Payday Lender Questions Credit Union Business Model
No other product has come under scrutiny within the credit union industry as much as payday loans.
While there are internal and external critics who staunchly believe the payday lending model goes against the tenets of credit unions, some may wonder if the way cooperatives are managed may determine if the controversial loan products can effectively help those who are unbanked or underserved.
Tom Nix, the founder of what was previously known as Nix Check Cashing, has released Nixland, an autobiography that includes a chapter on how he negotiated the $45 million sale of the business to the $3.1 billion Kinecta Federal Credit Union in Manhattan Beach, Calif., in 2007.
Nix questioned whether a certain type of leadership template is needed to produce success in the payday lending space.
“Kinecta had a centralized form of management that was in stark contrast to my management style,” Nix wrote in his book. “They believed in Matrix Management and from my point of view, got very poor results due to the lack of well-defined responsibility and accountability.”
When Nix sold Nix Financial to Kinecta, he stayed on and became the new subsidiary’s division president for more than a year but the new role did not work out well. In his book, he wrote he was accustomed to a decentralized approach to managing the business, giving his entire management team the responsibility and authority to manage their respective areas of Nix Financial and hold them accountable for the results.
Nix said instead of second-guessing managers’ mistakes, the missteps were seen as learning opportunities. As a result, managers were highly motivated and strove for excellence. The same wasn’t true at Kinecta.
“There was a lack of respect for the chain of command, and the committee form of management undermined it,” wrote Nix.
Frustrated by the new management direction of Nix Financial, Nix resigned as its president in July 2009 after serving as a part-time adviser to Simone Lagomarsino, then president/CEO of Kinecta, and the new division president.
When contacted by CU Times, Kinecta chose not to be interviewed for this story.
“However, we would like to contact you soon because we would like talk to you about (Nix Financial) and our plans for the near future and where we see this industry going,” said Marsha Mathias, Kinecta vice president of corporate communications. “We’re just not ready to comment on that today.”
Rather than question whether the management structure is even a factor in determining if a credit union can offer payday loans to those pushed out of the traditional financial mainstream, other matters are probably more important, according to some advocates.
For instance, does the credit union or its employees have experience with payday type products, said Asa Groves, chief operating officer at XtraCash LLC, a payday lending subsidiary of CU Holding Co. LLC, which is owned by the $471 million Mazuma Credit Union in Kansas City, Mo.
“Questions a credit union must answer in making that decision include how much risk is the credit union willing to take,” said Groves. “What are the core system challenges with this type of product (and) what are the regulatory challenges with a product with very high defaults.”
Read more in the April 2 issue of CU Times.