Is this the twilight of the golden age of credit unions? On the show to discuss exactly that question is Jim Blaine, the now retired longtime CEO of SECU, the second biggest credit union in the country. Blaine may be retired but he still has opinions about credit unions, as evidenced in his blog, SECU - Just Asking!
In this podcast Blaine also digs deep into the question: what exactly is a credit union? We also talk about democracy in credit unions and often the lack thereof.
Recently Blaine has been sparring with his old employer with the flash point being the institution’s new leadership’s desire to move to risk based pricing for loans. Blaine is against that and successfully resisted it in his years as SECU’s CEO.
Blaine, definitely, is opinionated. But he also is - undeniably - a credit union champion. What he says may make you mad - it definitely made various NCUA employees mad. But listen up because Blaine, very clearly, articulates a philosophy about credit unions that he didn’t just spout, he lived in building SECU into a US credit union powerhouse.
Listen up.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
SPEAKER_02 (00:00):
Welcome to the CU2.0 podcast.
SPEAKER_00 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
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longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now...
The CU 2.0 podcast with RobertMcGarvey.
SPEAKER_02 (00:33):
Is this the twilight of the golden age of credit
unions?
On the show to discuss exactlythat question is Jim Blaine, the
now retired longtime CEO ofState Employees Credit Union,
the second biggest credit unionin the country.
Blaine may be retired, but hestill has opinions about credit
unions.
(00:54):
And you can see that in hisblog, Secu Just Asking.
There's a link to that blog inthe show notes.
In this podcast, Blaine alsodigs deep into another question.
What exactly is a credit union?
We also talk about democracy incredit unions and often the lack
thereof.
Recently, Blaine has beensparring with his old employer
(01:16):
with the flashpoint being theinstitution's new leadership's
desire to move to risk-basedcompanies.
pricing for loans.
Blaine is adamantly againstthat, and he successfully
resisted it in his years asstate employee's credit union
CEO.
Blaine definitely isopinionated, but he also is
undeniably a credit unionchampion, a great credit union
(01:37):
champion.
What he says may make you mad.
It definitely made various NCUAemployees and leaders mad.
But listen up, because Blainevery clearly articulates a
philosophy about credit unionsthat he didn't just spout.
He lived in building stateemployees into a U.S.
credit union powerhouse.
(01:59):
Listen up.
So you suggested that somethingto me in your email.
Are we entering the end of thecredit union era?
We have things like thepotential elimination of NCUA,
(02:19):
potential loss of tax exemption.
A lot of things are happening.
Does this add up to the end ofthe credit union era?
And a second question is, has italready ended?
SPEAKER_03 (02:33):
Well, maybe I ought to qualify it with an adjective
to say this is perhaps the endof the golden era of credit
unions.
And I think that definitely istrue.
And in answer to your secondquestion, I think that has
already occurred.
(02:53):
Now, what defines the goldenera?
I think what defines the goldenera may be something as ancient
as the Great Depression or andthe need in finance that created
credit unions as a alternative.
And I think that era ofcooperative or consumer finance
(03:21):
or self-governance has ended.
And part of that is due togrowth.
Part of it may be technology.
Part of it may be that creditunions no longer really want to
be credit unions.
And maybe they don't need to be.
(03:43):
So the golden era was when itwas driven by purpose and was
generally smaller in footprintand smaller in attitude and
perhaps more member focused andmember controlled.
and i think that clearly hascredit unions the larger ones in
(04:04):
particular have seemed to haveoutgrown that as a you know
bedrock robert what i find todayis that many credit unions i
think struggle to define whothey are any longer and that
used to be a fairly simpleprocess i think you were a
(04:27):
cooperative You were generallyin consumer finance, and you had
a limited membership focusedaround a company or a post
office or a union or agovernment.
And all that no longer seems tobe top of mind.
(04:49):
And when you ask a credit unionthese days, they're having
trouble defining their purpose,I think.
SPEAKER_02 (04:57):
I agree with you.
I've thought about this for asecond.
When those French Canadians inNew Hampshire were turned away
by banks because A, the banksdidn't speak French and didn't
want to.
And B, they didn't really give adamn about these immigrants
anyway.
So the French Canadians said,fine, we'll start our own thing,
(05:18):
the St.
Mary's Bank thing.
And at that moment, thatinstitution was serving people
that banks didn't want to serve.
And that's the origin of creditunions, is serving people banks
didn't want to serve.
And it was also pretty clearcut.
So it's a little credit unionthat serves like one Ford plant
(05:42):
that makes batteries orsomething, but just one, not the
whole corporation.
And guy comes in, he wants like500 bucks to put a new engine in
his car.
I call up the foreman and say,Is he a good worker?
Are you going to keep him on?
Are you going to fire him?
Tell me about him.
Foreman says he's a great guy.
I'd give him the loan.
(06:04):
I don't need to see his FICOscore.
There wasn't a FICO score.
And that's how it worked, and itworked pretty well, really.
As they moved into this nationalcharters, geographic charters,
etc., etc., The common bonds gotshattered, and common bonds were
(06:30):
the essence of the credit union.
SPEAKER_03 (06:34):
Well, I think you nailed it in one sense, but let
me test you with anotherthought.
In terms of common bond,generally smaller, generally
locally focused, generally youknew your fellow members.
That was the strength of thecredit union.
(06:58):
And as you grow, just normally,you grow away from those very
personal relationships.
And that to me, or the plantcloses or, you know, whatever
else.
But that was what has been lostas credit unions grow.
They no longer know theircustomer.
(07:18):
They no longer know their memberintimately.
And part of that is acceleratedby the impersonality of digital
technology.
Digital technology, everybodyneeds it.
It's something you should have.
It's a given.
But it takes the person, bothsides, the credit union employee
(07:39):
and the member, out of thedialogue, the conversation.
Like you say, it's by FICOnumber.
It's by some other quantitativealgorithm.
And that, to me, ends the onegreat strength, small
know-your-person intimacy of acredit union.
(08:03):
And that was part of theoriginal idea, membership,
common bond.
Well, I think you've got it.
And what is it?
400 credit unions now represent90% of the deposits and
membership in the credit unionmovement.
So, yeah.
and that pace of growth isaccelerating.
(08:24):
So that may be, if the essencewas intimacy, the end of the
golden era has been the end ofthat intimacy, whether right or
wrong.
It's just gone away.
But let me give you one otherthing, because I keep hearing
it.
The credit unions were always,once family members were allowed
(08:49):
to join, were diverseorganizations.
You know, I worked with one thatwas associated with state
government and folks now say,well, you know, 80% of the
members are not stategovernment.
It's a different organization.
But if you go back to thesixties, if a state employee
joined that person, normally amale would have his wife join
(09:13):
and his two kids, the averagefamily, right?
And if you count heads, Therewas one member who was a state
employee, but three members whohad nothing to do with state
government.
So there was always 75% of themembers being served were
non-common bond members, oncefamily members.
(09:35):
So maybe when that was added oronce a member, always a member,
you sowed the seeds of thisgrowth as the generations kept,
you know, as we keep moving fromgeneration to generation.
there is less commonality ofcontact, experience, or purpose
left in the credit union.
(09:55):
Not necessarily the creditunion's fault, but it's just a
fact of life.
So...
Did that make sense, Robert, atall?
SPEAKER_02 (10:03):
Yeah, no, that makes perfect sense.
And this is partly why you'renot a fan of credit union
mergers, because that makes anycommon bond, et cetera, more and
more diffuse, and it's just notthere.
SPEAKER_03 (10:15):
Well, I am not a fan of credit union mergers, but for
a different reason.
But I do believe that it isreached.
There have always been mergers.
You know this, Robert, that camefrom adversity or, again—
SPEAKER_02 (10:29):
There are always mergers, but I wrote about them.
It was always, NCUA came to aguy like you saying, will you
take over this$25 million creditunion that we're going to have
to conserve and we don't want todo that.
So take it over, please.
You said, and I know this fromanother CEO, not as big an
institution as yours, but prettybig.
(10:51):
You said, okay, I'll do it.
Because I remember asking thatguy, why did you do it?
He said, A regulator asked me todo them a favor.
I did a favor.
They will probably do a favorfor me someday.
And besides which, even if thiswhole thing blows up, it's like
a blip on my balance sheet.
It doesn't make the slightestbit of difference.
So why are you talking to meabout it?
(11:12):
And I said, okay, you're right.
So, and those mergers, it was nobig deal.
It really didn't matter thatmuch.
Today is a different world.
SPEAKER_03 (11:26):
I agree with that.
Also, the plant closed again,right?
Or these days, the manager'sretiring.
We can't find anybody to takethe job.
We can't recruit directors orvolunteer directors.
SPEAKER_02 (11:42):
NCOA now has a requirement.
We're supposed to write downsuccession plans for key people.
As I told the guy, theconsultant in that business, If
I were on the board of$150million credit union for the
CEO, I would write, mysuccession plan is to merge.
I know that.
(12:03):
And he said, I'm not sure howthe regulator would react to
that.
And I said,
SPEAKER_03 (12:06):
but it's the truth.
I think that is commonplace, butI think it's a false excuse.
You know, credit union managersare not underpaid really these
days.
At least I don't think a hundredthousand six-figure salary is
unusual, nor is it low.
I think I know a lot of youngpeople like that job.
SPEAKER_02 (12:27):
Oh, I think there are many more salaries in seven
figures.
Oh,
SPEAKER_03 (12:35):
well, let me get in.
Well, if NCUA is so big onsuccession plans for credit
unions, I certainly hope theyhave one for themselves these
days.
Well, I don't think they do,really.
Well, wouldn't that be kind ofhypocritical if they did?
But they seem to be gettingready for some rocky times.
(12:58):
So I hope they've got one inplace.
One in place.
And maybe it's turned out thelights.
Who knows?
SPEAKER_02 (13:05):
I remember talking with a CEO of a very small
credit union who was retiringafter 30 years.
And that credit union merged outof existence because this guy
wasn't getting paid six figures.
It was less than that.
And he was working like 60 hoursa week.
He was doing teller shifts onSaturday if the teller was sick
(13:26):
that day.
Someone had to fill it in.
It was him.
He never complained, mind you.
He just retired at a normalretirement age.
But you're a kid with an MBAfrom North Carolina State.
You want that job for$75,000 ayear?
Really?
You
SPEAKER_03 (13:44):
do?
You sure?
Well, in North Carolina, I thinkthe maximum a college master
degree teacher can make in thisstate is about$60,000, Robert.
Wow.
They're very bright people.
They hard work.
They have to deal with thecomplexities of bureaucracy and
(14:05):
unruly employees, that beingtheir students.
So I'm sorry.
There are a lot of folks thatwould love the experience.
And what a resume builder to bea CEO, to run your own shop at a
young age.
I mean, it's all, you know,everybody has to apprentice
somewhere.
When I was working, we used toexport a lot of folks to other
(14:28):
credit unions, people thatwanted the chance to do their
own thing, try their ownambitions and ideas.
And many of them were wildlysuccessful.
The local government
SPEAKER_02 (14:39):
guy
SPEAKER_03 (14:40):
who's now retired.
Well, Suncoast, BiStar, AmericanHeritage up in Philadelphia.
Wow.
There were 50 CEOs at one time.
And people would call us torecruit them.
Because they were saying, we'relosing a manager.
We don't really have somebody onstaff.
Can you send us a company?
And, you know, again, the peopledidn't think the same way, but
(15:04):
they had been trained in aparticular way of doing
business.
And they understood what acredit union was and the
opportunities and the problems.
That is part of the problem, Ithink, that the smaller and
mid-sized credit unions aregoing away.
And quite often they werefeeders.
for the leadership of the largerones.
(15:26):
And these days, it seems thatcredit unions, if they don't go
internally, are having to gooutside to find the leadership
they need.
And I'm not quite sure that thatis good for the idea of a
cooperative.
If I hire a banker, thatperson's been trained in
banking, in a for-profitatmosphere, quarterly goals.
(15:51):
It's just a different business.
And nothing wrong with it.
It's just a different business.
And that person would bringthose skills and that training
to the credit union.
And that is really a cultureclash, I think, if credit unions
really are different and reallyare an alternative.
SPEAKER_02 (16:10):
I often tell people a story that involves your name,
and it's a totally fabricatedstory.
SPEAKER_03 (16:17):
All of them involving my name are
fabricated.
SPEAKER_02 (16:21):
Yeah.
I say, if I were involved inauto loans at the state
employees when Jim Blaine wasCEO and he was standing by my
desk and overheard aconversation where I talked to a
member out of buying a 7 SeriesBMW into buying a used Hyundai
for 20 grand because that's thebest the man could afford and
still support his family.
(16:44):
You would say, good work.
That's credit you can take it.
Whereas at Chase, I'd be fired.
UNKNOWN (16:50):
Yeah.
SPEAKER_02 (16:51):
And that story kind of represents the way you think,
right?
Because I've told it a number oftimes.
SPEAKER_03 (16:59):
Yeah, you're supposed to do what's best for
the member owner.
That's the
SPEAKER_02 (17:03):
idea.
It's to not drive profits forthe institution.
What good am I doing puttingsomeone in a car they can barely
afford so they're going to haveto put their kids on food stamps
or something?
No, this is not good.
I'd rather the person was in aHyundai.
SPEAKER_03 (17:20):
Which
SPEAKER_02 (17:21):
is a perfectly good
SPEAKER_03 (17:21):
car.
Robert, that kind of leads to,again, this change in purpose
and trying to define what acredit union is.
You know, as I think you saidearlier, when credit unions got
started, well, the banks weren'tserving the working men and
women anymore.
(17:43):
I don't think that that wasbecause they didn't want to.
It was just not what they did,right, or depression or whatever
else.
So credit unions, one of thefundamental ideas, and it's in
most everybody's charter, was togive access to credit, access to
credit for profit and productivepurposes.
(18:05):
Today, what's changed is acredit union may be doing what
need to be doing what you justsaid.
Everybody's got access to toomuch credit.
Yeah.
And what a credit union, to me,if they're doing what's right
for the member, should be inthere trying to educate members
(18:25):
on how much APR, what it meansAPR, what you ought to look at.
Don't be bait and switch.
Don't be sprinkled with pixiedust at the dealership.
And that's not being doneanymore that I can see what's
being substituted.
Here's a website.
Go read it and send them more.
(18:48):
And that just doesn't work, frommy experience, with normal
people.
They don't get it.
They need a guide.
It's like being a doctor orsomething, right?
You need somebody.
You're a good journalist.
You may not be great at finance.
You need somebody you trust toguide you through that process.
And the world is more and morecomplex in terms of the ability
(19:12):
or willingness to for themarketplace to contrive a
marketing campaign that willpersuade you, lure you, or
deceive you.
And the cost is huge.
And I don't see credit unionsviewing that as one of their
purposes anymore, other than thelittle, you know, click on this
link and, you know, read this,which from my experience, people
(19:36):
don't do.
They don't have time.
They're working two jobs.
They've got other things, right?
They need to focus on whatthey're good at at their career.
I think
SPEAKER_02 (19:44):
most credit unions have an online module of
financial education stuff.
Absolutely true.
My question is, does anybodyactually use it?
SPEAKER_03 (19:55):
They don't, and they have the metrics to show you.
It's kind of like if you look atsome of the social media little
blurbs and all that.
The number of people followingcredit unions' event of the day
is ridiculously low.
Yeah.
Do you go to your credit unionwebsite every day and see what
(20:17):
is on Instagram?
SPEAKER_02 (20:19):
Ask me a better question.
Ask me, when was the last timeyou went to your credit union
website?
SPEAKER_03 (20:26):
And that's normal, and people know that.
But, you know, we all know that.
SPEAKER_02 (20:33):
Basically, I use the mobile app, which is a tiny
little screen, and I spend moretime than I have to on it.
Sure.
Now, you're involved insomething that intrigues me.
And a little preface is, I'vebeen a member of a big North
Jersey credit union for, I don'tknow, 15 plus years.
(20:56):
I have never voted in anelection.
I've never known there was anelection.
I'm sure there are notices onthe website, but I have not seen
them.
On the other hand, I own stockin a couple of companies.
Every year, not much stock, butevery year they send me board
(21:19):
election notices with a littleballot begging me to fill it
out, blah, blah, blah.
A, I don't think there's thatmuch member participation in
democratically running creditunions.
B, you've been pretty successfulat energizing a democratic
(21:40):
movement within state employees.
Now, not just you alone, butother people.
What enabled you to do that,number one?
Number two, do you disagree withme that there isn't a hell of a
lot of democracy in most creditunions?
SPEAKER_03 (21:56):
The motivation depends on who you ask, but I'll
tell you the truth, of course.
But answer to your secondquestion, no, there isn't much
democracy within the creditunion movement.
And again, the credit unions asorganizations quite often seem
to have outgrown the memberownership and the member input.
(22:20):
And having been a formermanager, I can see why managers
don't want too many folkskibitzing on their decisions and
all that, right?
So there's a natural tendency togo your own way as managers.
But how it started at SECU is a,by the way, I've been retired
(22:43):
for almost 10 years.
I haven't been in the creditunion other than maybe for a
couple of retirement parties inthose 10 years.
Don't call folks, never talk tothe board.
When I left, I cut the cord, noconsultant, no on the board, no
nothing.
I went, I had other things todo.
So got drawn back into it whenthe credit SECU, appeared to be
(23:09):
heading for some new directions,and perhaps they were justified.
I didn't say anything for a yearafter the new leader was hired,
but I kept getting calls andexpressions of concerns from
employees and members about justwhat's going on.
(23:32):
I said, I don't know.
I'm not following it.
They said, well, I hope youwould go to the annual meeting
and ask some questions.
And I said, I'm not going to dothat.
I'm out of here.
You know, you do it.
And of course, most people don'twant to do it and employees are
afraid to do it.
So in 2022 presented aresolution, just saying, what
are you doing?
(23:52):
Why are you doing it?
How does this benefit thecurrent members?
We take some time.
I think it's a communicationproblem to take some time, you
know, next six months and tellfolks what's up.
And so, uh, The resolutionpassed without objection.
It was seconded by a boardmember.
They did respond.
(24:13):
The responses were nottransparent, Robert.
And that's when I got concernedthat perhaps the board was
overlooking the membership.
But in terms of there's beencontested elections since, I
think that's easy to do.
Generally, you just need 500signatures, which, by the way,
(24:35):
is not easy to get.
So somebody just standing up andwaving their hand won't get it.
But it's easy to find folks thatare interested and are
qualified.
And election in 23, the threeincumbents were ousted.
But at the next election, thecredit union had gotten much
better organized and got theirincumbents reelected.
(24:59):
So we're in about the third yearof the process.
But there had not been acontested election in 10 or 12
years.
And in 23, there were about, Iwould say, 13,000 folks that
voted, which was just unheardof.
And then last year, there were100,000 folks that voted.
(25:20):
Wow.
It sounds like a lot, but thereare 2.8 million members.
But I think if you want to dodemocracy, and I don't think
there's much risk in it, is toassure that you have a contested
election every year.
Now, most credit unions havesome sort of screening process,
(25:44):
a nominating committee, and it'sjust as easy for that nominating
committee to nominate twocandidates for each open seat,
including incumbents, or three.
But generally, they only presentthe slate of incumbents.
So the first step on democracyis to have a contested election.
(26:06):
And what's still not, is veryimperfect, is the ability for
candidates to explain whythey're running and what's good
and what's bad and all that kindof stuff.
That's not been worked out verywell, at least not locally.
The other thing that hasincreasingly happened is that
(26:29):
with annual meetings, like yousaid, you have never heard of
yours and never been to one.
Well, to make it even worse,often they're now going over
Zoom or virtual meetings.
And it's very, very hard formembers to ask questions and
participate in the meeting andfor the board, by the way, or
CEO to answer questions in thatformat.
(26:54):
So having a real meeting at anot only a time, but also a
place where questions orresolutions can be presented, I
think is fundamental for thefuture of the credit union.
Every publicly traded company inthis country is required to do
that.
SPEAKER_02 (27:16):
You can own one share, and that's on mobile.
Go to the annual meeting, and ifyou play your cards right, you
can actually ask a question atthe annual meeting.
SPEAKER_03 (27:27):
That's right.
But in addition, and there'susually some set process that
you can submit resolutions, youknow, to the board for
consideration and for themembers to vote on, you know,
compensation is one that isadvisory, but I mean, you could,
you know, ask somebody to open abranch in Timbuktu or something.
(27:50):
I don't know.
And have members vote on it.
Hopefully there's substantiveissues.
It's not that, you know, I wantyou to lower interest rates.
It's not managing the creditunion.
It's issues of governance anddemocracy that need to remain in
the hands of credit unionmembers.
(28:11):
And I think a contested electionand some resolutions to be voted
on and transparency andpublication by the credit union
would add a whole lot to thecredit union system.
members' understanding of theirorganization.
First, they feel they'reinvolved.
Second, they get a chance to seewhat the issues might be out
(28:33):
there.
Also, how management and theboard respond to them, which has
got to be helpful.
And then a vote would give theboard some legitimate feel of
how these issues are consideredby the members.
Because people aren't going totake the time to vote, right?
It's not like, you know, press afinger button if the service is
(28:57):
great.
Right.
Those are faux measurements ofthe members.
But anyway, it would involvefolks in it.
And I think it would help createan identity and people to
understand the purpose and wouldmake the credit union far
stronger.
(29:18):
But
SPEAKER_02 (29:18):
anyway, I think we would agree with me that.
Discord can make the creditunion stronger.
You don't need compliance witheverybody happy, smiling.
A little disagreement anddiscord, and not a fistfight,
but just disagreement and acivil discussion can, I think,
(29:40):
make it stronger.
I
SPEAKER_03 (29:41):
agree with that.
And at least at SECU last year,the incumbents won two to one.
It's like 60,000 for the topleading incumbent, 30,000 for
one of the challengers.
And I think that's good.
First, you got 100,000 folks tovote.
(30:04):
Second, it wasn't just aone-person show.
There were 30,000 members thatsaw things a little differently
in terms of who should be on theboard.
And that's not discordant.
I mean, I think You and I go tothe polls every four years to
elect a president, more oftenfor a House of Representatives.
(30:25):
So, I mean, having activeelections is key to democracy.
And the fear, Robert, not onlyin credit unions, but in
government, right, is folks arelosing interest and
participation is dwindling, atleast at the federal level, I
(30:45):
think, not the president, butPeople don't feel like they can
touch or influence or have anyeffect on their government.
That's bad news.
And it's the same for the creditunion.
Then if I can't affect it, whyshould I be a member?
Why did I join?
Why do I care whether I stay amember?
(31:07):
And these days with digital andopen membership, you and I can
join probably anywhere.
3,000 of the 4,000, 4,500 creditunions left.
I mean, it's not that we havelimited choices anymore, right?
SPEAKER_02 (31:23):
Oh, most credit unions.
Not Navy Federal, maybe notState Employees, but I know
definitely not Navy Federal.
Most have a backdoor in.
Absolutely.
You give like 20 bucks to thewidows of soldiers or something,
and boom, you can get in.
(31:44):
Again, not Navy.
SPEAKER_03 (31:45):
Well, to me, you raised another problem in terms
of the positioning of creditunions as white hat, trusted
advisor.
When they're using a backdoormeans to circumvent the laws,
then that comes home to roost atsome point.
(32:06):
Whenever credit unions stopbeing straightforward, tell it
like it is, the whole truth,nothing but the truth, you're
going to have problems.
And again, once you lose thattrust, as you know, in any
relationship, right, then you'velost it permanently.
You don't get it back,especially when you have any
(32:27):
number of equal opportunities tojoin.
And I guess I would add that,Robert, I've been looking at
several credit union websitesand mission staves and vision
staves and that kind of stuff.
The most striking thing aboutall credit unions these days,
not all, but most is they alllook exactly the same.
(32:50):
Yeah.
Websites, their products.
There's nothing that I can seethat would attract me to join
other than if I'm, you know,rate shopping.
So
SPEAKER_02 (33:02):
that's, that's the problem credit using now in a
rate shoppers world.
SPEAKER_03 (33:07):
If you're in a rate shoppers world, I think, I hope
you and I know that then it getsdumbed down through bait and
switch and some other things.
And you get dragged down to thelowest possible denominator.
You have to fool your member toget them to, you know, with some
kind of bonus two for one, youknow, free until Sunday, you
(33:30):
know, whatever it
SPEAKER_02 (33:31):
is.
No interest for the first 90days, man.
Doesn't that sound good to you?
No interest payments at all.
In fact, no payments at all.
Don't worry about it.
UNKNOWN (33:41):
Absolutely.
SPEAKER_03 (33:41):
Absolutely.
And again, there goes the trustfactor because we all learn.
We realize when we're taken,right?
It takes a while, but we know.
And you don't
SPEAKER_02 (33:53):
deal with those people again.
But yeah.
Now, what do you think about theCDFI credit unions?
The members, for instance, ofInclusive.
I like Kathy Mann a great deal.
SPEAKER_03 (34:07):
Well, I think smaller credit unions in general
do a better job better jobserving folks, particularly of
modest means, than do largerones.
And I think they always have.
And some of your best managersin all the credit union movement
were in the small credit unions.
(34:28):
Why?
Because generally, she had to doeverything.
There was one person and thatwas it.
I think they serve a great role.
My problem is this lowest commondenominator.
They're being dragged down bythe bank-like focus of the large
ones.
(34:49):
And so you say you're a creditunion and people think of the
large ones and you're paintedwith the same brush.
So I think their demise is partof the merger situation.
You know, that people just don'tbelieve that a credit union is
any different.
(35:10):
And therefore, you know, Why notgo to the local bank?
Well, there's this trend, and
SPEAKER_02 (35:16):
you're aware of this, is taking credit union out
of the institution's name.
Yeah.
In Arizona, it had been DesertSchools.
Now it's Desert Financial.
What is Desert
SPEAKER_03 (35:29):
Financial?
What is it?
Most credit unions are now usingthe term bank with us, right?
Where banking is better.
Yes.
And I admit that it's very hardand time consuming to try to
tell or show members what thedifference was.
But when you stop trying, you'vesealed your fate.
(35:51):
Then they will never understand.
I didn't finish the idea onmergers, the democracy and
mergers and all that.
My biggest concern is that we'regoing to head right back to an
era that popped up about 2005,where credit unions started to
convert.
to mutual savings banks and tobanks.
(36:12):
And I am dead certain thatthat's what's starting and that
is the end of the era for creditunions.
SPEAKER_02 (36:22):
Well, I've been saying that were the biggest
credit unions to lose their taxexemption, most of them would
demutualize as quickly as theycould.
I see that as absolutecertainty.
And remember, USAA, once upon atime, was a mutual association.
(36:44):
But they demutualized.
It's a straightforward process.
And from what CEOs of big creditunions have told me, they lost
the tax exemption.
They're not really surefinancially what the advantage
to being a credit union would be
SPEAKER_03 (37:01):
for them.
Let me ask you a question aboutit.
First of all, you and I havebeen around too long because we
happen to remember these thingsabout demutualization.
But the point is, you've beentalking about it for a long,
long time.
I've been thinking about it fora long, long time.
And when it now is getting readyto start, people will say, what
happened?
And I would go, oh.
(37:23):
So would you.
This has been going on a longtime.
It's just been building, youknow, suddenly open membership,
suddenly focus on commerciallending, suddenly, you know,
focus on credit scores whenapproving people.
Suddenly the members notinvolved.
Suddenly annual meetings don'treally occur.
This has been going on.
This has not happened all atonce.
(37:44):
But when it happens, people willact surprised.
But here's the question was thatyou brought it up.
Why is a credit union taxexempt, Robert?
SPEAKER_02 (37:55):
Because it's doing things, theoretically, for a
membership that isn'tnecessarily profitable.
It's making loans that aren'tnecessarily loans that Chase
Manhattan Bank would want tomake.
And some credit unions are stilldoing that.
(38:17):
Are all of them still doing thatstuff?
I don't know.
SPEAKER_03 (38:20):
I won't argue with your response because I think
there's a lot of truth in it,but here's the second part of
the question.
First part was, why is thecredit union tax exempt?
Second part of the question is,would it still be a credit union
if it weren't?
So the idea is, why is thecredit union tax exempt?
(38:40):
And you say, because of what itdoes, blah, blah, blah.
And so now I ask you, well,would it still be a credit union
if it were taxed?
SPEAKER_02 (38:47):
Well, I remember some years ago I was at GAC,
which I didn't go to oftenbecause God loves me too much to
force me to do that.
And I was talking to a woman whowas a board member of a teeny
tiny credit union in NewHampshire who told me she was
going to go out and walk to hellto defend the tax exemption.
(39:10):
And I was thinking, I did notsay it to her, but I was
thinking, honey, There's no wayin hell your credit union would
pay any taxes.
You could barely pay yourelectric bill.
And I think that's true for 90%of the credit unions.
A good accountant could make itso that they're not paying any
federal taxes at all.
SPEAKER_03 (39:29):
Well, let me ask it a little different way.
Robert, were credit unionscreated because they were tax
exempt?
No.
Was it even part of the 1909?
They weren't tax exempt.
Right.
I think the federals didn't gettax exemption until, what, 35?
(39:49):
Most states, you know.
But is the essence of a creditunion that it's tax exempt?
Because I think you said, andthat's why I think the demise
and the end of the era is athand, taxation in this
environment is becoming a biggerissue.
And level the playing field, youknow that.
And that government ought not topick winners and losers anymore.
(40:12):
That is the tone in ouradministration and may have been
for a long, long time.
So, you know, but does it changethe credit?
Is it no longer a credit unionif it's not tax exempt?
SPEAKER_02 (40:31):
I agree with you.
It really is not relevant.
It's not part of the essence ofa credit union.
SPEAKER_03 (40:40):
It's not a credit union because it's tax-exempt,
is my opinion.
It has nothing to do with whatit was created for and what it
sought to do, nor how itoperated.
But you're going to see largecredit unions.
You said it, Robert.
If tax-exempt is waived, they'regoing to say, well, if we don't
(41:03):
have the tax exemptions, wemight as well go ahead and be a
bank.
That logic is imperfect, in myopinion.
but it's what's going to happen.
And you just listen to folks,and particularly with the, you
know, ACU and the other creditunion trade associations are
gearing up for the tax fight.
(41:24):
And that's part of what they'resaying.
You know, it'll crush us as abusiness.
What effect does it have on ourbusiness?
What is it that makes that taxexemption critical to a credit
union?
I don't know of an answer tothat.
I mean, if I had to choosebetween as an individual,
whether it be tax exempt or tax,I'd choose tax exempt.
(41:46):
I get that.
But does it make any differenceto a credit union?
I wish folks would discuss that.
Yeah, I think you're right.
SPEAKER_02 (41:58):
Cooperatives, I don't believe, immediately get a
tax exemption just becausethey're cooperative.
I don't think that's the case.
And a credit union fundamentallyis a cooperative.
although most credit unionexecutives don't know that.
And
SPEAKER_03 (42:15):
as you said, you know, if I can barely break even
and pay my light bill as acredit union, having an income
tax on a zero bottom line reallydoesn't make any difference,
does it?
No.
It's just, but look out for whatyou've got people leading credit
unions that are going to use theloss of the tax exemption money
(42:39):
when it occurs, if it occurs, asan excuse to convert to a bank.
And the next level of question Ihope you would pursue with
somebody would be, well, what doyou get if you're taxed and you
convert to a bank?
What do you get?
Well, I can let anybody join.
(43:01):
You already can.
Well, I can make commercialloans.
You already can, and you'repursuing it.
What is it?
And that's where I go, Creditunions are really struggling to
define themselves as somethingdifferent any longer because
they don't have tax.
They don't have closedmembership.
They're not small and locallyfocused.
(43:23):
They're not focused necessarilyon helping the people of modest
means.
And many of them are pursuingcommercial lending, which is the
bank's bread and butter, justfuriously.
And it's the fastest growingsegment ever.
in the credit union loanportfolio, if you look.
And Robert, if I ask you this,if I asked you if all the credit
(43:48):
unions had greater balances innew car loans or commercial
loans, how would you answer?
Which is larger?
If you aggregated them alltogether, do they have more new
car loans or more commercialloans?
SPEAKER_02 (44:05):
I would say new car loans, but since you're asking
the question, I assume theanswer is not new car loans.
SPEAKER_03 (44:11):
That's right.
So it's kind of a trickquestion.
It's commercial.
There are more commercial loanson the balance sheets of all
credit unions than there
SPEAKER_02 (44:21):
are...
This is weird because that's notthe essence of the credit
SPEAKER_03 (44:23):
union, was
SPEAKER_02 (44:26):
to do that car loan.
That's exactly
SPEAKER_03 (44:29):
right.
Well, let me give you anotherone.
I won't raise the ante on you.
Do you think there are more...
credit card loans on the balancesheets of all credit unions in
the country or more commercialloans.
Now, that one's easy.
You ought to get that
SPEAKER_02 (44:45):
one.
Well, I would hope that there'smore credit card loans.
Wrong again.
But yeah, I knew it had to bewrong.
SPEAKER_03 (44:53):
There are twice as many commercial loans on the
balance sheets of credit unionsas there are credit card loans.
Now, that shocked me.
SPEAKER_02 (45:05):
Yeah, as we're talking, I remember that for 10
years I've been telling people,I really don't care about
community banks because they area dying species.
SPEAKER_03 (45:17):
Well, maybe like credit unions, right?
Well,
SPEAKER_02 (45:22):
even some pretty big community banks are dying
species.
They're getting wiped out by thechases and the B of A's.
So you take Pentagon Federal orstate employees, you say, okay,
fine, you can be a bank now.
You're now a tiny bank.
Used to be a big credit union.
Now you're a tiny bank.
SPEAKER_03 (45:42):
Well, I think I've heard you make the point in some
podcasts or writing that thefour largest banks, right?
What is yours like JP Morgan orChase or somebody's larger than
all the credit unions?
SPEAKER_02 (45:56):
I added up all the assets of credit unions.
This was a few years ago.
All the assets of all the creditunions, it was lower than
JPMorgan Chase.
Now, since that time, JPMorganChase has grown at a much faster
rate than credit unions have.
So I'm sure the difference ismuch bigger than it was.
And as I say to people, I assureyou, Jamie Dimon does not wake
(46:18):
up in the morning saying, whatis Navy Federal doing today?
I'm sure that's true.
And if you ran into Jamie'soffice and said, Mr.
Diamond, Mr.
Diamond, let me tell you whatNavy Federal's doing today, he'd
say, what the hell is that?
SPEAKER_03 (46:33):
Well, he's pretty shrewd.
He probably knows, but it's noton his top 100.
SPEAKER_02 (46:38):
It's not.
Tell him what Citi's doing.
Tell him what BMA's doing.
This will interest him.
Even Deutsche Bank, but he's notinterested in the credit union,
nor should he be.
So if my thesis is thatcommunity banks are dying, all
credit unions that convert willbecome just kind of middling
(46:59):
size, small and middlingcommunity banks.
That's not a future.
I think it is.
SPEAKER_03 (47:06):
Oh, no,
SPEAKER_02 (47:07):
I'm saying that's like converting yourself into a
corpse.
It's not healthy.
You can differentiate yourselfin the market if you are a
credit union.
And you explain how a creditunion is different and better.
You got an argument that I thinkis pretty exciting.
It's why I got interested incredit unions some years ago.
(47:31):
Whereas if someone said, do youwant to do some writing on the
Community Bank Association, ICBAor whatever that is?
I'd say, no, it's boring.
SPEAKER_03 (47:41):
Well, I think I agree with what you said.
Where I was trying to object alittle bit is I think Most of
us, after we get through withthe large banks or large
anything, we would prefer tohave personal local service if
(48:02):
we can get it, whether it'slocal food or local restaurant
or local bank or local creditunion.
I think we'd all like to knowsomebody that It's in charge of
the businesses we use or whowill respond to us.
(48:24):
It's been common knowledge, Ithink, for a long time that most
business people follow theirbanker, not their bank.
And so, as you say, thecommunity bankers evolve and get
bought out or merge or whateverelse.
That banker takes another job atanother community bank and takes
all the business with him.
(48:45):
Because I don't want to have toexplain my whole life story and
business and balance sheet andhow I came into being to a new
bank or bank.
So it's kind of like, you know,revolving chair, musical chairs,
people.
And I think it's true in creditunions.
If you can stay local, that allof us would prefer to do that.
(49:09):
But maybe I'm wrong.
You know, I think that's theadvantage that credit unions are
losing is as they grow in size,and if they go to this
all-look-the-same digitaldelivery.
I use the mobile phone, too, butI used to know who I could call.
And my kids are credit unionmembers, various ones, and it's
(49:32):
funny.
They need to talk about amortgage.
They want to talk to Susan overat XYZ Branch.
They have built a trustedrelationship that transcends
just transaction processing,which is a no-brainer, right?
That's what mobile is.
Or if they need some advice ontheir 401k, they want to go talk
(49:54):
to somebody, right?
Because they're uncertain orplanning a will or doing taxes
or whatever it might be.
And if we can't get back tothat, that's why I think it's an
end of a golden era because Ithink that was in place when
credit unions were more local,smaller, and maybe more focused
(50:15):
on the consumer rather than thecommercial.
Another topic for another day,maybe debit cards is where
credit unions need to go.
They need to fight for thattransaction account.
But I don't see anybody doingthat because they– They're so
reliant on this interchangegame.
(50:35):
But they've got to figure thatout.
Most people, where they opentheir transaction account, which
is called a checking account, iswhere their parents banked,
unless they move a couple timesin life, right?
And not that you don't havemultiple relationships, but your
primary account is generallywith the institution that your
(50:56):
parents banked with.
And most folks...
even these days, stay prettyclose to home.
The majority of folks do, youknow, within a state anyway.
So if you can get them whenthey're young, you got them
forever on the most importantaccount, the transaction
account.
And that's become the debitcard, right?
People just don't write checksthat much anymore.
(51:17):
You will end up having directdeposit.
It's also where you'll end uphaving bill pay, right?
And you'll have a credit card,just an overdraft protection or
something.
SPEAKER_02 (51:28):
The debit card is the gateway drug.
Get them in the door at thedebit card and then you can sell
them some other products.
SPEAKER_03 (51:36):
Because they come to you multiple times a month,
right?
Writing a check or they'reassociating with you multiple
times through the transactionsand the direct deposit.
It's interesting that if to me,one of the things in a veneer, I
think credit unions, if theycontinue to pursue this,
everything's done on a creditcard.
(51:57):
And we're all doing it becausewe're trying to accumulate those
miles and discounts and stuff.
If they get lured into that,they'll lose.
They'll lose everything.
SPEAKER_02 (52:07):
I think you're absolutely right.
What kind of credit unions sell?
They can sell local humancontact relationship.
I know you, you know me.
And Chase can never sell that.
And don't even
SPEAKER_03 (52:22):
try.
And don't try.
But Robert, what you might findinteresting is In North
Carolina, Chase has opened, Ithink, within the last year,
maybe 15 branch offices.
Those branch offices are in oururban areas.
They are in our higher wealthzip codes.
(52:45):
And they're probably for teamsof wealth managers.
They're not after serving thelocal
SPEAKER_02 (52:51):
mom and pop.
Personal bankers.
I had a Chase account for anumber of years.
I get a call once a month from aguy who wanted to be my personal
banker.
A nice guy.
But yeah, that's, yeah.
SPEAKER_03 (53:02):
But they now have wealth.
And again, my concern in creditunions chasing the more affluent
is that Chase will beat you onthat because they will arrive
ride with a team.
They've got to count it.
They've got a tax expert.
They've got tickets to the icehockey team.
(53:25):
They're going to come get you,and you're not going to beat
that kind of team because theirexpertise is greater than what a
credit union normally has.
A
SPEAKER_02 (53:35):
credit union needs to keep some of those wealthier
members, obviously.
SPEAKER_03 (53:42):
I think you can if you can Decide who you are.
By the way, I think these days,given the closing of plants and
military bases, the common bondprobably is geography and not on
a global or nationwide basis.
If you can create an image foryour community, I mean, I guess
(54:06):
it could be church or race orsomething else, but geography
makes a whole lot of sense.
People will want to stay local,going back to that idea.
They will choose to have anaccount with you and give you a
chance because you're local,because they can see the branch,
although they may not use it,and that they can get a call
back and they can talk to a livehuman being.
(54:29):
People, I mean, we all do it,right?
We root for the local footballteam.
We understand local politics.
We know our friends andneighbors are people we know.
They're all local.
But anyway, the other thing Isee, by the way, that I think
will hurt credit unions on thelocal is, at least I think it's
true for all credit unions,there's an awful lot of local
(54:52):
employment problems.
in branches or contact centersor whatever else.
So it is an economic benefit tothe community or the state or
whatever else.
You'll see efficiency becomestoo much of a buzzword that
those calls will be routed tothe Philippines or to India.
(55:14):
It's happening now already, butcredit unions will do that
because it costs so much lessand And so you're going to see
the export of these jobs fromthe local area, which, again,
kills the intimate localcontact.
The other thing that I seecoming back, which I'm sad to
see, is the selling of loansoutside your market, where
(55:39):
Fannie and Freddie are your bestexample.
They make only mortgage loansunder very strict rules.
There's very little flexibilitythat the lender has.
Even if you keep servicing,then, you know, there's a
problem.
You have very little flexibilityto fix it.
So, you know, you can't react toa member's individual local
(56:02):
disaster, right?
And help them go through it.
But it also, the number onething about, say, a mortgage
loan is that if you keep it onyour books, the interest that
you earn is reinvested in yourlocal community.
When you sell the loan, thatinterest, the most
SPEAKER_00 (56:22):
important
SPEAKER_03 (56:23):
economic part of that loan, is exported to an
investor in New York, Beijing,who knows?
SPEAKER_02 (56:34):
Before we go, think hard.
about how you can help supportthis podcast so we can do more
interviews with more thoughtfulleaders in the credit union
world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(56:55):
It's my hope it won't all bemega banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(57:16):
We want your support.
We thank you for your support.
The CU2.0 Podcast.
Welcome to the CU2.0 podcast.
SPEAKER_00 (00:05):
Hi, and welcome to the CU2.0 podcast with big new
ideas about credit unions andconversations about innovative
technology with credit union andfintech leaders.
This podcast is brought to youby Quillo, the real-time loan
syndication network for creditunions, and by your host,
longtime credit union andfinancial technology journalist,
(00:27):
Robert McGarvey.
And now...
The CU 2.0 podcast with RobertMcGarvey.
SPEAKER_02 (00:33):
Is this the twilight of the golden age of credit
unions?
On the show to discuss exactlythat question is Jim Blaine, the
now retired longtime CEO ofState Employees Credit Union,
the second biggest credit unionin the country.
Blaine may be retired, but hestill has opinions about credit
unions.
(00:54):
And you can see that in hisblog, Secu Just Asking.
There's a link to that blog inthe show notes.
In this podcast, Blaine alsodigs deep into another question.
What exactly is a credit union?
We also talk about democracy incredit unions and often the lack
thereof.
Recently, Blaine has beensparring with his old employer
(01:16):
with the flashpoint being theinstitution's new leadership's
desire to move to risk-basedcompanies.
pricing for loans.
Blaine is adamantly againstthat, and he successfully
resisted it in his years asstate employee's credit union
CEO.
Blaine definitely isopinionated, but he also is
undeniably a credit unionchampion, a great credit union
(01:37):
champion.
What he says may make you mad.
It definitely made various NCUAemployees and leaders mad.
But listen up, because Blainevery clearly articulates a
philosophy about credit unionsthat he didn't just spout.
He lived in building stateemployees into a U.S.
credit union powerhouse.
(01:59):
Listen up.
So you suggested that somethingto me in your email.
Are we entering the end of thecredit union era?
We have things like thepotential elimination of NCUA,
(02:19):
potential loss of tax exemption.
A lot of things are happening.
Does this add up to the end ofthe credit union era?
And a second question is, has italready ended?
SPEAKER_03 (02:33):
Well, maybe I ought to qualify it with an adjective
to say this is perhaps the endof the golden era of credit
unions.
And I think that definitely istrue.
And in answer to your secondquestion, I think that has
already occurred.
(02:53):
Now, what defines the goldenera?
I think what defines the goldenera may be something as ancient
as the Great Depression or andthe need in finance that created
credit unions as a alternative.
And I think that era ofcooperative or consumer finance
(03:21):
or self-governance has ended.
And part of that is due togrowth.
Part of it may be technology.
Part of it may be that creditunions no longer really want to
be credit unions.
And maybe they don't need to be.
(03:43):
So the golden era was when itwas driven by purpose and was
generally smaller in footprintand smaller in attitude and
perhaps more member focused andmember controlled.
and i think that clearly hascredit unions the larger ones in
(04:04):
particular have seemed to haveoutgrown that as a you know
bedrock robert what i find todayis that many credit unions i
think struggle to define whothey are any longer and that
used to be a fairly simpleprocess i think you were a
(04:27):
cooperative You were generallyin consumer finance, and you had
a limited membership focusedaround a company or a post
office or a union or agovernment.
And all that no longer seems tobe top of mind.
(04:49):
And when you ask a credit unionthese days, they're having
trouble defining their purpose,I think.
SPEAKER_02 (04:57):
I agree with you.
I've thought about this for asecond.
When those French Canadians inNew Hampshire were turned away
by banks because A, the banksdidn't speak French and didn't
want to.
And B, they didn't really give adamn about these immigrants
anyway.
So the French Canadians said,fine, we'll start our own thing,
(05:18):
the St.
Mary's Bank thing.
And at that moment, thatinstitution was serving people
that banks didn't want to serve.
And that's the origin of creditunions, is serving people banks
didn't want to serve.
And it was also pretty clearcut.
So it's a little credit unionthat serves like one Ford plant
(05:42):
that makes batteries orsomething, but just one, not the
whole corporation.
And guy comes in, he wants like500 bucks to put a new engine in
his car.
I call up the foreman and say,Is he a good worker?
Are you going to keep him on?
Are you going to fire him?
Tell me about him.
Foreman says he's a great guy.
I'd give him the loan.
(06:04):
I don't need to see his FICOscore.
There wasn't a FICO score.
And that's how it worked, and itworked pretty well, really.
As they moved into this nationalcharters, geographic charters,
etc., etc., The common bonds gotshattered, and common bonds were
(06:30):
the essence of the credit union.
SPEAKER_03 (06:34):
Well, I think you nailed it in one sense, but let
me test you with anotherthought.
In terms of common bond,generally smaller, generally
locally focused, generally youknew your fellow members.
That was the strength of thecredit union.
(06:58):
And as you grow, just normally,you grow away from those very
personal relationships.
And that to me, or the plantcloses or, you know, whatever
else.
But that was what has been lostas credit unions grow.
They no longer know theircustomer.
(07:18):
They no longer know their memberintimately.
And part of that is acceleratedby the impersonality of digital
technology.
Digital technology, everybodyneeds it.
It's something you should have.
It's a given.
But it takes the person, bothsides, the credit union employee
(07:39):
and the member, out of thedialogue, the conversation.
Like you say, it's by FICOnumber.
It's by some other quantitativealgorithm.
And that, to me, ends the onegreat strength, small
know-your-person intimacy of acredit union.
(08:03):
And that was part of theoriginal idea, membership,
common bond.
Well, I think you've got it.
And what is it?
400 credit unions now represent90% of the deposits and
membership in the credit unionmovement.
So, yeah.
and that pace of growth isaccelerating.
(08:24):
So that may be, if the essencewas intimacy, the end of the
golden era has been the end ofthat intimacy, whether right or
wrong.
It's just gone away.
But let me give you one otherthing, because I keep hearing
it.
The credit unions were always,once family members were allowed
(08:49):
to join, were diverseorganizations.
You know, I worked with one thatwas associated with state
government and folks now say,well, you know, 80% of the
members are not stategovernment.
It's a different organization.
But if you go back to thesixties, if a state employee
joined that person, normally amale would have his wife join
(09:13):
and his two kids, the averagefamily, right?
And if you count heads, Therewas one member who was a state
employee, but three members whohad nothing to do with state
government.
So there was always 75% of themembers being served were
non-common bond members, oncefamily members.
(09:35):
So maybe when that was added oronce a member, always a member,
you sowed the seeds of thisgrowth as the generations kept,
you know, as we keep moving fromgeneration to generation.
there is less commonality ofcontact, experience, or purpose
left in the credit union.
(09:55):
Not necessarily the creditunion's fault, but it's just a
fact of life.
So...
Did that make sense, Robert, atall?
SPEAKER_02 (10:03):
Yeah, no, that makes perfect sense.
And this is partly why you'renot a fan of credit union
mergers, because that makes anycommon bond, et cetera, more and
more diffuse, and it's just notthere.
SPEAKER_03 (10:15):
Well, I am not a fan of credit union mergers, but for
a different reason.
But I do believe that it isreached.
There have always been mergers.
You know this, Robert, that camefrom adversity or, again—
SPEAKER_02 (10:29):
There are always mergers, but I wrote about them.
It was always, NCUA came to aguy like you saying, will you
take over this$25 million creditunion that we're going to have
to conserve and we don't want todo that.
So take it over, please.
You said, and I know this fromanother CEO, not as big an
institution as yours, but prettybig.
(10:51):
You said, okay, I'll do it.
Because I remember asking thatguy, why did you do it?
He said, A regulator asked me todo them a favor.
I did a favor.
They will probably do a favorfor me someday.
And besides which, even if thiswhole thing blows up, it's like
a blip on my balance sheet.
It doesn't make the slightestbit of difference.
So why are you talking to meabout it?
(11:12):
And I said, okay, you're right.
So, and those mergers, it was nobig deal.
It really didn't matter thatmuch.
Today is a different world.
SPEAKER_03 (11:26):
I agree with that.
Also, the plant closed again,right?
Or these days, the manager'sretiring.
We can't find anybody to takethe job.
We can't recruit directors orvolunteer directors.
SPEAKER_02 (11:42):
NCOA now has a requirement.
We're supposed to write downsuccession plans for key people.
As I told the guy, theconsultant in that business, If
I were on the board of$150million credit union for the
CEO, I would write, mysuccession plan is to merge.
I know that.
(12:03):
And he said, I'm not sure howthe regulator would react to
that.
And I said,
SPEAKER_03 (12:06):
but it's the truth.
I think that is commonplace, butI think it's a false excuse.
You know, credit union managersare not underpaid really these
days.
At least I don't think a hundredthousand six-figure salary is
unusual, nor is it low.
I think I know a lot of youngpeople like that job.
SPEAKER_02 (12:27):
Oh, I think there are many more salaries in seven
figures.
Oh,
SPEAKER_03 (12:35):
well, let me get in.
Well, if NCUA is so big onsuccession plans for credit
unions, I certainly hope theyhave one for themselves these
days.
Well, I don't think they do,really.
Well, wouldn't that be kind ofhypocritical if they did?
But they seem to be gettingready for some rocky times.
(12:58):
So I hope they've got one inplace.
One in place.
And maybe it's turned out thelights.
Who knows?
SPEAKER_02 (13:05):
I remember talking with a CEO of a very small
credit union who was retiringafter 30 years.
And that credit union merged outof existence because this guy
wasn't getting paid six figures.
It was less than that.
And he was working like 60 hoursa week.
He was doing teller shifts onSaturday if the teller was sick
(13:26):
that day.
Someone had to fill it in.
It was him.
He never complained, mind you.
He just retired at a normalretirement age.
But you're a kid with an MBAfrom North Carolina State.
You want that job for$75,000 ayear?
Really?
You
SPEAKER_03 (13:44):
do?
You sure?
Well, in North Carolina, I thinkthe maximum a college master
degree teacher can make in thisstate is about$60,000, Robert.
Wow.
They're very bright people.
They hard work.
They have to deal with thecomplexities of bureaucracy and
(14:05):
unruly employees, that beingtheir students.
So I'm sorry.
There are a lot of folks thatwould love the experience.
And what a resume builder to bea CEO, to run your own shop at a
young age.
I mean, it's all, you know,everybody has to apprentice
somewhere.
When I was working, we used toexport a lot of folks to other
(14:28):
credit unions, people thatwanted the chance to do their
own thing, try their ownambitions and ideas.
And many of them were wildlysuccessful.
The local government
SPEAKER_02 (14:39):
guy
SPEAKER_03 (14:40):
who's now retired.
Well, Suncoast, BiStar, AmericanHeritage up in Philadelphia.
Wow.
There were 50 CEOs at one time.
And people would call us torecruit them.
Because they were saying, we'relosing a manager.
We don't really have somebody onstaff.
Can you send us a company?
And, you know, again, the peopledidn't think the same way, but
(15:04):
they had been trained in aparticular way of doing
business.
And they understood what acredit union was and the
opportunities and the problems.
That is part of the problem, Ithink, that the smaller and
mid-sized credit unions aregoing away.
And quite often they werefeeders.
for the leadership of the largerones.
(15:26):
And these days, it seems thatcredit unions, if they don't go
internally, are having to gooutside to find the leadership
they need.
And I'm not quite sure that thatis good for the idea of a
cooperative.
If I hire a banker, thatperson's been trained in
banking, in a for-profitatmosphere, quarterly goals.
(15:51):
It's just a different business.
And nothing wrong with it.
It's just a different business.
And that person would bringthose skills and that training
to the credit union.
And that is really a cultureclash, I think, if credit unions
really are different and reallyare an alternative.
SPEAKER_02 (16:10):
I often tell people a story that involves your name,
and it's a totally fabricatedstory.
SPEAKER_03 (16:17):
All of them involving my name are
fabricated.
SPEAKER_02 (16:21):
Yeah.
I say, if I were involved inauto loans at the state
employees when Jim Blaine wasCEO and he was standing by my
desk and overheard aconversation where I talked to a
member out of buying a 7 SeriesBMW into buying a used Hyundai
for 20 grand because that's thebest the man could afford and
still support his family.
(16:44):
You would say, good work.
That's credit you can take it.
Whereas at Chase, I'd be fired.
UNKNOWN (16:50):
Yeah.
SPEAKER_02 (16:51):
And that story kind of represents the way you think,
right?
Because I've told it a number oftimes.
SPEAKER_03 (16:59):
Yeah, you're supposed to do what's best for
the member owner.
That's the
SPEAKER_02 (17:03):
idea.
It's to not drive profits forthe institution.
What good am I doing puttingsomeone in a car they can barely
afford so they're going to haveto put their kids on food stamps
or something?
No, this is not good.
I'd rather the person was in aHyundai.
SPEAKER_03 (17:20):
Which
SPEAKER_02 (17:21):
is a perfectly good
SPEAKER_03 (17:21):
car.
Robert, that kind of leads to,again, this change in purpose
and trying to define what acredit union is.
You know, as I think you saidearlier, when credit unions got
started, well, the banks weren'tserving the working men and
women anymore.
(17:43):
I don't think that that wasbecause they didn't want to.
It was just not what they did,right, or depression or whatever
else.
So credit unions, one of thefundamental ideas, and it's in
most everybody's charter, was togive access to credit, access to
credit for profit and productivepurposes.
(18:05):
Today, what's changed is acredit union may be doing what
need to be doing what you justsaid.
Everybody's got access to toomuch credit.
Yeah.
And what a credit union, to me,if they're doing what's right
for the member, should be inthere trying to educate members
(18:25):
on how much APR, what it meansAPR, what you ought to look at.
Don't be bait and switch.
Don't be sprinkled with pixiedust at the dealership.
And that's not being doneanymore that I can see what's
being substituted.
Here's a website.
Go read it and send them more.
(18:48):
And that just doesn't work, frommy experience, with normal
people.
They don't get it.
They need a guide.
It's like being a doctor orsomething, right?
You need somebody.
You're a good journalist.
You may not be great at finance.
You need somebody you trust toguide you through that process.
And the world is more and morecomplex in terms of the ability
(19:12):
or willingness to for themarketplace to contrive a
marketing campaign that willpersuade you, lure you, or
deceive you.
And the cost is huge.
And I don't see credit unionsviewing that as one of their
purposes anymore, other than thelittle, you know, click on this
link and, you know, read this,which from my experience, people
(19:36):
don't do.
They don't have time.
They're working two jobs.
They've got other things, right?
They need to focus on whatthey're good at at their career.
I think
SPEAKER_02 (19:44):
most credit unions have an online module of
financial education stuff.
Absolutely true.
My question is, does anybodyactually use it?
SPEAKER_03 (19:55):
They don't, and they have the metrics to show you.
It's kind of like if you look atsome of the social media little
blurbs and all that.
The number of people followingcredit unions' event of the day
is ridiculously low.
Yeah.
Do you go to your credit unionwebsite every day and see what
(20:17):
is on Instagram?
SPEAKER_02 (20:19):
Ask me a better question.
Ask me, when was the last timeyou went to your credit union
website?
SPEAKER_03 (20:26):
And that's normal, and people know that.
But, you know, we all know that.
SPEAKER_02 (20:33):
Basically, I use the mobile app, which is a tiny
little screen, and I spend moretime than I have to on it.
Sure.
Now, you're involved insomething that intrigues me.
And a little preface is, I'vebeen a member of a big North
Jersey credit union for, I don'tknow, 15 plus years.
(20:56):
I have never voted in anelection.
I've never known there was anelection.
I'm sure there are notices onthe website, but I have not seen
them.
On the other hand, I own stockin a couple of companies.
Every year, not much stock, butevery year they send me board
(21:19):
election notices with a littleballot begging me to fill it
out, blah, blah, blah.
A, I don't think there's thatmuch member participation in
democratically running creditunions.
B, you've been pretty successfulat energizing a democratic
(21:40):
movement within state employees.
Now, not just you alone, butother people.
What enabled you to do that,number one?
Number two, do you disagree withme that there isn't a hell of a
lot of democracy in most creditunions?
SPEAKER_03 (21:56):
The motivation depends on who you ask, but I'll
tell you the truth, of course.
But answer to your secondquestion, no, there isn't much
democracy within the creditunion movement.
And again, the credit unions asorganizations quite often seem
to have outgrown the memberownership and the member input.
(22:20):
And having been a formermanager, I can see why managers
don't want too many folkskibitzing on their decisions and
all that, right?
So there's a natural tendency togo your own way as managers.
But how it started at SECU is a,by the way, I've been retired
(22:43):
for almost 10 years.
I haven't been in the creditunion other than maybe for a
couple of retirement parties inthose 10 years.
Don't call folks, never talk tothe board.
When I left, I cut the cord, noconsultant, no on the board, no
nothing.
I went, I had other things todo.
So got drawn back into it whenthe credit SECU, appeared to be
(23:09):
heading for some new directions,and perhaps they were justified.
I didn't say anything for a yearafter the new leader was hired,
but I kept getting calls andexpressions of concerns from
employees and members about justwhat's going on.
(23:32):
I said, I don't know.
I'm not following it.
They said, well, I hope youwould go to the annual meeting
and ask some questions.
And I said, I'm not going to dothat.
I'm out of here.
You know, you do it.
And of course, most people don'twant to do it and employees are
afraid to do it.
So in 2022 presented aresolution, just saying, what
are you doing?
(23:52):
Why are you doing it?
How does this benefit thecurrent members?
We take some time.
I think it's a communicationproblem to take some time, you
know, next six months and tellfolks what's up.
And so, uh, The resolutionpassed without objection.
It was seconded by a boardmember.
They did respond.
(24:13):
The responses were nottransparent, Robert.
And that's when I got concernedthat perhaps the board was
overlooking the membership.
But in terms of there's beencontested elections since, I
think that's easy to do.
Generally, you just need 500signatures, which, by the way,
(24:35):
is not easy to get.
So somebody just standing up andwaving their hand won't get it.
But it's easy to find folks thatare interested and are
qualified.
And election in 23, the threeincumbents were ousted.
But at the next election, thecredit union had gotten much
better organized and got theirincumbents reelected.
(24:59):
So we're in about the third yearof the process.
But there had not been acontested election in 10 or 12
years.
And in 23, there were about, Iwould say, 13,000 folks that
voted, which was just unheardof.
And then last year, there were100,000 folks that voted.
(25:20):
Wow.
It sounds like a lot, but thereare 2.8 million members.
But I think if you want to dodemocracy, and I don't think
there's much risk in it, is toassure that you have a contested
election every year.
Now, most credit unions havesome sort of screening process,
(25:44):
a nominating committee, and it'sjust as easy for that nominating
committee to nominate twocandidates for each open seat,
including incumbents, or three.
But generally, they only presentthe slate of incumbents.
So the first step on democracyis to have a contested election.
(26:06):
And what's still not, is veryimperfect, is the ability for
candidates to explain whythey're running and what's good
and what's bad and all that kindof stuff.
That's not been worked out verywell, at least not locally.
The other thing that hasincreasingly happened is that
(26:29):
with annual meetings, like yousaid, you have never heard of
yours and never been to one.
Well, to make it even worse,often they're now going over
Zoom or virtual meetings.
And it's very, very hard formembers to ask questions and
participate in the meeting andfor the board, by the way, or
CEO to answer questions in thatformat.
(26:54):
So having a real meeting at anot only a time, but also a
place where questions orresolutions can be presented, I
think is fundamental for thefuture of the credit union.
Every publicly traded company inthis country is required to do
that.
SPEAKER_02 (27:16):
You can own one share, and that's on mobile.
Go to the annual meeting, and ifyou play your cards right, you
can actually ask a question atthe annual meeting.
SPEAKER_03 (27:27):
That's right.
But in addition, and there'susually some set process that
you can submit resolutions, youknow, to the board for
consideration and for themembers to vote on, you know,
compensation is one that isadvisory, but I mean, you could,
you know, ask somebody to open abranch in Timbuktu or something.
(27:50):
I don't know.
And have members vote on it.
Hopefully there's substantiveissues.
It's not that, you know, I wantyou to lower interest rates.
It's not managing the creditunion.
It's issues of governance anddemocracy that need to remain in
the hands of credit unionmembers.
(28:11):
And I think a contested electionand some resolutions to be voted
on and transparency andpublication by the credit union
would add a whole lot to thecredit union system.
members' understanding of theirorganization.
First, they feel they'reinvolved.
Second, they get a chance to seewhat the issues might be out
(28:33):
there.
Also, how management and theboard respond to them, which has
got to be helpful.
And then a vote would give theboard some legitimate feel of
how these issues are consideredby the members.
Because people aren't going totake the time to vote, right?
It's not like, you know, press afinger button if the service is
(28:57):
great.
Right.
Those are faux measurements ofthe members.
But anyway, it would involvefolks in it.
And I think it would help createan identity and people to
understand the purpose and wouldmake the credit union far
stronger.
(29:18):
But
SPEAKER_02 (29:18):
anyway, I think we would agree with me that.
Discord can make the creditunion stronger.
You don't need compliance witheverybody happy, smiling.
A little disagreement anddiscord, and not a fistfight,
but just disagreement and acivil discussion can, I think,
(29:40):
make it stronger.
I
SPEAKER_03 (29:41):
agree with that.
And at least at SECU last year,the incumbents won two to one.
It's like 60,000 for the topleading incumbent, 30,000 for
one of the challengers.
And I think that's good.
First, you got 100,000 folks tovote.
(30:04):
Second, it wasn't just aone-person show.
There were 30,000 members thatsaw things a little differently
in terms of who should be on theboard.
And that's not discordant.
I mean, I think You and I go tothe polls every four years to
elect a president, more oftenfor a House of Representatives.
(30:25):
So, I mean, having activeelections is key to democracy.
And the fear, Robert, not onlyin credit unions, but in
government, right, is folks arelosing interest and
participation is dwindling, atleast at the federal level, I
(30:45):
think, not the president, butPeople don't feel like they can
touch or influence or have anyeffect on their government.
That's bad news.
And it's the same for the creditunion.
Then if I can't affect it, whyshould I be a member?
Why did I join?
Why do I care whether I stay amember?
(31:07):
And these days with digital andopen membership, you and I can
join probably anywhere.
3,000 of the 4,000, 4,500 creditunions left.
I mean, it's not that we havelimited choices anymore, right?
SPEAKER_02 (31:23):
Oh, most credit unions.
Not Navy Federal, maybe notState Employees, but I know
definitely not Navy Federal.
Most have a backdoor in.
Absolutely.
You give like 20 bucks to thewidows of soldiers or something,
and boom, you can get in.
(31:44):
Again, not Navy.
SPEAKER_03 (31:45):
Well, to me, you raised another problem in terms
of the positioning of creditunions as white hat, trusted
advisor.
When they're using a backdoormeans to circumvent the laws,
then that comes home to roost atsome point.
(32:06):
Whenever credit unions stopbeing straightforward, tell it
like it is, the whole truth,nothing but the truth, you're
going to have problems.
And again, once you lose thattrust, as you know, in any
relationship, right, then you'velost it permanently.
You don't get it back,especially when you have any
(32:27):
number of equal opportunities tojoin.
And I guess I would add that,Robert, I've been looking at
several credit union websitesand mission staves and vision
staves and that kind of stuff.
The most striking thing aboutall credit unions these days,
not all, but most is they alllook exactly the same.
(32:50):
Yeah.
Websites, their products.
There's nothing that I can seethat would attract me to join
other than if I'm, you know,rate shopping.
So
SPEAKER_02 (33:02):
that's, that's the problem credit using now in a
rate shoppers world.
SPEAKER_03 (33:07):
If you're in a rate shoppers world, I think, I hope
you and I know that then it getsdumbed down through bait and
switch and some other things.
And you get dragged down to thelowest possible denominator.
You have to fool your member toget them to, you know, with some
kind of bonus two for one, youknow, free until Sunday, you
(33:30):
know, whatever it
SPEAKER_02 (33:31):
is.
No interest for the first 90days, man.
Doesn't that sound good to you?
No interest payments at all.
In fact, no payments at all.
Don't worry about it.
UNKNOWN (33:41):
Absolutely.
SPEAKER_03 (33:41):
Absolutely.
And again, there goes the trustfactor because we all learn.
We realize when we're taken,right?
It takes a while, but we know.
And you don't
SPEAKER_02 (33:53):
deal with those people again.
But yeah.
Now, what do you think about theCDFI credit unions?
The members, for instance, ofInclusive.
I like Kathy Mann a great deal.
SPEAKER_03 (34:07):
Well, I think smaller credit unions in general
do a better job better jobserving folks, particularly of
modest means, than do largerones.
And I think they always have.
And some of your best managersin all the credit union movement
were in the small credit unions.
(34:28):
Why?
Because generally, she had to doeverything.
There was one person and thatwas it.
I think they serve a great role.
My problem is this lowest commondenominator.
They're being dragged down bythe bank-like focus of the large
ones.
(34:49):
And so you say you're a creditunion and people think of the
large ones and you're paintedwith the same brush.
So I think their demise is partof the merger situation.
You know, that people just don'tbelieve that a credit union is
any different.
(35:10):
And therefore, you know, Why notgo to the local bank?
Well, there's this trend, and
SPEAKER_02 (35:16):
you're aware of this, is taking credit union out
of the institution's name.
Yeah.
In Arizona, it had been DesertSchools.
Now it's Desert Financial.
What is Desert
SPEAKER_03 (35:29):
Financial?
What is it?
Most credit unions are now usingthe term bank with us, right?
Where banking is better.
Yes.
And I admit that it's very hardand time consuming to try to
tell or show members what thedifference was.
But when you stop trying, you'vesealed your fate.
(35:51):
Then they will never understand.
I didn't finish the idea onmergers, the democracy and
mergers and all that.
My biggest concern is that we'regoing to head right back to an
era that popped up about 2005,where credit unions started to
convert.
to mutual savings banks and tobanks.
(36:12):
And I am dead certain thatthat's what's starting and that
is the end of the era for creditunions.
SPEAKER_02 (36:22):
Well, I've been saying that were the biggest
credit unions to lose their taxexemption, most of them would
demutualize as quickly as theycould.
I see that as absolutecertainty.
And remember, USAA, once upon atime, was a mutual association.
(36:44):
But they demutualized.
It's a straightforward process.
And from what CEOs of big creditunions have told me, they lost
the tax exemption.
They're not really surefinancially what the advantage
to being a credit union would be
SPEAKER_03 (37:01):
for them.
Let me ask you a question aboutit.
First of all, you and I havebeen around too long because we
happen to remember these thingsabout demutualization.
But the point is, you've beentalking about it for a long,
long time.
I've been thinking about it fora long, long time.
And when it now is getting readyto start, people will say, what
happened?
And I would go, oh.
(37:23):
So would you.
This has been going on a longtime.
It's just been building, youknow, suddenly open membership,
suddenly focus on commerciallending, suddenly, you know,
focus on credit scores whenapproving people.
Suddenly the members notinvolved.
Suddenly annual meetings don'treally occur.
This has been going on.
This has not happened all atonce.
(37:44):
But when it happens, people willact surprised.
But here's the question was thatyou brought it up.
Why is a credit union taxexempt, Robert?
SPEAKER_02 (37:55):
Because it's doing things, theoretically, for a
membership that isn'tnecessarily profitable.
It's making loans that aren'tnecessarily loans that Chase
Manhattan Bank would want tomake.
And some credit unions are stilldoing that.
(38:17):
Are all of them still doing thatstuff?
I don't know.
SPEAKER_03 (38:20):
I won't argue with your response because I think
there's a lot of truth in it,but here's the second part of
the question.
First part was, why is thecredit union tax exempt?
Second part of the question is,would it still be a credit union
if it weren't?
So the idea is, why is thecredit union tax exempt?
(38:40):
And you say, because of what itdoes, blah, blah, blah.
And so now I ask you, well,would it still be a credit union
if it were taxed?
SPEAKER_02 (38:47):
Well, I remember some years ago I was at GAC,
which I didn't go to oftenbecause God loves me too much to
force me to do that.
And I was talking to a woman whowas a board member of a teeny
tiny credit union in NewHampshire who told me she was
going to go out and walk to hellto defend the tax exemption.
(39:10):
And I was thinking, I did notsay it to her, but I was
thinking, honey, There's no wayin hell your credit union would
pay any taxes.
You could barely pay yourelectric bill.
And I think that's true for 90%of the credit unions.
A good accountant could make itso that they're not paying any
federal taxes at all.
SPEAKER_03 (39:29):
Well, let me ask it a little different way.
Robert, were credit unionscreated because they were tax
exempt?
No.
Was it even part of the 1909?
They weren't tax exempt.
Right.
I think the federals didn't gettax exemption until, what, 35?
(39:49):
Most states, you know.
But is the essence of a creditunion that it's tax exempt?
Because I think you said, andthat's why I think the demise
and the end of the era is athand, taxation in this
environment is becoming a biggerissue.
And level the playing field, youknow that.
And that government ought not topick winners and losers anymore.
(40:12):
That is the tone in ouradministration and may have been
for a long, long time.
So, you know, but does it changethe credit?
Is it no longer a credit unionif it's not tax exempt?
SPEAKER_02 (40:31):
I agree with you.
It really is not relevant.
It's not part of the essence ofa credit union.
SPEAKER_03 (40:40):
It's not a credit union because it's tax-exempt,
is my opinion.
It has nothing to do with whatit was created for and what it
sought to do, nor how itoperated.
But you're going to see largecredit unions.
You said it, Robert.
If tax-exempt is waived, they'regoing to say, well, if we don't
(41:03):
have the tax exemptions, wemight as well go ahead and be a
bank.
That logic is imperfect, in myopinion.
but it's what's going to happen.
And you just listen to folks,and particularly with the, you
know, ACU and the other creditunion trade associations are
gearing up for the tax fight.
(41:24):
And that's part of what they'resaying.
You know, it'll crush us as abusiness.
What effect does it have on ourbusiness?
What is it that makes that taxexemption critical to a credit
union?
I don't know of an answer tothat.
I mean, if I had to choosebetween as an individual,
whether it be tax exempt or tax,I'd choose tax exempt.
(41:46):
I get that.
But does it make any differenceto a credit union?
I wish folks would discuss that.
Yeah, I think you're right.
SPEAKER_02 (41:58):
Cooperatives, I don't believe, immediately get a
tax exemption just becausethey're cooperative.
I don't think that's the case.
And a credit union fundamentallyis a cooperative.
although most credit unionexecutives don't know that.
And
SPEAKER_03 (42:15):
as you said, you know, if I can barely break even
and pay my light bill as acredit union, having an income
tax on a zero bottom line reallydoesn't make any difference,
does it?
No.
It's just, but look out for whatyou've got people leading credit
unions that are going to use theloss of the tax exemption money
(42:39):
when it occurs, if it occurs, asan excuse to convert to a bank.
And the next level of question Ihope you would pursue with
somebody would be, well, what doyou get if you're taxed and you
convert to a bank?
What do you get?
Well, I can let anybody join.
(43:01):
You already can.
Well, I can make commercialloans.
You already can, and you'repursuing it.
What is it?
And that's where I go, Creditunions are really struggling to
define themselves as somethingdifferent any longer because
they don't have tax.
They don't have closedmembership.
They're not small and locallyfocused.
(43:23):
They're not focused necessarilyon helping the people of modest
means.
And many of them are pursuingcommercial lending, which is the
bank's bread and butter, justfuriously.
And it's the fastest growingsegment ever.
in the credit union loanportfolio, if you look.
And Robert, if I ask you this,if I asked you if all the credit
(43:48):
unions had greater balances innew car loans or commercial
loans, how would you answer?
Which is larger?
If you aggregated them alltogether, do they have more new
car loans or more commercialloans?
SPEAKER_02 (44:05):
I would say new car loans, but since you're asking
the question, I assume theanswer is not new car loans.
SPEAKER_03 (44:11):
That's right.
So it's kind of a trickquestion.
It's commercial.
There are more commercial loanson the balance sheets of all
credit unions than there
SPEAKER_02 (44:21):
are...
This is weird because that's notthe essence of the credit
SPEAKER_03 (44:23):
union, was
SPEAKER_02 (44:26):
to do that car loan.
That's exactly
SPEAKER_03 (44:29):
right.
Well, let me give you anotherone.
I won't raise the ante on you.
Do you think there are more...
credit card loans on the balancesheets of all credit unions in
the country or more commercialloans.
Now, that one's easy.
You ought to get that
SPEAKER_02 (44:45):
one.
Well, I would hope that there'smore credit card loans.
Wrong again.
But yeah, I knew it had to bewrong.
SPEAKER_03 (44:53):
There are twice as many commercial loans on the
balance sheets of credit unionsas there are credit card loans.
Now, that shocked me.
SPEAKER_02 (45:05):
Yeah, as we're talking, I remember that for 10
years I've been telling people,I really don't care about
community banks because they area dying species.
SPEAKER_03 (45:17):
Well, maybe like credit unions, right?
Well,
SPEAKER_02 (45:22):
even some pretty big community banks are dying
species.
They're getting wiped out by thechases and the B of A's.
So you take Pentagon Federal orstate employees, you say, okay,
fine, you can be a bank now.
You're now a tiny bank.
Used to be a big credit union.
Now you're a tiny bank.
SPEAKER_03 (45:42):
Well, I think I've heard you make the point in some
podcasts or writing that thefour largest banks, right?
What is yours like JP Morgan orChase or somebody's larger than
all the credit unions?
SPEAKER_02 (45:56):
I added up all the assets of credit unions.
This was a few years ago.
All the assets of all the creditunions, it was lower than
JPMorgan Chase.
Now, since that time, JPMorganChase has grown at a much faster
rate than credit unions have.
So I'm sure the difference ismuch bigger than it was.
And as I say to people, I assureyou, Jamie Dimon does not wake
(46:18):
up in the morning saying, whatis Navy Federal doing today?
I'm sure that's true.
And if you ran into Jamie'soffice and said, Mr.
Diamond, Mr.
Diamond, let me tell you whatNavy Federal's doing today, he'd
say, what the hell is that?
SPEAKER_03 (46:33):
Well, he's pretty shrewd.
He probably knows, but it's noton his top 100.
SPEAKER_02 (46:38):
It's not.
Tell him what Citi's doing.
Tell him what BMA's doing.
This will interest him.
Even Deutsche Bank, but he's notinterested in the credit union,
nor should he be.
So if my thesis is thatcommunity banks are dying, all
credit unions that convert willbecome just kind of middling
(46:59):
size, small and middlingcommunity banks.
That's not a future.
I think it is.
SPEAKER_03 (47:06):
Oh, no,
SPEAKER_02 (47:07):
I'm saying that's like converting yourself into a
corpse.
It's not healthy.
You can differentiate yourselfin the market if you are a
credit union.
And you explain how a creditunion is different and better.
You got an argument that I thinkis pretty exciting.
It's why I got interested incredit unions some years ago.
(47:31):
Whereas if someone said, do youwant to do some writing on the
Community Bank Association, ICBAor whatever that is?
I'd say, no, it's boring.
SPEAKER_03 (47:41):
Well, I think I agree with what you said.
Where I was trying to object alittle bit is I think Most of
us, after we get through withthe large banks or large
anything, we would prefer tohave personal local service if
(48:02):
we can get it, whether it'slocal food or local restaurant
or local bank or local creditunion.
I think we'd all like to knowsomebody that It's in charge of
the businesses we use or whowill respond to us.
(48:24):
It's been common knowledge, Ithink, for a long time that most
business people follow theirbanker, not their bank.
And so, as you say, thecommunity bankers evolve and get
bought out or merge or whateverelse.
That banker takes another job atanother community bank and takes
all the business with him.
(48:45):
Because I don't want to have toexplain my whole life story and
business and balance sheet andhow I came into being to a new
bank or bank.
So it's kind of like, you know,revolving chair, musical chairs,
people.
And I think it's true in creditunions.
If you can stay local, that allof us would prefer to do that.
(49:09):
But maybe I'm wrong.
You know, I think that's theadvantage that credit unions are
losing is as they grow in size,and if they go to this
all-look-the-same digitaldelivery.
I use the mobile phone, too, butI used to know who I could call.
And my kids are credit unionmembers, various ones, and it's
(49:32):
funny.
They need to talk about amortgage.
They want to talk to Susan overat XYZ Branch.
They have built a trustedrelationship that transcends
just transaction processing,which is a no-brainer, right?
That's what mobile is.
Or if they need some advice ontheir 401k, they want to go talk
(49:54):
to somebody, right?
Because they're uncertain orplanning a will or doing taxes
or whatever it might be.
And if we can't get back tothat, that's why I think it's an
end of a golden era because Ithink that was in place when
credit unions were more local,smaller, and maybe more focused
(50:15):
on the consumer rather than thecommercial.
Another topic for another day,maybe debit cards is where
credit unions need to go.
They need to fight for thattransaction account.
But I don't see anybody doingthat because they– They're so
reliant on this interchangegame.
(50:35):
But they've got to figure thatout.
Most people, where they opentheir transaction account, which
is called a checking account, iswhere their parents banked,
unless they move a couple timesin life, right?
And not that you don't havemultiple relationships, but your
primary account is generallywith the institution that your
(50:56):
parents banked with.
And most folks...
even these days, stay prettyclose to home.
The majority of folks do, youknow, within a state anyway.
So if you can get them whenthey're young, you got them
forever on the most importantaccount, the transaction
account.
And that's become the debitcard, right?
People just don't write checksthat much anymore.
(51:17):
You will end up having directdeposit.
It's also where you'll end uphaving bill pay, right?
And you'll have a credit card,just an overdraft protection or
something.
SPEAKER_02 (51:28):
The debit card is the gateway drug.
Get them in the door at thedebit card and then you can sell
them some other products.
SPEAKER_03 (51:36):
Because they come to you multiple times a month,
right?
Writing a check or they'reassociating with you multiple
times through the transactionsand the direct deposit.
It's interesting that if to me,one of the things in a veneer, I
think credit unions, if theycontinue to pursue this,
everything's done on a creditcard.
(51:57):
And we're all doing it becausewe're trying to accumulate those
miles and discounts and stuff.
If they get lured into that,they'll lose.
They'll lose everything.
SPEAKER_02 (52:07):
I think you're absolutely right.
What kind of credit unions sell?
They can sell local humancontact relationship.
I know you, you know me.
And Chase can never sell that.
And don't even
SPEAKER_03 (52:22):
try.
And don't try.
But Robert, what you might findinteresting is In North
Carolina, Chase has opened, Ithink, within the last year,
maybe 15 branch offices.
Those branch offices are in oururban areas.
They are in our higher wealthzip codes.
(52:45):
And they're probably for teamsof wealth managers.
They're not after serving thelocal
SPEAKER_02 (52:51):
mom and pop.
Personal bankers.
I had a Chase account for anumber of years.
I get a call once a month from aguy who wanted to be my personal
banker.
A nice guy.
But yeah, that's, yeah.
SPEAKER_03 (53:02):
But they now have wealth.
And again, my concern in creditunions chasing the more affluent
is that Chase will beat you onthat because they will arrive
ride with a team.
They've got to count it.
They've got a tax expert.
They've got tickets to the icehockey team.
(53:25):
They're going to come get you,and you're not going to beat
that kind of team because theirexpertise is greater than what a
credit union normally has.
A
SPEAKER_02 (53:35):
credit union needs to keep some of those wealthier
members, obviously.
SPEAKER_03 (53:42):
I think you can if you can Decide who you are.
By the way, I think these days,given the closing of plants and
military bases, the common bondprobably is geography and not on
a global or nationwide basis.
If you can create an image foryour community, I mean, I guess
(54:06):
it could be church or race orsomething else, but geography
makes a whole lot of sense.
People will want to stay local,going back to that idea.
They will choose to have anaccount with you and give you a
chance because you're local,because they can see the branch,
although they may not use it,and that they can get a call
back and they can talk to a livehuman being.
(54:29):
People, I mean, we all do it,right?
We root for the local footballteam.
We understand local politics.
We know our friends andneighbors are people we know.
They're all local.
But anyway, the other thing Isee, by the way, that I think
will hurt credit unions on thelocal is, at least I think it's
true for all credit unions,there's an awful lot of local
(54:52):
employment problems.
in branches or contact centersor whatever else.
So it is an economic benefit tothe community or the state or
whatever else.
You'll see efficiency becomestoo much of a buzzword that
those calls will be routed tothe Philippines or to India.
(55:14):
It's happening now already, butcredit unions will do that
because it costs so much lessand And so you're going to see
the export of these jobs fromthe local area, which, again,
kills the intimate localcontact.
The other thing that I seecoming back, which I'm sad to
see, is the selling of loansoutside your market, where
(55:39):
Fannie and Freddie are your bestexample.
They make only mortgage loansunder very strict rules.
There's very little flexibilitythat the lender has.
Even if you keep servicing,then, you know, there's a
problem.
You have very little flexibilityto fix it.
So, you know, you can't react toa member's individual local
(56:02):
disaster, right?
And help them go through it.
But it also, the number onething about, say, a mortgage
loan is that if you keep it onyour books, the interest that
you earn is reinvested in yourlocal community.
When you sell the loan, thatinterest, the most
SPEAKER_00 (56:22):
important
SPEAKER_03 (56:23):
economic part of that loan, is exported to an
investor in New York, Beijing,who knows?
SPEAKER_02 (56:34):
Before we go, think hard.
about how you can help supportthis podcast so we can do more
interviews with more thoughtfulleaders in the credit union
world.
What we're trying to figure outhere in these podcasts is what's
next for credit unions.
What can they do to really,really, really make a difference
in the financial scene?
Can't all be mega banks, can it?
(56:55):
It's my hope it won't all bemega banks.
It'll always be a place forcredit unions.
That's what we're discussinghere.
So figure out how you can help.
Get in touch with me.
This is rjmcgarvey at gmail.com.
Robert McGarvey again.
That's rjmcgarvey at gmail.com.
Get in touch.
We'll figure out a way that youcan help.
We need your support.
(57:16):
We want your support.
We thank you for your support.
The CU2.0 Podcast.
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