By Doug Wadsworth
Star Trek IV: Remember that movie? Aliens come to earth and start destroying the planet while trying to communicate with whales, whales which humans accidentally let go extinct centuries earlier. The survival of the entire planet depended on Kirk and Spock travelling back in time to save the whales. Who would have guessed those simple sea creatures would be important years later?
Meeting With The Congressman
I recently met with a local congressman, at an event hosted by our local trade association. It was all big credit unions, and then me (the only small one). The conversation was being dominated by legislative issues relevant only to big credit unions, to help them better compete with banks on a more level playing field, and essentially asking that regulations treat their big CUs like banks. In other words… how the congressman might help big credit unions get even bigger.
Then It Got Awkward
The congressman pointed out the irony of credit unions wanting to be considered different and special on one hand (to keep the tax exemption), while at the same time asking to be treated more like big banks? We suddenly found ourselves scrambling to explain how credit unions are different, and how we do a better job “giving back” to communities. I mentioned how my small CU didn’t charge NSF fees anymore at all, and how we approve a higher ratio of minority mortgages than big banks. He was impressed, and asked how we could afford it (well, we give our profits back to members). I did *not* mention that I approve a significantly higher ratio of minority mortgages even than the big CUs I was sitting next to… or that my fellow big CUs still charge those expensive NSF fees… or that I pay better deposit rates and loan rates than they do. I didn’t want to “divide the family…”
What I Learned (Heart And Soul)
First, I witnessed how vital it is to regularly meet with legislators, ensuring they understand the credit union difference. Second, I appreciated the great work our trade association does with advocacy, uniting the movement to help protect tax exemption for us all. Third, it was weird. Weird, because I was the only small credit union there. As a matter of fact, I am the only small credit union left in my entire community… even though there were seven of us back in the 1980s. The historic “brand” of credit unions is small, hyper-local community cooperatives, where we know their names, and where “bank” is considered a “four-letter word.” As the president of DCUC recently emphasized in a CU Collaborate town hall: “Small Credit Unions are the heart and soul of our movement.”
How Can A Small CU Be The Biggest Bargain?
How can my small CU afford to give so much value back to members, more than the big CUs, despite “economies of scale?” How can my small CU offer lower fees and better rates, and answer the phones quicker, and give more legendary service…when we are so small? Well, perhaps it is because we are not spending our member’s money on building branches in distant communities, distant communities where we don’t actually share any true common bond?
Advocacy Wins (Or Losses)
Decades of successful advocacy by trade associations has freed up big credit unions to grow faster and be more profitable than ever before, serving an ever-expanding membership, often despite a recognizable community or common-bond connections. While that growth and expansion of the big credit unions is certainly a victory for a growing number of members… because more people get a better deal than left to banks (and more competition lowers prices for us all), at the same time, are we being short-sighted? Was the passage of HR 1151 the beginning of the end?
Accelerating Towards A Cliff
The side effect of the rapid big credit union growth seems to be the approaching extinction of small ones. Partially because of increased competitive pressure, not from banks anymore, but from big credit unions. When big ones move into a town and put the existing small local ones out of business… that is complicated, controversial, and taboo to mention, but it is happening, more than ever. In addition, growing credit unions lead to growing regulations. Even the smallest credit unions are then required to comply with that growing body of regulations, which is a suffocating burden, especially when they are usually completely irrelevant for those small institutions! Where is this leading?
When Whales Go Extinct (the Canary in the Coalmine)
A growing number of industry professionals are predicting that if something big doesn’t change soon, most small CUs will be extinct (merged away) in 10 years. I am certain that a primary reason our movement continues to enjoy the tax exemption, is due to the publicly perceived “brand,” that credit unions are still small, community-based institutions. Yes, big credit unions do a great job beating banks, and they save members money, and yes, they return more money to the communities. However, when people see a big credit union with branches everywhere… they consider it a bank. What will happen when the public begins to realize there aren’t any small credit unions left? How long will our credit union tax exemption survive after that?
Trade Associations - Save The Small Credit Unions!
Our industry and trade associations must take a longer view (long… like only about 10 years). We don’t have Captain Kirk and Spock to go back in time and resurrect small CUs after they are gone. Our trade associations must prioritize the survival of small credit unions now, or they will eventually fail the entire movement. What can trade associations do?
1. Prioritize regulatory relief for small CUs! They should be asking legislators and regulators for exemptions and relief for small CUs, all the time. This should be more important than helping giant credit unions get even bigger. Small CUs should be exempt from HMDA, NMLS, CECL, BSA, ALM/NEV, etc. What else? Visit www.endangeredsmallCUdefense.org, or send me your regulatory relief priorities and I will add them to our list (Doug@Tri-CU.com)
2. Increase financial support for small CUs by ensuring significant discounts for small credit unions, whether it is for membership dues, conference registrations or educational opportunities.
3. Credit union dues for trade associations should be “capped” above a certain asset size. If the combined dues of all small credit unions within a given association, don’t even add up to 25% of the dues from a single large credit union, whose needs will likely be prioritized?
4. Ensure proportionate small CU representation on trade association boards, counsels and advisory committees. Sure, small CUs have less time and resources to dedicate to lobbying or advocacy… but if the survival of small CUs is a priority, they must be adequately represented in the association leadership.
5. Help small CUs differentiate themselves from big institutions. Remind them to focus on their unique niches, while being true to their not-for-profit foundational mission: Giving their profits back to members in radical and meaningful ways and helping the underserved, and underbanked. That is the reason for the tax exemption in the first place, isn’t it?
Doug Wadsworth is CEO of Tri-CU Credit Union in Kennewick, Wash. He is also the president of a new non-profit advocacy group for small credit unions, the Endangered Small Credit Union Defense. He can be reached at Doug@Tri-CU.com or on LinkedIn here. Doug is also the author of a book available on Amazon: Keep it Simple, CEO, a DIY Profitability Guidebook for Small Credit Unions.