No other product has come underscrutiny within the credit union industry as much as paydayloans.

While there are internal and external critics who staunchlybelieve the payday lending model goes against the tenets of creditunions, some may wonder if the way cooperatives are managed maydetermine if the controversial loan products can effectively helpthose who are unbanked or underserved.

Tom Nix, the founder of what was previously known as Nix CheckCashing, recently released Nixland, an autobiography that includesa chapter on how he negotiated the $45 million sale of his businessto the $3.1 billion Kinecta Federal Credit Union in Manhattan Beach, Calif., in2007.

Nix questioned whether a certain type of leadership template isneeded to produce success in the payday lending space.

“Kinecta had a centralized form of management that was in starkcontrast to my management style,” Nix wrote in his book. “Theybelieved in Matrix Management and from my point of view, got verypoor results due to the lack of well-defined responsibility andaccountability.”

When Nix sold Nix Financial to Kinecta, he stayed on and becamethe new subsidiary's division president for more than a year, butsaid the role did not work out well. In his book, he wrote he wasaccustomed to a decentralized approach to managing the business,giving his entire management team the responsibility and authorityto manage their respective departments and holding them accountablefor results.

Nix said instead of second-guessing managers’ mistakes, themissteps were seen as learning opportunities. As a result, managerswere 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 thecommittee form of management undermined it,” Nix wrote.

Frustrated, Nix resigned in July 2009 after serving as apart-time adviser to Simone Lagomarsino, then president/CEO of Kinecta, and the newdivision president.

When contacted by CU Times, Kinecta chose not to be interviewedfor this story.

“However, we would like to contact you soon because we wouldlike talk to you about (Nix Financial) and our plans for the nearfuture and where we see this industry going,” said Marsha Mathias,Kinecta vice president of corporate communications.

For years, credit unions and CUSOs have been attacked foroffering payday loans. One of the more recent hits came last summerwhen both the National Consumer Law Center and the Center forResponsible Lending called out nine credit unions for offeringpayday loans to members at what the groups described asexorbitant interest rates. Their May 2013 letter to the NCUAprompted an investigation to ensure credit unions and CUSOs wereoperating within regulatory parameters.

Among those targeted by the NCLC and CRL was Kinecta and NixFinancial, which was criticized for what the organizations deemedwere high rates and exorbitant fees.

When the Nix Check Cashing name was changed to Nix Financial inJuly 2011 to reflect a wider array of consumer financial productsand services offered by Kinecta, the new moniker was not embracedby the store's customers, according to the payday subsidiary'swebsite.

Just this year, the name was changed again to Nix NeighborhoodLending to position the company as a neighborhood financialorganization committed to building the communities it serves, thesite read. There are now full-service Kinecta ATMs at 31 locationsand over-the- counter credit union services and select depositproducts at 10 locations. Nix has 38 service centers in Los AngelesCounty, one in San Bernardino County and one in Orange County.

Meanwhile, rather than question whether the management structureis a factor in determining if a credit union can successfully offerpayday loans to the underbanked, credit unions should focus on moreimportant issues, according to some advocates.

For instance, a credit union and its employees must haveexperience with payday type products, said Asa Groves, COO atXtraCash LLC, a payday lending subsidiary of CU Holding Co. LLC,which is owned by the $471 million Mazuma Credit Union in KansasCity, Mo. XtraCash has been targeted by consumer financialwatchdogs.

“Questions a credit union must answer in making that decisioninclude how much risk is the credit union willing to take,” Grovessaid. “What are the core system challenges with this type ofproduct (and) what are the regulatory challenges with a productwith very high defaults?”

Historically, XtraCash has added new credit union partnershipsevery year; however, as a result of the recent position of NCUA,the CUSO lost all of its partners with a federal credit unioncharter, Groves said.

“Even with that loss in partnerships, XtraCash experienced anincrease in loan volume of nearly 25%, which proves you canregulate away the product but the need remains,” he said.

Groves said as expected, borrowers of the XtraCash products havemuch higher default rates than what credit unions experience, thusthe reason for the higher cost.

But the CUSO has found that there is a loyalty with members andtheir credit unions that has resulted in fewer defaults than thenational average, he added.

In his book, Nix said when he closed the Nix Financial deal withKinecta on Aug. 14, 2007, he realized his dream of selling hiscompany to what he called a strategic buyer who would share hismission, care for the employees and fill the banking needs ofunderserved communities. Most of Nix Financial's 450 employees gotraises and better benefits after the acquisition, according to Nix.However, there were a few roadblocks along the way.

“There were a tremendous number of issues, many of them drivenby government regulations required by the NCUA,” Nix wrote.“Everyone associated with the integration worked extremely hard tomake it happen in a positive way.”

Meanwhile, the $34 million 1st Valley Credit Union in SanBernardino, Calif., has offered a payday loan alternative since2009, said Gregg Stockdale, president/CEO. Through its AssistMember Program, members have decreased their overdraft fees by$133,000, netted a savings of $116,000 in fees and amassed $33,000in savings. The credit union puts 10% of each loan amount in aseparate savings account so members can track how much they’reaccumulating.

Stockdale said he does not believe a credit union's managementmodel matters when it comes to offering a payday loan oralternative product.

“We approve the member for the program, not each advance. It'sbased upon the relationship with the member and their amount ofdeposit history,” he explained. “If I were a bank, I’d be bemoaningthe loss of the $116,000 of income or I’d kill theprogram. But, thankfully for our members, we are not abank.”

At its Jan. 23 meeting, the NCUA Board voted to extend thecurrent interest rate cap of 18% for most federal credit unionloans through Sept. 10, 2015. “(That) enables them to offer paydayloan alternatives so members are not dependent on predatory lendersto meet their short-term cash needs,” NCUA Chairman Debbie Matzsaid then.

In his book, Nix said part of the plan was to add Kinecta'sfinancial services to each of Nix Financial's stores so that thoseliving or working in the surrounding communities could becomemembers of the credit union.

“We also hoped to attract people who were already banking atanother institution by offering branches that were moreconveniently located inside the inner city,” Nix said.

When CU Times contacted Nix, his publicist said he is in theprocess of rewriting the book and declined an interview request.The new edition is expected to be completed later this year.

“We’re not revamping because (the) information was incorrect,”the publicist said. “This is his story, this is his journey. It inno way speaks of how Kinecta is running the business today. We’remaking no statements on Kinecta's current status.”