by Scott J. Rose
The accelerating spate of credit union mergers in California and across the nation is undermining the basic premise of the credit union movement. Long-established credit unions are disappearing.
Edward Filene was an entrepreneur who ran Filene’s department store from 1891 to 1928, but it was his pioneering efforts to establish the credit union movement that is his most enduring achievement. Filene’s premise was that credit unions would place service to members over profit.
The underlying philosophy is that a credit union is a member-owned cooperative. Earnings are reinvested in the credit union rather than distributed to investors. These are then used to provide members low interest personal loans, car loans and mortgages.
Credit unions are not-for-profit organizations that are required to act in the best interests of their member-owners. In return, Congress exempts credit unions from taxation.
A Dark Cloud
Unfortunately, a dark cloud has appeared on the horizon and it is threatening the credit union movement. That dark cloud is credit union consolidations.
In 1990 there were more than 14,000 credit unions. By 2025 this number had dwindled to fewer than 4,500. Where did they go? The answer is simple. A small number became insolvent and were liquidated by the NCUA. But the vast majority disappeared through mergers.
Why?
These consolidations involved credit unions that were financially healthy and flush with cash reserves from member deposits. This is the key to the credit union merger Gold Rush. Equity is the difference between a credit union’s assets and its liabilities. It is cash, accumulated over the course of the credit union’s existence, and it belongs to the members, who are the owners.
Credit union consolidations are takeovers. The charter of the acquired credit union is terminated and its assets are handed over to the acquiring credit union. All of the member equity becomes a gift to the acquiring credit union. The members get nothing.
The Cash Prize
Why would the leadership of a credit union agree to such a lopsided transaction?
The equity is the cash prize, and it is a tempting target for many credit union executives who see it as a means to line their pockets. This is the primary motivation for many of these mergers.
By agreeing to a merger, the leadership of the acquired credit union gets a payout for persuading the members that it is in their best interests to support the merger. Meanwhile, the trusted leadership conspires in secret with financial “consultants” to shepherd the merger to completion. After the members have lost their entire ownership equity, their “leaders” can claim that the members endorsed it!
What They Say
The Playbook – what they say:
- This a merger of equals (even when it’s obviously not).
- This will leverage our strengths and recognize our shared values.
- This will extend our reach to new members and markets while delivering state-of-the-art services.
- We will gain access to cutting-edge digital technology.
- We will have new resources to deliver greater value to our members while streamlining business processes.
- This will enhance our ability to make meaningful community investments.
What They Don’t Say
What they don’t say:
- Your credit union will cease to exist.
- You will have no say in how we operate or the decisions we make.
- We will make changes and no one will be accountable.
- Your community will be left with branch offices only.
- We will lay off employees and close branches in the name of efficiency.
- We will no longer contribute to your community because we have no relationships with it.
- We will pocket your member-owner equity. You will get nothing.
What can be done?
Asleep at the Wheel
In California, the Department of Financial Protection and Innovation (DFPI) is required to review all credit union mergers. Unfortunately, DFPI has been asleep at the wheel for years with a pattern of approving consolidations, regardless of their impact on members and local communities.
California legislators have the responsibility and authority to block the takeover of SAFE Credit Union by Boeing Employees Credit Union and must do so.
And national credit union leaders have an obligation to demand full accountability from their peers who continue to pursue these self-destructive mergers.
Scott J. Rose has been a SAFE Credit Union member since 2001. He is a retired physician who lives in Fair Oaks, Calif.
One Response
Good thoughts as always. Your CU needs members like you. A few thoughts to consider:
– the notion that members lose their equity is a myth and just isn’t true. It doesn’t disappear. It becomes part of the baksnce sheet of the new combined credit union, and whatever claim SAFE had on the equity of SAFE, they have the same claim on the equity of the new CU.
– in fact, Boeing’s capital ratio is way higher than SAFE’s. Do the math about how much equity per member there is before and after the merger. The amount per member for SAFE goes way up, the amount per Boeing member goes way down. If anyone members should be up in arms about where their capital is going, it should be Boeing.
– It’s not the role of the DFPI to decline mergers because of member and community impact. They are a safety and soundness and consumer protection agency, and protection has a specific meaning around harm from reg violations. They won’t deny a merger if those issues don’t exist.
– legislators could always create a new law banning mergers with out of state credit unions, I suppose, but it’s not their role.
-it’s not realistic to expect cu leaders to revolt on mergers and hold other leaders accountable. It’s also noteworthy that the merger critics we hear from haven’t been in the seat – either ever or within the last decade. They certainly don’t live the realities of the current competitive landscape and operating environment.
– taken together, nothing changes the hard fact that the SAFE board and members own this decision. It’s the Boards job to judge the strategic fit and act in the best of interests of members. What’s great about the democratic process is that members have a chance, and the highest duty, to engage by informing themselves and voting.