WASHINGTON – It’s a long way and many decades since a small group of frustrated credit union leaders came together to form NAFCU at the Cockatoo Inn in Hawthorne, Calif., in 1967. And yet, 58 years later, there are some parallels afoot as America’s Credit Unions hosts its Congressional Caucus this week in Washington — and not just because the Caucus used to be a NAFCU event.
The Defense Credit Union Council (DCUC), once a small niche group narrowly focused on military credit unions with only a part-time presence on Capitol Hill, has mobilized and brought in reinforcements in recent years. It has raised its profile in Washington and in the credit union community, and now tells the CU Daily it is filling a “void” left open by America’s Credit Unions.
In some ways, the group’s emergence echoes the formation of the National Association of Federal Credit Unions, launched by CEOs who felt their needs weren’t being met by what was then the lone national trade association for credit unions, CUNA.
NAFCU would eventually become a longtime rival to CUNA before the two groups merged on Jan. 1, 2024 to form America’s Credit Unions. Even before that combination, the DCUC’s profile and presence were growing. While it may not yet be a rival to America’s Credit Unions — although it was described during a recent Allied Solutions event as the “new NAFCU” — its CEO says it is a viable alternative. The group is also planning more growth, including a potential name change.
“The best way to characterize it is we’re filling the void left by NAFCU,” said CEO Tony Hernandez, who retired from Air Force a full colonel after having served in various senior leadership and command positions.
A Second Opinion
Asked by CU Daily what void DCUC is filling, Hernandez said: “I believe it’s providing an alternate voice. It’s having a different perspective. We’re a diverse country. We’ve got lots of voices and sometimes, like with a doctor, you need a second opinion. Even if it’s the same prognosis, having a second opinion is warranted.”
Hernandez, who joined DCUC in 2016 as chief operating officer and became CEO in 2017, said several state leagues affiliated with America’s Credit Unions have sought second opinions from DCUC on issues.
The most high-profile of those came after Navy Federal Credit Union won a 2023 contract from the Department of Defense to operate the Overseas Military Banking Program, also known as the Community Bank. The contract, which involves about 60 banking facilities and 275 ATMs in Europe and the Pacific, had previously been with Bank of America.
The move to Navy Federal created a divisive issue within credit unions. The Federal Credit Union Act prohibits NCUSIF coverage for non-credit union deposits. Navy Federal began quietly working in Washington to have the FCU Act amended, without objection from what was then CUNA and NAFCU.
An Alternate View
Defense credit unions, many of which suddenly found themselves competing with Navy Federal on the same military bases for members, fired back. DCUC opposed the change based on strong member feedback.
“We took a view on how that was going to play out and America’s Credit Unions took an alternate view,” Hernandez said. “There was language introduced in last year’s National Defense Authorization Act that would have altered the Federal Credit Union Act to remove the membership requirment. At first, we were alone standing in the wind, and then other leaders throughout the industry started waking up to how it was going to change the definition of a credit union.
“I believe the industry needed that second opinion because had that effort been successful we would have lost this tax-exemption fight,” Hernandez said.
Navy Federal eventually reached an agreement with Dublin, Ohio-based American Share Insurance to cover deposits in the military banking program, which is technically not a bank.
Difference of Opinion
It’s an aggressiveadvocacy approach that Hernandez said DCUC continues to take.
“We are a lot more active, we are a lot more aggressive as Issues form and throughout the policy formation like the recent effort to protect the Industry’s tax exemption,” he said. “There was a difference of opinion on how to tackle that advocacy. A lot of things got thrown at us. People said, ‘Tony, nobody’s talking about the credit union tax exemption except you guys. Shouldn’t you tone it down?’ I’m like, ‘Wait a minute. The banks are up (on Capitol Hill) every day talking about it. You’ve got to have an immediate industry response. If you hesitate to respond, then a narrative gets set, and once a narrative gets set you’re pushing against all that inertia.’ So, we had to take a different tack on that. And we succeeded in the end.”
The shrinking number of credit unions has put a premium on dues income at trade associations. The $191.7 billion Navy Federal — the world’s largest credit union — canceled its membership in DCUC as a result of its opposition to the FCU Act change.
“Actually, it didn’t bother me as much as one would think,” Hernandez said. “It was principle over revenue.”
Despite Navy Federal’s size, the loss was not a major financial hit for DCUC, as its dues at the time were capped at $7,500 annually.
“To be honest, we’ve replaced that $7,500 many times over, because we took a principled stand.” Hernandez said.
Increased (But Still Lower) Dues
DCUC has since raised its top dues rate to $22,500 per credit union per year.
“That’s still the lowest dues in the industry and there’s a reason for that,” Hernandez said. “We don’t depend on any one member. Our decision-making is based on what’s good for the industry. Of course I worry about revenue as a trade association president, but when it comes to advocacy, we just do the right thing.”
Since the CUNA/NAFCU merger, Hernandez said DCUC has significantly increased its media presence, improved its conferences and attracted more sponsorships.
On Capitol Hill, DCUC added Jason Stverak, formerly of CUNA, as chief advocacy officer. It also retained Elizabeth Eurgubian of Atlas Advocacy as a government relations and advocacy consultant. Eurgubian previously held positions with NCUA and CUNA.
“We’re getting more membership interest,” Hernandez said. “There Is a void out there and that people are looking for active leadership in the industry.”
Not Opposition, But Challenging
Hernandez emphasized that DCUC is not in the business of reflexively opposing America’s Credit Unions.
“We have certainly challenged ACU to do more,” he said. “Competition is not necessarily bad. When you have two competitors in any market, the consumer will benefit from that competition. In this case the consumers are our member credit unions.
“There are only two things that matter in trade associations in my view, and that’s action and results,” Hernandez continued. “The more action you take and the quicker the action, the better your results. Then you add in our dues structure and philosophy, and I believe DCUC offers a very competitive product.”
A One-Way Street
Asked if he views DCUC’s relationship to America’s Credit Unions as a rivalry, Hernandez responded: “We’re always focused on being collaborative. Again, we don’t want to oppose them or anyone else, and we’ve included ACU in a lot of our discussions. We don’t exclude them from our meetings. In fact, we invite them and others to listen in. We’re happy to share information and partner with all industry advocates.”
“But it’s seems likea one-way street,” he added. “I don’t see the same unity coming back the other way. It’s all unity in one direction. Yet, unity needs to work in multiple directions. There are a lot of other national trade associations we’ve included in our communications, not because we’re competing with them. Every leader can make their own decisions for their trade associations. But we don’t try to freeze them out. That is more unifying that disruptive. We are working to build better relations with Industry partners. We’re always trying to collaborate.”
An Expanded FOM
Why not stick to the narrow defense-oriented niche DCUC served for most of its existence?
“Two reasons,” Hernandez said. “One is because every credit union is affected by these issues. When you can represent military and veteran issues on Capitol Hill, doors open up to us, because Democrats love the military and veterans, Republicans love the military and veterans, and Independents love the miliary and veterans. So, we have a good congressional audience for what we’re doing and that makes us a powerful advocacy force.
“Second, we see things from a slightly different perspective and when we break down policy, our advocacy is just more assertive. We’re more active, and that just comes from our military roots. I do think in this day and age that’s what a lot of people In the Industry are looking for. We’ve seen an Increased response to that so far from the market.”
The Asset Size Argument
When it comes to the military, two of the three largest credit unions in the U.S. serve defense memberships — in addition to Navy Federal, there is Pentagon Federal at $29.9 billion. Does their enormous asset size hurt credit unions on Capitol Hill?
“That’s more of a banking argument and I believe there are some in our industry that would make the same argument.” Hernandez said. “Yet, large credit unions are serving their members in different ways. I think you can find the good no matter what size the credit union. I’m always looking for the good in what credit unions do. When there’s something that happens that is detrimental, then we try to find rationale and see what the intentions were and then respond to that as best we can.”
Bigger picture, Hernandez said the biggest challenge is that credit unions “don’t tell our story well enough. The data’s out there. We just need to learn how to present that in a little more compelling way. Part of our success is when you tell the veteran impact. That became our calling card on Capitol Hill. I do think there are ways that we can improve that story with hard data and in a way that actually has impact. It’s one thing to say, ‘Hey, we do all this good stuff’; it’s another to show the actual impact. That’s where we’ve got to get better.”
Doing More of the Lift
The big issue in front of credit unions on Capitol Hill right now is ensuring the Credit Card Competition Act, or language from the bill that would affect interchange, isn’t included in the National Defense Authorization Act. It’s an issue on which DCUC has been active, but Hernandez said he’d like to help individual credit unions “do a lot more of the lift, rather than just the trade associations. Credit unions are the best advocates we have on Capitol Hill because they’re the actual constituents. They’re the ones back home making an impact.”
“Congress will take our letters, they’ll take ACU’s letters, they’ll take the league letters, but we are not the constituent. The constituent is the actual credit union that represents those members,” he added.
He acknowledged many credit unions look to their trade groups to do that work because it’s why they pay dues and because they already have much on their plates. That’s why Hernandez said DCUC has worked to provide resources to make advocacy as easy as possible for individual credit unions.
What Concerns Some CUs
While national and state credit union trade groups have reoriented themselves almost exclusively toward advocacy, some voices in credit unions say it has come at the expense of helping them remain viable, growing institutions.
Hernandez said he agrees it’s a legitimate concern.
“You can advocate all you want but you still got to serve your members. You’ve got to serve them so they can operate safely and smartly,” he said. “We’re focusing more on those types of issues at our conferences and balancing out the advocacy piece. The number one duty of a trade association is advocacy, but it’s also sharing information of relevance to the credit union members. When we talk about AI risk or stablecoins or post-quantum cryptology, those are very real issues. Having the conferences, events or webinars to inform people and allow them to find credibile solutionsis important.”
He said that is the reason DCUC has entered into numerous partnerships with various organizations, including most recently, CUES.
All of that growth and expanded advocacy and partnerships now raises questions about what’s ahead for DCUC. In another parallel, the National Association of Federal Credit Unions eventually amended its name to Federally Insured Credit Unions so it could expand membership to include state charters.
A Cracker Barrel Risk?
Is there a risk DCUC’s membership could become too broad?
“I don’t think that’s a risk,” Hernandez said, adding the group is exploring a name change and joking, “I don’t want to, for lack of a better term, Cracker Barrel ourselves. We have a good product, a good niche and for 63 years that’s been good. What we do is very important, it opens a lot of doors on Capitol Hill. We don’t want to give that up.”
In upcoming planning sessions, he said the organization will discuss how to rebrand and how to build a “superstructure on top of DCUC.”
“I’m pretty excited about the conversation, because people for a long time didn’t have to worry about it too much, because 90% of our members were all on military installations,” he said. “But as we’ve been signing new members, we’re going to have to do something. That gets into governance, board positions and how we position ourselves. But from an operational standpoint I think in the last year we’ve proven we can handle the larger industry issues that confront our member credit unions, and also affect our business partners.”
What’s Over the Horizon
Looking forward, Hernandez said he envisions DCUC growing into a much larger trade association. It currently has more than 200 member credit unions; there are roughly 4,500 nationwide.
“I don’t know whether we get as big as America’s Credit Unions or as big as NAFCU, but who knows. We are certainly making plan for it and the sky is the limit,” he said. “We will continue to build as big as the market will allow. We just keep improving our member value proposition and want to do good by our nation’s credit union system. I’m very focused on the value proposition, because that means everything. I believe with our dues structure being capped at $22,500, Is a very good value proposition for what we’re offering compared to what you can get elsewhere. If credit unions are looking at cutting costs, we offer a credible and effective alternative so they can use those funds to grow their credit unions.
“I will say that it’s highly disruptive to the established entities that are out there. I think it also challenges other Industry leaders to pick up their game as well, and when they pick up their game, guess who benefits — all those member credit unions,” he continued. “I’m excited about where we’re headed. I think we have an important voice and an important role to play in the industry and we want to be as collaborative as possible. But collaboration works both ways. I think that’s the part that we’re waiting on, and I think we’ll get there eventually. We’re going to put ourselves out there and see what happens next. Let’s go!”
