Knocking the ball out of the park, last year's predictions did call for a merger that would "shock the industry" and "change how people view credit union mergers." While it didn't take place between two billion-dollar credit unions, then $1.8 billion Wings Financial Federal Credit Union attempted what many coined a "hostile" takeover of then $178 million Continental Federal Credit Union. After Continental turned Wings down, Wings took its message directly to Continental's membership, offering a monetary bonus following the merger.

Hints are lingering out there that Wings could make a similar attempt with another airline credit union (see our story page 6) but the credit union community will not allow it to happen–that's a prediction.

There will be a resurgence of the importance of maintaining the credit union philosophy in 2008 after this debacle and Navy Federal Credit Union's disaffiliation from the Virginia Credit Union League and CUNA because a league contract lobbyist also represented the largest payday lending trade association (See Credit Union Times, Dec. 12, 2007, page 9), who also paid him a lot more money. While the league is working with Navy to rectify the situation, the league should never have continued using the firm after it signed on with the payday lenders.

I admire Navy Federal and Cutler Dawson's principled stance and respect their right to protest. However, the timing is not the greatest for the largest credit union in the world to withdraw from the largest national trade association–which it had to do to disaffiliate from the Virginia league–when the Credit Union Regulatory Improvements Act (H.R. 1537) is closer than it has ever been to passing the House and working through the Senate. Maybe it is time to revisit the CUNA-state league-credit union structure and governance?

Speaking of CURIA, it will not become law–ever–in its current condition. The bankers are dead-set against the member business lending provisions. They also spent beaucoup dollars just a couple years ago to stop many credit unions from adopting underserved areas–no matter how politically unpopular that notion is–and the mutual savings bank conversion provisions are controversial even among credit unions. The banking groups are not even that keen on credit unions getting a risk-based capital system.

If anything, I say the underserved area provisions and risk-based capital, along with some of the smaller provisions, will make it into law as early as this year. With Congress' approval rating in the toilet, our representatives need to look like they can accomplish some good; combining some CURIA provisions with some bank provisions should be one of those things but credit unions need to make it happen. Not only would passing the bulk of CURIA be good for credit unions but also the display of political prowess would be invaluable.

Gentile had predicted bankers would focus their attacks more on business lending and credit unions' lack of Community Reinvestment Act obligations. Bingo! I am not sure how much longer credit unions will be able to stave off CRA reporting. Massachusetts, House Financial Services Committee Chairman Barney Frank's (D) home state, is even requiring it, and the credit unions there are surviving and thriving. Remember what NASCUS often says, 'the states can serve as the breeding ground of ideas.' Not this year, but it is only a matter of time despite credit unions' protests before an overarching CRA bill including credit unions becomes law.

CRA is about demonstrating how an organization serves its community. Most credit unions would rank beyond outstanding but for others, it might serve as a wake up call. With declining net interest margins and low membership growth, credit unions not only need to increase membership but deepen it. Member service with a personal touch will be key and that is why fewer credit unions will be selling their card portfolios while adding incentives and customizing their ATMs while expanding surcharge- free network relationships, among other things.

Credit unions will also work in 2008 to save the homeowners they prudently can from predatory mortgages. Though Gentile said more credit unions would be entering mortgage lending in 2007, Callahan's figures do not bear this out: 4,872 credit unions originated real estate loans as of third quarter 2007 while 5,143 did as of year-end 2006. Some of the difference could probably be attributed to consolidation. However, in 2008, if credit unions truly do want to gain market share and strengthen member ties, mortgages done right will be one of the avenues to pursue. Mortgages are also full of opportunities for non-interest income.

Also, on the mortgage front, a handful more of credit unions will get caught up in Norlarco-style deals but problems will not be rampant within credit unions though they may feel some sting. Economists are forecasting that other credit will bear some pangs of the mortgage/housing fallout and increasing energy prices with consumers choosing their home or heating oil over credit card payments.

Credit unions will need to get creative with collections or appropriately re-work loan terms to maintain a delinquency ratio under 1% for 2008, but these efforts may not be enough. However, bolstering products by offering business services could boost lagging lending in other areas while aiding the delinquency ratio and deepening member relations. As of yearend 2007, only 377 credit unions were SBA lenders. Deposit services could also bring in non-interest income–unlike consumers, businesses expect to pay for services attendees of Credit Union Times' non-interest income conference learned.

Despite the many challenges credit unions face in 2008, converting to a mutual savings bank for most–if not all–is not the way to go. Those attempting conversions have cited the member business lending restrictions, limited capital building opportunities, and other reasons. I say hogwash! Credit unions have found ways to work within the statutory confines for a long time and will do so for a long time to come. In addition to pushing for legislation to expand powers, credit unions should also do what they do best and makes them unique–share amongst themselves how they are working around these challenges.

Conversions will continue into 2008. Four are in the works as you read this and I predict all but one to succeed. I would bet on two more large credit unions starting the process in 2008.

I cannot possibly review all of Gentile's predictions here, nor make all of my own. One thing is for sure: Credit Union Times will continue to provide in-depth, fair, and breaking news coverage in 2008, blowing all competitors away.

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