The credit union issues that defined the decade

The past decade was marked by historic growth and consolidation within the industry. Credit unions served 119.6 million members at the end of Q3 2019, according to the most recent data available from the National Credit Union Administration, a 33% increase from Dec. 31, 2009. Some of that growth was fueled by the aftereffects of the Great Recession and lingering consumer resentment against big banks. That was what drove Kristen Christian, a Los Angeles-based artist, to launch Bank Transfer Day, a 2011 movement that attempted to spur consumers to switch their banking relationships to credit unions. The movement latched on to that and for many months after ran with the phrase “make every day Bank Transfer Day” as an industrywide tag line. Despite the hubbub surrounding it, Bank Transfer Day was only a temporary boost to membership, and for many institutions the influx of new blood was a reminder that getting consumers in the door is actually the easy part. The harder part is keeping them around and turning them into profitable members with a deep relationship at the credit union.

As membership rose throughout the decade, the number of institutions fell by a similar margin, from 7,554 federally insured credit unions at the end of 2009 to just 5,281 at the end of Q3 – a 30% drop. The early years of the decade were marked by a high rate of conservatorships and involuntary liquidations, and while some credit unions were able to work their way out of conservatorship, many were ultimately closed and merged into larger institutions. Plenty of other CUs merged before things got bad enough to necessitate regulators getting involved. In most cases, the credit unions closing their doors were on the smaller end of the asset range and had limited fields of membership – often serving only one SEG – and those changes over the course of the decade exacerbated “the great divide” between large and small CUs, with bigger shops growing and making money while small and mid-size credit unions struggled to boost membership and turn a profit.

Credit unions entered the 2010s reeling from the financial crisis and the Great Recession. While the industry had not engaged in many of the practices that led to the crisis, it was still heavily affected by them. One of the biggest impacts was on corporate credit unions, many of which had purchased faulty mortgage-backed securities. As a result of that, some of the corporates were liquidated while others merged, and the National Credit Union Administration was forced to take out a multibillion-dollar line of credit from the U.S. Treasury in order to prop up the remaining corporates and prevent massive losses to the National Credit Union Share Insurance Fund. As a result, the Temporary Corporate Credit Union Stabilization Fund was established, and CUs spent years paying additional assessments to keep the fund afloat.

NCUA spent the intervening years pursuing litigation against some of the world’s largest banks, and successfully recovered several billion dollars from the likes of RBS and Goldman Sachs. However, the agency also racked up legal bills exceeding $1 billion, which drew criticism from credit unions and lawmakers.

By the end of the decade the Treasury line of credit had been repaid and the stabilization fund merged into the share insurance fund, which resulted in a dividend to credit unions totaling well over $700 million. Many CUs received a hefty rebate, but some industry figures have argued that rebates aren’t enough and that credit unions should be paid back all of what they paid in to the stabilization fund. NCUA pushed back against those claims and no further payouts are expected.

The decade kicked off with uncertainty surrounding how credit unions would be impacted by the newly enacted Dodd-Frank Act. Early on there were major fears that profitability would be undercut by a reduction in interchange as a result of the Durbin Amendment, but that struggle eventually shifted to a wider conflict as the industry fought the Consumer Financial Protection Bureau and its inaugural director, Richard Cordray. The industry spent much of the decade railing against the bureau’s refusal to exempt credit unions from its oversight, despite the fact that only a few CUs are large enough to pass the $10 billion-asset threshold for CFPB supervision. Credit unions, the argument went, were the original consumer protectors, and they don’t need government to tell them how to look out for regular people. But with President Trump’s election and a shift in leadership at the bureau, much of that animosity dried up. While there have been concerns in recent years about how CUs will be impacted by various CFPB rules – particularly those related to small-dollar lending – the fight is now focused on the bureau’s leadership structure and pushing for a bipartisan commission rather than a single director installed by the president. The Supreme Court is expected to take up that matter in March.

Part of what moved credit unions’ ire away from the CFPB was a controversial risk-based capital rule first introduced in 2014. The original proposal garnered an historic level of complaints from the industry as thousands of letters poured into NCUA’s headquarters from credit unions, industry groups and lawmakers. The result was enough to prompt a rare walk-back from the regulator, which ultimately reissued the proposal, restructuring the capital standard so its impact would be lessened. The rule was ultimately approved, though it has yet to take effect. In late 2019 the NCUA board once again voted to delay implementation, kicking the can down the road to Jan. 1, 2022, three years after it was originally slated to take effect. The board aims to use that extra time to rework wider capital rules for the industry.