Metsger nailed it when called out these credit unions as mere savings clubs. And tracking down 95 of them ranging from $34,000 to $12 million in assets without contact information for some of them is expensive for the regulator (and therefore credit unions) and useless to the membership.
My only problem with this particular reg is that it doesn’t apply to all federally insured credit unions (only 81 of the 95 are federal).
If credit unions want to be taken more seriously by consumers, lawmakers and regulators, step up and act like professional businesses. Quit playing house.
Sarah Snell Cookie is publisher and editor-in-chief of Credit Union Times. She can be reached at email@example.com.