By Frank J. Diekmann
I have to say what surprises me most of all is that it has taken this long.
Schools FCU in California hasn’t just taken some credit union dirty laundry and hung it out in public; it has run it right up the flagpole for the world to see. And I think as uncomfortable as that might make the white hat crowd feel as some dirt is thrown their way, it was a left-with-no-other-choice move to get credit unions talking about an issue that either A) they just don’t want to talk about, or B) are completely in denial over (my money’s on the latter). C’mon, let’s not interrupt the kumbaya!
If you happened to miss the story—and judging from traffic to CUToday.info, not many have—the $118-million Schools Federal Credit Union issued a statement on its website under the headline “Support Needed” that claimed another CU 100 times its size is being “predatory,” operating more like a “bank,” and attempting to “steal away” its members.
That other CU is the similar-sounding SchoolsFirst FCU, which has $11.2-billion in assets and which has issued a statement denying that it has acted unethically in any way.
For years I’ve heard from the CEOs of small CUs who have complained about larger credit unions taking their lunch money and worse, but it was always followed by a request (plea?) that their comments be left off the record. They feared any complaints would only ratchet up the pressure. While the merger documentation NCUA collects each month includes a “Reason for Merger” category that is usually filled with blank reasons such as “market efficiencies,” I often wonder how many would check off “larger CU left us no choice” were it an option (and were a guaranteed job with the larger CU not on the line).
Accusations Made
The CEO who is not going off the record and who isn’t looking to merge is John Drake of Schools Federal. He has claimed that SchoolsFirst is using its “deep pockets” and similar name to “confuse” Schools FCU members and its potential membership base as part of a campaign to bring them over to SchoolsFirst.
Again, SchoolsFirst has called the claims “entirely untrue,” pointed out that both CUs share a common FOM, and said that “members have the right to choose the best financial institution to meet their needs.”
You can read CUToday.info’s reporting of the story here and here.
Whether you agree or not, Drake also made a statement that I can tell you expresses what many CEOs of small CUs—which are the majority—feel. “We want to get the public involved, because at the end of the day we think these large credit unions, namely SchoolsFirst, should be regulated as a bank. They should not be a credit union because they act like a bank. They look nothing like us. They are attacking us and now, in turn, we are attacking them.”
Let’s pause right here. That broad-brushed statement that large credit unions just being banks isn’t true. The two largest CUs, Navy Federal and State Employees, offer plenty of free services to young sailors and offer some of the lowest fees and rates around, respectively. Many large CUs have gotten that way due to innovative leaders who have returned a lot of value to members. And there is no shortage of small CUs that are that way due to small-minded leaders and boards. A belief in credit union philosophy has little to do with assets.
Bulletin Board Material
I’m not sure what they tack up on the bulletin board over at the American Bankers Association—I can only assume it’s pictures of vaults filled with cash, the winner of the “Best Fee of the Month” contest, a family being foreclosed upon, that sort of thing—but you can bet they’ll be pasting Mr. Drake’s quote over everything else. Since it already came gift-wrapped it’s likely already been regifted over to Capitol Hill.
Ironically, few people know better just what kind of damage that statement and a division among CUs can do in Washington than Bill Cheney, the former CEO of CUNA, who is the president of SchoolsFirst, the CU targeted by Schools Federal.
I’ve written for years that the credit union trade associations are not just fiddling but are an orchestra of violins while Rome is starting to burn around the edges. They’ve become so focused on the front door (Washington and “advocacy”) that they’ve not just missed the threat at the back door, the threat has let itself in and is foraging through the fridge. The grassroots are always invited to D.C. to advocate before Congress, but you have to wonder who’s advocating for the grassroots?
It’s ironic that Washington-based trade groups have not seen what’s going on, because they need look no further than the Republican and Democratic parties to see what happens when you aren’t paying attention.
Mainstream Republicans and Democrats have gotten fed up with the empty rhetoric and “platform plank” bones that have been thrown their way over the years while the real attention went elsewhere, and now both parties are feeling a rebellion against the “elites.” The recent CUNA/league “choice” vote was partly a manifestation of similar frustration within credit unions, with CUs both large and small feeling strongly that they weren’t being heard for different reasons.
But you’re mistaken if you think that vote and the subsequent changes to the bylaws of CUNA and league have closed the wound, at least for many. It’s a symptom of a much bigger fissure.
It's Time For Real Leaders To Speak Up
Maybe, just maybe, what it’s really time for is for CUs themselves to quit looking to their trade groups for leadership on this issue because they just can’t deliver it. They are driven first and foremost by the dues money, and it’s easiest to keep the dues flowing if you can direct the dues-payers’ attention elsewhere. Ironically, it’s the exact same model the ABA uses.
Before it becomes infected, it’s time for real CU leaders to address this open wound. I keep hearing over and over again about collaboration and cooperation—what better place to start? Here’s to hoping some will step forward from large and small CUs alike to help start the healing.
The public statement by Schools Federal won’t be the last—others will follow. While everyone is looking the other way this dispute could become a precursor to the credit union version of the meteoric and surprise emergence of Donald Trump and Bernie Sanders, a development that has had so many people reacting with “we can do better.”
So can credit unions.
Frank J. Diekmann is Cooperator in Chief at CUToday.info and can be reached at Frank@CUToday.info.