By Doug Wadsworth
In part 1 of this article, I shared some recent interactions I had that raised some flags even higher, regarding our cooperative movement and the changing narrative. Lately it seems like aggressive competition (which accepts the decline of small CUs), is increasingly the poplar narrative. Is a shrinking number of giant credit unions really what is best for members? And how will that influence the likelihood our tax exemption endures? It depends on why we exist, in the first place, what do you think?
What is a credit union for, anyway?
Amanda Habansky, president/CEO at Peoples Advantage FCU, recently wrote a great article, with a paragraph I would like to share:
“Credit unions weren’t chartered to be better-priced banks for anyone who walked in the door. They were founded to promote thrift and extend credit to people of modest means, the wage earner who couldn’t get a loan from a commercial bank, the family without the credit history or collateral that traditional lenders required. The Federal Credit Union Act didn’t charge us to simply “serve members well.” It charged us to serve people who have few options, or no options at all.”
Remember Cooperatives?
Sarah McNeil, the president CEO of United Trades FCU recently plugged all of Edward Filene’s articles into AI, and then asked for a perspective on the nature of the industry (regarding the decline of small CUs). Here was his answer “from the grave”:
“You speak of consolidation as inevitable. That is a confession. It means you have accepted the premise that the market, rather than the cooperative system, decides who deserves to exist. That is not what we built. When one cooperative fails, the system should feel it. When one community loses its credit union, the system should answer for it. Let me say this in the clearest terms I know: If your cooperative system cannot keep small, well-run institutions alive, then it is not a cooperative system. It is a market with a tax exemption.
It’s Not One Member, One Vote
Of course, we have great associations and leagues out there, with great folks who are serving our credit unions in fantastic ways, and they provide valuable services we all rely on. However, they aren’t cooperatives, it’s not “one-member-one-vote” like at your credit union. I see a link between leadership representation (lack thereof) at those leagues and associations, and small CU survival (or lack thereof).
I know that small CU CEOs are busy at their small shops wearing 15 different hats, but if we don’t speak up, our unique needs simply won’t be prioritized – so, reach out to your league, share your voice and get involved, because your small CU survival literally depends on it.
The Healthiest CUs are Small Ones
There is a growing false narrative that scale is necessary if a credit union is to be financially healthy (and thus able to “give back” to members). IE: You must be large to survive, so mergers are inevitable. Just insert it into your strategic plan! However, this is simply untrue. Most of the healthiest CUs in the nation are small ones!
Sure, sometimes mergers are necessary, and struggling small CUs need a nice local big CU partner for mergers of necessity, but usually that isn’t the case. Also sure, scale becomes an increasingly big deal after CUs exceed $1B in assets (and then to slingshot past $10B), but for small credit unions – scale simply isn’t necessary. It’s a lie.
Surviving the Regulatory Burden
How are small CUs supposed to survive a regulatory burden that just seems to keep growing, many of which were designed for large complex credit unions, and aren’t’ even relevant for us? What are some biggies, from ESCUD research? The CECL Burden, the BSA Burden, Examiner Over-Compliance Pressure, and Examination Exhaustion (examiners coming too frequently and staying too long (focusing on long inane checklists of minutiae unrelated to safety or soundness).
Now, go tell your association or league what regulations are killing you (for no purpose). They have some great advocacy folks, and can get things done. If you get the feeling your needs are being ignored (that they don’t seem very inclined to prioritize your small CU needs), then partner up with ESCUD, the Endangered Small Credit Union Defense, to amplify our small CU voices. One small CU CEO is pretty easy to ignore, but when we get together, not so much.
Surviving Competitive Pressure
With some effective strategies, time, and dedicated employees and directors, my small CU has been extremely profitable and healthy for over 15 years. This has allowed us to really start *giving back” to members radically in the last couple years (when our NW Ratio started to get too high). How did we do that? Well, we operated efficiently by DIY-ing everything possible (avoided expensive 3rd parties), we pushed back on regulators who were pressuring us to “over-comply” with regulations, we hired a commission loan sales person back in 2011 (and have been over 90% loaned out since then). We focus on lending – fast, easy, creative niches that come and go (we are always trying new things, and we can do that quickly and cheaply as a small CU).
And, of course, I am a tightwad (it’s in my name), so we watch our expenses. I also wrote my unorthodox tips and tricks in my book on Amazon: Keep it Simple, CEO. A DIY Profitability Guidebook for Small Credit Unions.
The only constant is change, as they say, and we suddenly found ourselves struggling to grow our members and loans, just in the last few years. Why? Well, multiple large credit unions moved into our community from other cities and states (which probably sounds familiar to a growing number of us). Somebody moved our cheese, so now we are adapting to evolve in the face of this new challenge.
Prioritizing Partnerships
We are getting even more serious about prioritizing niche partnerships with businesses (like our local IBEW founders), as well as getting more active with social media, and making a splash with the radical new ways we can afford to give back.
How do we give back? We are the only credit union in town that doesn’t charge NSF fees, and we usually have the lowest loan rates in town, and we recently paid special dividends of 50% APY (not 5%, not .15%, but 50%) on the first $500 in savings. We have done that repeatedly over the last six months. The lesson here – don’t try to copy big banks or credit unions, differentiate yourself, and give back to members. Be unique for those niche folks who are underserved at the big institutions!
Collaboration is Vital
Small CU CEOs need a community to lean on – to share stories with and get ideas from (and a shoulder to cry on sometimes). I encourage you to get involved with organizations that can help provide this, even if there is a fee for it. Is your league providing networking and collaboration tools for the small CUs in your geographic area? If not, speak up and ask for it.
I know America’s Credit Unions provides some great collaboration tools and networking, and very affordable small CU conferences. Likewise, DCUC is a small national association where you have a voice, and they are focusing on advocacy for small CUs – with great ways to connect as well. Scott Prior’s “CUs Unite” CUSO offers small CU CEO collaboration (maybe you heard about his weekly CEO call in the Pacific Northwest).
There are even rumors of a national association that is forthcoming: The National Small Credit Union Association. The moral here: Get involved and collaborate with your small CU peers, your survival depends on that too.
Want to hear more?
If you would like to hear more about why small credit unions matter and how we can survive in coming years – attend this free webinar coming up on July 7th. I will be speaking along with other vocal small CU proponents like Scott Prior, Joshua Urbick and Ed Speed. Size isn’t Destiny. For information, go here.
And 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.
