LAS VEGAS – Considering the theme for NACUSO's 20th Annual Conference was “Dare to Dream,” it wasn't surprising that the theme for many speakers' presentations had to do with finding creative ways to deal with changes and challenges. Dennis Dollar also took up that theme, telling attendees at his presentation on “The Political, Regulatory and Legislative Environment for Credit Unions and CUSOs,” that “the marketplace is changing, and we have to enable credit unions to be able to adjust to that marketplace. Credit unions can't fear the marketplace, they have to embrace it. The idea of `vision' has replaced the `if it ain't broke, don't fix it' mentality. If we took the `if it ain't broke, don't fix it' as our mantra, we would still be typing letters on IBM Selectric III typewriters and putting an actual carbon copy in the files.” Speaking from the “unique” perspective as a former credit union CEO – Gulf Coast Community FCU- and regulator – former NCUA chairman – the principal partner of Dollar Associates LLC, a credit union industry consulting company emphasized that, “Credit unions are more respected on the national scene, are safer and sounder, and have greater regulatory empowerment at the state and federal levels, but credit unions and CUSOs have to be innovators, not get comfortable with being successful and be willing to adjust to changes in the marketplace to remain competitive.” Dollar made several predictions on what the financial services market of the future that credit unions will operate in will look like. Among his predictions: * interest rate environment: rates will rise but stay at relatively low rates historically with a 200 basis point swing but remaining around 3-4%; pressure will begin to mount on fixed rate mortgages; yields will increase only slightly on interest rate earnings; management of earnings will remain a challenge. * margins will remain tight: loan diversification will remain key; auto lending will remain tough with low interest dealer financing; member business lending will be considered by more credit unions; creative mortgage products will become necessary; fee income will become crucial to credit unions. “Fee income is not inconsistent with credit union philosophy,” said Dollar commenting on his previous point. “Greater fairness and enhanced marketplace sensitivity is a credit union member service opportunity.” Dollar also forecast there will be a “tremendous proliferation” of products and services available to credit unions from new vendors who are entering the credit union market. In addition, as credit unions seek out innovative ways to offer products and services to members, there will be an increase in the number of CUSOs as credit unions see the value of working together. Dollar's future predictions were not all upbeat. Despite the greater flexibility being allowed for well-managed credit unions at both the state and federal levels, for example, credit unions should expect to see more laws, regulations and compliance costs associated with areas such as privacy, the Patriot Act, Bank Secrecy Act, Identity Theft, and documentation of service to low-income people in CUs' field of membership. Just how big does Dollar see the credit union industry in his glass ball? The demise of the small credit union is vastly overstated, he said citing the following statistics – there were 9,208 CUs at the end of December 2004 of which 61% have $20 million or less in assets. In contrast, there were only 3,517 CUs with over $20 million in assets. “The definition of `small' may change in the future and go up,” says Dollar. He predicts by the year 2010 there will be approximately 6,000 CUs in the U.S. but stresses that, “The success of the credit union movement is not the number of credit unions, but the number of members they serve. It is the size of a credit union's vision, not the size of its assets, that will determine its long term future.” Still, Dollar cited what he referred to as the “anemic membership growth in credit unions” – 1.48% in 2004. Despite more credit unions being approved for community charters and more consumers having access to credit union membership, why aren't consumers joining CUs? Are they aware of the value of membership? Do credit unions suffer from the “Field of Dreams” syndrome where they think just because they have a community FOM that consumers will line up in droves to join a CU? “Credit unions still have to market and outreach to bring in new members,” Dollar stresses, adding the “greatest extension of credit union services may be among its existing membership.” As for field of membership trends, Dollar says that despite what some experts have said that there is no longer any such thing as field of membership because of the advent of large community charters, “As long as field of membership is recognized by the law, credit unions need to maximize the amount of options available to them within that law. “There are no regulatory processes in the U.S. that can protect credit unions from the market. There are only regulators that determine how a credit unions can serve that market,” says Dollar. Any talk of credit unions' future has to include discussion of the banker attacks, and on that point Dollar reassured attendees that, “the banking industry's `Operation Credit Union' is alive and well.” He also reassured attendees that the battle between the for-profit and not-for-profit industries is not limited to credit unions and banks. He cited for example, Keebler and Girl Scout cookies, Home Depot and the local Farmers Co-Op, Time/Newsweek and National Geographic. “There will always be friction between those who choose each structure, but it's the structure that makes the difference in the tax treatment, and the structure is a decision a business has a choice to make at the time of incorporation,” says Dollar. “If the tax fight is lost, it will be the end of credit unions as we know them,” he says, adding “we would see a wholesale conversion of credit unions to mutual savings banks.” But credit unions can't just make their argument based on their structure, says Dollar, “this is a political battle.” The credit union story should be based on their structure and backed up with safe and sound performance, strong member service, documented service to the underserved, community success stories, member satisfaction, and grassroots political support. “Everything credit unions are able to do on Capitol Hill today is based on being able to prove you're safe and sound financial institutions,” said Dollar. -

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