Wednesday, May 1, 2013

Credit Unions—Courting a Destiny of Failure?

(Originally published in January 2013 on CUinsight 

For some time now, I've had this nagging notion that all is not right in credit union land. It's been bugging me to no end and so it's about time I get this concern off my chest.

What I'm going to say may, for many, strike at the very heart of the credit union business model which I so respect. Yet, I realize I'll have to risk arousing the ire of industry associates and friends in raising the issue but, hopefully, they, too, will see the validity of my concern. Perhaps some will even respond by sharing their views for the benefit of us all.

What’s gnawing at me? I’m concerned that credit unions, as financial cooperatives, might be headed toward a destiny of failure. I fear they are moving in a direction that will eventually see them become exactly the same as their for-profit banking counterparts and this prompts me to wonder what is the threshold, which when crossed, determines that the credit union is no longer a “credit union.” Is it merely the charter that defines such an identity or does it depend on something much more pervasive?

For instance, when a couple is given their divorce decree, is it the decree that actually dissolves their marriage bond or was it of the couple’s own personal doing, months and possibly years before such a decree is ever issued?

As credit unions continue to grow—swallowing up smaller shops at alarming rates, expanding their reach well beyond community boundaries and providing their membership with the same products and services that can be found down the street at the corner bank—will they one day transform themselves and the movement into something no longer resembling what Edward Filene had in mind when he crisscrossed the nation in the early 20th century to sell his credit union model to others?

Let’s not be fooled. Just because credit unions reach out today to the underserved in ways much more profound than other financial service providers is no guarantee that our credit union culture, philosophy and principles will stay the course to distinguish our business model for decades to come. Let’s not think that our not-for-profit status is what separates us from other providers, or that a continuation of the feud with the bankers’ lobby is what preserves our heritage. 

Think of it. Credit unions were formed as financial cooperatives to help the common man and woman save and secure credit. Being shunned by other service providers gave them fair reason to pool their savings in a cooperative venture for the benefit of each member of the group. Establishing a credit union afforded certain "segments" of the population, defined by culture or employment or religious affiliation access to affordable financial services which they, the members, owned and controlled.

There were no community charters where membership was essentially open to anyone who breathed the same air as those running the credit union. Monthly chapter meetings were the town halls for the movement where friendships were formed, information was shared and learning was seen as a cooperative venture. In their struggle to survive, credit unions showed mutual respect and support for one another in ways that were without reservation. There was no co-opitition, competition or jousting for supremacy. Regulations were manageable and more members than naught were personally known and addressed by name when they entered the shop.

Today, after more than 70-plus years of evolution, only a fool would expect credit unions in the U.S. to look the same as they once did, untouched by a barrage of life's joys and sorrows, countless discoveries and advancements, and most especially, a burgeoning financial-services marketplace and its many sophisticated products and applications. Credit unions have evolved but at what price?

As credit unions continue to grow bigger, stretching out their reach throughout the populations they serve, applying the latest apps technology has to offer, and expanding their mix of products and services, will they one day find themselves unconsciously transformed into their for-profit counterparts? Will their inherent design as financial cooperatives be seen as an impediment to growth and sustainability? Stray too far from the tenets of that cooperative model and credit unions will find themselves flirting with a destiny of utter failure.

1 comment:

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