By Frank J. Diekmann
You’ve likely heard some variation of the same joke—and it’s often used with state capitols, too--that the District of Columbia is 68 square miles surrounded by reality. And beginning this weekend, that truism will be especially on display, except in this case it will be the 2.3-million-square feet of the Walter E. Washington Convention Center in D.C., where America’s Credit Unions will be hosting its Governmental Affairs Conference (GAC) and the thousands of folks inside will be surrounded by the real world.
Let me say upfront, I hope I’m wrong, but if history is any guide, I’m not.
And allow me one other point I hope you will take much more seriously than the joke, above, and that is there is another unfortunate parallel between credit unions and the country: while all the attention and talking heads and news coverage is of the external threats, the most insidious dangers lurk internally, and that’s most especially true for CUs right now.
But you’re not going to hear about any of that at GAC, an annual exercise in self-congratulations and rah-rah. In fact, I’m going to FanDuel right now to make the world’s safest bet and predict the trade group will be patting itself and credit unions on the back so often I can only assume there is a team of chiropractors backstage.
Mayhem, Like This
With even more frequency than we see commercials with Progressive’s Flo, Allstate’s Mayhem Man, State Farm’s Jake and LiMu’s Emu and Doug during a football game, the thousands of attendees will have their ears filled about how the merger of CUNA and NAFCU has created a “unified voice” and a “national presence” and a “superpower” in Washington. (A special note: If you’re invited to a drinking game that involves imbibing every time someone talks about “360 advocacy” during GAC, please, for the sake of your health, take a sip and pace yourself.)
I’m beginning to suspect, btw, that the references to 360 advocacy are about giving credit union folks 360 places to look other than where they should be focused.
When 2024 began I wrote a column headlined, “Hey, America’s Credit Unions! America’s CUs Need to Start Here." That column began, “How appropriate that a brand new trade group called America’s Credit Unions is now official with the new year, because ‘America’s credit unions’ have an image problem right now. A big and growing one.”
A Deer in the Headlines
I heard from many, many of you after that column, but unfortunately the image problem continues to grow, and as March begins, so does the march of more dings in the credit union armor. When the year began, credit unions were already subjected to headlines such as:
- “While Leaning into ‘Good Guy’ Image, Credit Unions Charge Millions in Overdraft Fees”
- “The Navy Federal Credit Union Mortgage Scandal Reveals an Industry Wide Problem”
- “CFPB Report on College-Sponsored Financial Products Finds They Have Higher Fees and Worst Terms" (the report was based 22 financial institutions, a third of which were CUs).
Bad Optics
As they like to say in D.C., none of that makes for great “optics,” and when you throw in the ongoing acquisitions of banks by credit unions, plus fresh calls by the bank trade groups for hearings on the CU tax exemption, the view doesn’t get any better.
I might be wrong, but when credit union delegations meet their respective elected officials this week they may not encounter the kinds of smiley face heart emojis they’ve gotten used to.
Indeed, all those hikers headed to Capitol Hill may find credit unions are burning through a hill of capital.
One CU Hill veteran told me they have never before heard the kinds of dubious skepticism they are hearing now about credit unions, including from Democrats who have long been a lock when it comes to support.
One of the big reasons, as CUToday.info has been reporting, has to do with the allegations related to Navy FCU and mortgage lending, with two lawsuits already filed and one New York City press conference featuring the Rev. Al Sharpton—replete with one crying plaintiff who is also a veteran—having already gotten media time.
Here's What I Want to Announce
And yet I want to announce at my press conference that even in the face of all that, there is an even more insidious threat that should be discussed at GAC this week--even though it won’t be—and that is that the core of credit union philosophy and member-ownership is being rotted from the inside out by some.
I’m referring to what is increasingly taking place when CUs merge and insiders give themselves big payouts using the members’ money, taking advantage of the fact most member-owners don’t know it’s theirs.
Thanks to a lot of digging by Chip Filson, NCUA’s former director of examination and insurance, we now know, for example, that five top execs at 121 Financial Credit Union in Jacksonville aren’t divvying up about $1 million out of the CU’s net worth for themselves, as the CU's disclosure forms had indicated; they’re taking 10 times that amount.
We’ve also recently reported on a merging CU where the CEO is getting comp equal to about 10% of the credit union’s assets, as well as a California CU that set aside $10-12 million in a foundation to be managed by the former CEO and chairman. Chip Filson again did a great job of ferreting out more information on that here.
No Need to Pretend
Let’s not pretend these are isolated examples. I was speaking to two CEOs separately at an event recently and both told me they had been approached about mergers (just about every CEO has been) and told straight-up there would be a little (a lot, actually) in it for them to be paid out of the capital. I'll bet you have a similar story.
And, hey, if members don’t get any payout, well, that’s because it’s going toward all those post-merger “expanded products and services,” right?
After CUToday.info reported on Filson’s findings about the 121 Financial payout, the credit union issued a statement that said in part, “All disclosures, including those relating to salaries and benefits, were properly made as required by law.”
I’m sure they were. Some of that capital also goes toward hiring lawyers and consultants who know how to parse language and find loopholes. But I’m also guessing that if 121 Financial members knew about the near $10 million of their money that was going to the top management, that a merger that already had opposition would have faced an even stronger outcry—and maybe even been voted down.
NCUA Needs to Act
I wrote last year that when it comes to credit unions that don’t disclose how much they are spending to buy a bank, NCUA should require them to do so. Again, it’s the members’ money, not management’s. It doesn’t get much more fundamental to the business model than that. If it really is a good deal for members, then shouldn’t they know about it?
And you can’t go around always boasting—as credit unions will this week--about being democratically run financial institutions and then say, well, democracy doesn’t apply everywhere.
In addition to the need for NCUA to require disclosure of what’s being spent to buy banks (and some CUs do announce purchase prices), the agency should also take a hard look at what its merger disclosures really require and how some are getting around them. It talks often about equity and inclusion--this is also an equity and inclusion issue, as in “Hey, it’s my equity and I want to be included.”
After CUToday.info reported much of the above, our social media channels were filled with comments from throughout CU Land that were critical, with one person referring to some of the payouts as “disgusting.”
What Will You Do?
If you’re truly disgusted, voicing your opinion on LinkedIn isn’t going to cut it, just like those lame "thoughts and prayers" statements following needless tragedies do nothing. Instead, credit unions are going to have to have some awkward, difficult and soul-searching discussions. And since much of what is going on involves CUs that are big dues-payers, that conversation isn’t going to be led by a certain trade association. What will you do?
In the meantime, the Washington Convention Center will be filled this week with crowds cheering, trade group leaders applauding, Crashers woo-wooing, DE's DE'ing, and vendors spending, because inside, it’s all good news.
But outside that convention center, they will be surrounded by reality. And reality often comes back to bite.
Frank J. Diekmann is Cooperator in Chief of CUToday.info and can be reached at Frank@CUToday.info. Mr. Diekmann is also author of several new book, including the brand new “The Last Lyric,” a humorous satire about a murder investigation at the Rock & Roll Hall of Fame in which every line of dialogue is either a classic pop/rock song title or lyric. Available on Amazon, Apple iBook, Barnes & Noble and Smashwords. Mr. Diekmann is also author of a non-fiction compilation of the very best & worst he has seen and heard in covering more than 500 CU meetings and conferences, “501 Name Tags: How Everything You Need to Know About Business Can Be Learned at a Conference & Forgotten in the Trade Show.” It is available on Amazon, Barnes & Noble, Apple, Lulu, and Smashwords.