RALEIGH, N.C.–The financial losses and decline in membership one credit union here has experienced since becoming independent of another CU have been the subject of an extensive media report here, with the CU saying it has turned the corner in tackling problems that led to more than a half-million member complaints.
Receiving the scrutiny in the report by BusinessNC has been Civic Federal Credit Union, which has seen 10% of its members exit in recent months.
The credit union was chartered in 1983 as Local Government Federal Credit Union under the wings of State Employees’ Credit Union of North Carolina, and eventually grew a $4 billion asset institution.
As the report noted, and as the CU Daily has previously reported, SECU provided back office support for an annual fee of approximately $40 million annually in recent years. Under the arrangement, Local Government members could use SECU’s extensive branch network in North Carolina.
LGFCU eventually sought to become independent and save the fee it was paying SECU, and to that end it a new affiliate in 2018, Civic Federal Credit Union, as an online-only operation that also makes small business loans, which SECU and Local Government do not do.
The CU Daily profiled the move by Civic FCU to become independent earlier this year when it was part of a session titled, “The Most Remarkable CU Story Ever Told.”
A Half-Million Complaints
In June of 2024, the 400,000 members of LGFCU were transferred to Civic FCU as part of what was called “Civic Day.”
“That’s when the proverbial stuff hit the fan,” BusinessNC reported. “About 500,000 complaints about various account issues overwhelmed Civic’s customer-service hotline, with wait times sometimes exceeding three hours. Confused, scared and angry members asked CEO Dwayne Naylor and his team why they hadn’t received new debit and credit cards in the mail.”
In addition, Business NCU said long lines of customers showed up at the 11 offices across North Carolina that Civic had set up in the past two years in anticipation of the merger, after members told the credit union they wanted branches.
“Meanwhile, thousands of Civic members asked why their credit scores had suddenly declined after the merger date,” BusinessNC reported. “Partly due to the chaos, Civic reports its membership count has declined 10%, while posting a $75 million net loss during the first nine months this year.”
In response to all of that, Naylor told BusinessNC, “The best thing about the last 130 days is we don’t have to live it again. And the members don’t, either.’’
Competing in a Digital World
Naylor told the publication envisions building an organization with an array of online services to compete in the increasingly digital financial world.
“As these fintechs continue to take over and drive down costs in the commodity banking market, it’s where financial services is going,’’ Naylor told BusinessNC. “You have to have a different model. We’re carving out differentiation.’’
Meanwhile, when members’ calls to Civic’s hotline soared, Naylor told the publication that he and other managers joined 50 employees assigned to help with the transition, along with 500 employees of a contract call center.
“We were expecting 15,000 calls and 500,000 came in,’’ Naylor told BusinessNC. “When I’d get a member on the phone, I’d go, `We are horrible. What can I do to help you?’’’
Reasons Disputed
According to the report, the cause of the undelivered cards and inaccurate credit scores is in dispute, with Civic FCU saying the problems originated with SECU, including that the addresses of about 35,000 Local Government members were inaccurate. Civic told BusinessNC it spent more than $1 million overnighting cards to correct addresses.
Other data was also reportedly incorrect.
Some members calling the hotline were told, “I’m sorry, that’s not your birthday. We cannot authenticate you,’’ Naylor acknowledged to BusinessNC. “Can you imagine? I would’ve been going nuts.’’
Inaccurate Classifications
Another snafu involved SECU’s inaccurate classifications of 180,000 Local Government loans as paid off, Naylor told the publication. Those loans emerged as new loans at Civic, dinging the credit reports of borrowers.
A spokesperson for SECU, Sandra Jones, told BusinessNC, “At five months post-transition, this is the first we have heard that credit reporting of consumer loans or SECU’s provision of (Local Government) member addresses are
in any way related to Civic’s service issues. The teams from both organizations worked together on the transition plan, and while SECU offered guidance and recommendations, we respected (Local Government/Civic’s) leadership decisions on how all transition processes would be handled.”
‘Fast and Furious’
BusinessNC said Naylor agreed the blowback from members waiting for cards and stunned by lower credit scores was fast and furious.
“In addition to overwhelming Civic’s hotline, members reported miscues to the Better Business Bureau and reporters, prompting stories on TV stations in Greenville and Charlotte,” the report added. It further noted the deluge of complaints interfered with Civic’s handling of calls from members with problems unrelated to cards and credit scores, according to the CEO.
What all of that has meant, BusinessNC noted, was that Civic’s membership declined from 405,040 as of March 31 to 366,134 as of Sept. 30. Naylor told the publication there a reasons other than member service glitches for the decline, including that members don’t want to lose access to SECU’s 275-branch network.
“I hate to lose any member, but if they believe they’ve got to go in that branch three days a week and they’re in a rural community, then that’s fine,” Naylor told the publication.
Some Members Surprised by Change
The report further stated that some Local Government members were surprised they’d been shifted to Civic FCI, even after the credit union had publicized the transition for months on social media, TV and billboards, gasoline pump messages and letters, emails and texts to members.
Many members were unsure of the name change and other related issues, the report stated.
The credit union, which says it remains on “firm financial footing,” has an 8% net worth ratio, even as it reported a net loss of $75 million for the first nine months of the year, including a $42 million loss in the most recent quarter. That compares with combined losses of nearly $17 million in the previous two years, BusinessNC stated.
“The credit union is also dealing with $211 million of loans that were at least 60 days delinquent as of Sept. 30,” the report said. “That is nearly 7% of its total loan pool of $3.09 billion. Delinquent rates of less than 1% are common at most banks and credit unions.”
Members of Lesser Means
In response, Naylor told BusinessNC, “Our members in general have lessor means.”
Civic FCU is a Certified Development Financial Institution (CDFI).
“The delinquency is moving down and will continue to do so,” Naylor told BusinessNC, adding Civic changed its collections structure and payments systems this year.
Statewide Listening Tour Held
As the CU Daily also reported here, Civic Federal Credit Union said it has concluded a statewide listening tour called “Local Connects” to meet members face-to-face. Civic FCU said it held meetings in Lillington, Smithfield, Southern Pines and Rocky Mount in North Carolina, communities that serve as key hubs for local government employees across central and eastern North Carolina.
“Local Connects were designed to give our members a direct line to us, and these conversations have been invaluable,” Ashley Ruffin, chief impact officer at Civic Credit Union, told the Pilot. “Hearing what our members need in their own words helps us build a stronger, more transparent credit union that reflects the real experiences of local government employees across North Carolina.”
The full story can be found here.
