A White House petition written by Callahan & Associates Chairman Chip Filson asks President Obama to select NCUA board members who “understand the shared economic value for people and communities created by the cooperative model.” Filson’s petition, which as of March 13 had collected just 4% of the total needed by March 26 to elicit a White House response, also states that board members should be motivated by the unique contributions and needs of a cooperative business.
What exactly does that mean?
Filson said when Congress originally set up the American credit union system, it intended to do more than merely establish a new financial charter that would serve a different need. Because there wasn’t much to regulate in the early days of the NCUA, Filson said the regulator encouraged new federal charters.
“The hardest charter to get today in America is a credit union charter,” he said. “Part of the cooperative spirit that needs to be restored is the attractiveness and desirability of the credit union charter, rather than the Draconian process now in place where people who submit charter requests are asked to go through more planning and projections than existing credit unions.”
Chuck Bruen, president/CEO of the $1 billion First Entertainment Credit Union of Hollywood, Calif., said he disagrees.
“It would be irresponsible to charter new credit unions in our current regulatory environment where many struggle every day to keep up with the avalanche of rules, especially those mandates coming from the Consumer Financial Protection Bureau,” Bruen said. “The recent track record for newly chartered credit unions has not been a good one.”
CU*Answers CEO Randy Karnes said regulators shouldn’t necessarily cheerlead for the industry and advocate growth and success, but instead, they should be a part of that success. To do so, regulators must understand that credit union members are not only consumers who need protection. They are also the owners of the system.
“If [regulators] don’t understand credit unions have a responsibility to both, they risk destroying the system from either side,” he said. “Right now, given the relationships regulators have with credit unions, it’s like, who even wants to come to this party?”
While the cooperative structure is important, there are more important issues facing credit unions and their regulators, said Henry Meier, associate general counsel for the Credit Union Association of New York. Meier said in his opinion the ideal NCUA board candidate would be a small business owner who understands the importance of lending, has borrowed from a credit union and can explain the value of credit unions to lawmakers.
“Yes, the cooperative structure is important, but in terms of our survival and advocating for the industry, an appreciation for the impact legislation has on us is more important,” he said.
CUNA Executive Vice President of Credit Union System Relations Susan Newton made a point in an email to league presidents obtained by Credit Union Times that trade association advocacy of a White House-appointed and congressionally-confirmed regulator is inappropriate.
“While we admire and respect Chip and his passion and commitment, given CUNA’s role here in Washington and our work with the Obama administration and Congress, we believe it is simply not appropriate for us to lead the effort. Any public involvement by CUNA to advance someone forward onto the board of the agency that we actively advocate with on a daily basis would likely be detrimental to both the candidate and us,” she said.
Cooperative principles like autonomy and independence have gone by the wayside at the NCUA, Filson said. “I think that is the tragedy of the CLF story, that essential pillar of autonomy and independence,” he said. “Our own liquidity safety net has been tragically compromised. The system’s ability to provide its own self help is part of the reason other regulators defer to the cooperative charter and the regulatory system established there.”
Bruen said he thinks the CLF has outlived its usefulness and should be closed down, and the Federal Reserve’s discount window is a better emergency liquidity option.
“I fear that if some folks at the agency and in a few credit unions had their way, the CLF would be transformed into a government-run U.S. Central Corporate Federal Credit Union substitute,” he said. “That’s not a very good idea at all considering what we have just been through with the corporate credit union crisis.”
Karnes said cooperative principles could help relieve constant pressure on the NCUA to prove credit unions need their own independent regulator,
“Cooperative principles make us different,” Karnes said. “When the NCUA believes that, Washington believes that, and we have a stronger system. But when nobody believes that, when it’s simply about banking regulations, I think their position is weaker, and they’re not even thinking about their own brand.”
Congress didn’t create the credit union charter because the nation needed “nice banks,” Karnes added.
Bruen said while he is empathetic to Filson’s desire to change the status quo at the NCUA, the attention to cooperative principles belongs at the credit union level.
“The NCUA should stick to safety and soundness and stay out of everything else,” he said.
Meier said he thinks those advocating for the cooperative structure to play a larger role in the credit union industry seem to be promoting it for its own sake.
“One of the things the petition reflects is this belief that if only we emphasize cooperative structure more, everything else will fall into place,” he said. “And I don’t think that’s the case.”
Meier said he also thinks the cooperative structure isn’t as important to potential young members as some think. He said he does like the idea of leading with the cooperative structure when recruiting volunteers and employees, but potential members are mostly looking for convenience and a good deal, regardless of age.
“At the end of the day, is someone going to expect good service or cooperative structure?” he said. “I understand cooperative structure is part of how we achieve good service in credit unions. But your average potential member doesn’t care, and I think we tend to exaggerate how idealistic each new generation can be.”