Size Isn’t Destiny: The Real Squeeze on Small Credit Unions (and Why it Threatens Cooperatives)

By Doug Wadsworth

I had some interesting interactions recently, which I think deserve an analysis from my small credit union perspective.  Consider the following: 

Story 1: Yesterday, the CEO of a $25 million credit union on the East Coast) told me they will likely merge-out in the next few years, probably soon after her upcoming retirement. She serves a dedicated niche in her community, is financially healthy, and has devoted directors and employees, so this caught me off guard. 

WHY?  Well, she said that a couple very large credit unions from out-of-town and out-of-state had recently moved into her community, and they were aggressively taking her market share. She doubted her ability to survive in the face of such intense competition, especially when money is likely to be offered as merger compensation for whoever replaces her as CEO.  Hmmm.  The credit union offering the best value to members, deserves to win, right? 

Story 2: I also recently posted something on LinkedIn regarding the underrepresentation of small credit unions on most league and association boards. IE: Even though 80% of credit unions are small, we only make up about 20% of the leadership boards at most, so our voices can easily get overridden (or we just aren’t at the tables when or where decisions are made). 

Hence, those organizations are likely to spend most of their time and money on big credit union priorities, rather than small. I get it, the squeaky wheel gets the grease, so my goal was encouraging small CU CEOs to get more involved and active with their leagues and associations.

In response to my post, the board member of a big credit union shared an alternative perspective: Since big CUs serve 80% of the members, maybe small CUs only deserve 20% leadership representation? IE: Small CUs serve fewer members, and members come first–so is there really a problem that ratio of representation? 

Story 3: Lastly, a couple months ago I had a chat with a woman who had been an employee of a small local credit union that later got merged into a bigger one.  At the small credit union they had an elderly special-needs woman who needed help balancing her checking account, once each month (it took about 30 minutes). Well, after the small CU got merged into the bigger one, she was told by the new management they were only allowed to spend a maximum of 3-minutes per member, so she would need to inform this member they could no longer help her. 

Let’s unpack that

I think most people in the small CU ecosystem will instantly recognize some problems with our cooperative “movement” – or at least a narrative that has been growing.  

For the rest of you, please consider this perspective (and background):  Credit union membership used to be restricted to strict common bonds, so we didn’t really compete or overlap much. Until HR 1151. Now, we are starting to see giant aggressively growing credit unions moving into distant locations, and driving the small local ones out of business.  Of course, this isn’t always the case–small CUs need good merger partners sometimes, and it’s not like the big ones are out preying on small ones.  But sometimes they kind of are (albeit indirectly).  

Some Questions

• Are the large, aggressively expanding credit unions winning the new members and loans because of better service, local flexibility and better rates? 
• Or are they growing only as a function of their enormous marketing budgets?  
• Are the local members winning when they lose their local, flexible credit union that knew their names and approved loans that big institutions wouldn’t?
• Are the small CU members really benefitting from the “expanded services” of dozens of branches located in distant cities or states (which they are unlikely to ever visit)?  Members first?

Small, hyper-local credit unions are known to be the unique community lifelines for people often underserved at large institutions, and they fill a role that large institutions simply cannot duplicate (often by nature of size).  

You know those “tug at the heartstrings” stories of credit unions helping members in need, who had been turned down everywhere else?  The vast majority of those stories come from small credit unions (a dwindling number of them).

This begs the question: Is anything lost when all the small ones are gone and there are only a few giant credit unions left? What happens to the hyper-local “special sauce” provided by small CUs.  When there aren’t any small ones left, will our tax exemption endure, since generally the public considers big credit unions as indistinguishable from big banks?

If you are interested in hearing more of my ideas and experience, check out my new book on Amazon: Keep it Simple, CEO, a DIY Profitability Guidebook for Small Credit Unions.

Doug Wadsworth is CEO of  Tri-Cities Community Credit Union in Kennewick, Wash. Doug Wadsworth is also the president of a new non-profit advocacy group exclusively for small credit unions, the Endangered Small Credit Union Defense (www.endangeredsmallCUdefense.org).   He can be reached at [email protected] or on LinkedIn here.