Can't Ignore Challenges; Here's How We're Responding
Typically, when I speak to a group of credit union folks, I start out by pointing to the great position in which credit unions find themselves. Admittedly, there is some cheerleading going on here.
However, and more importantly, it is true-credit unions are doing very well, and it is also true that there are challenges-significant ones - facing the movement. But those challenges should always be considered in perspective of the success credit unions have had.
In the 10 Governmental Affairs Conferences that I have attended as CUNA president and CEO, never before has this juxtaposition of "success" and "challenge" been so striking.
On the "success" side, we have a credit union movement that holds more assets, with more members, and is stronger financially than ever before. With nearly 88-million members, and $702-billion in assets, credit unions have reached new heights in size and reach among the American public.
Financially, credit unions endure as successful and strong. Average net worth among credit unions was 11.1% at the end of 2005-near all-time high levels. And members continue to look to credit unions for their credit needs: The loan-to-share ratio of credit unions at the end of last year was 80%-it's highest, year-end point in more than 20 years.
Frankly, credit unions are booming! And it is because of the higher rates on savings, lower rates on loans, and overall dedication of service to members that fuels this detonation.
And credit union members are clearly the drivers of this boom (with, of course, a certain degree of solid management by credit unions' boards and their staffs, as well as ever-present support by leagues and CUNA).
Maybe the best proof of this is the annual Gallup Poll of consumer attitudes toward financial institutions, commissioned by the American Banker newspaper. In 2005, for the 21st year in a row, credit unions ranked higher than banks or thrifts in the number of consumers who said they were "most satisfied" by the service they received from their financial institution. Seventy-one percent of credit union members responding to the poll said they were very satisfied with their credit union-down slightly from 73% in 2004, but still way ahead of the 63% satisfaction total marked in 2003.
Solid Numbers, Yet Challenges Remain
Solid financial results, growth and member satisfaction are all key indicators of the success and accomplishment of credit unions. But even at the peak of achievement-like any flourishing enterprise-there is also challenge.
And credit unions certainly have their share of that these days.
* Bankers are attacking us constantly and complaining incessantly about the "aggressive" growth of credit unions, challenging the integrity of credit unions as bearing little or no resemblance of the credit unions of yesteryear.
* Credit unions struggle with outdated laws and regulations with rigid requirements that limit service to members.
* Meanwhile, Congress is scrutinizing the tax-exempt status of credit unions, challenging credit unions to provide evidence that credit unions do, indeed, continue to earn their special status.
None of these challenges can be simply ignored or brushed off-they are all serious in their implications and scope for credit unions.
But there is work that credit unions can do to meet these challenges-and CUNA is doing that work right now.
Banker complaints that credit unions are "aggressive" in their growth, and "morphing" is merely demagoguery aimed at frightening the public and lawmakers. The fact is, credit unions-like many other entities-have evolved with the advancements of society and technology to better serve their members.
For example: 40 years ago, the author of this column would have used a typewriter to set down his thoughts. The editor of this newspaper would then mark up the typed pages with copyreading symbols, and send the papers to the "back room" of the paper to have it "set" on the Linotype-a monstrosity of a machine that set type for the making of "hot lead" stereotypes that were placed on the printing press. Total time of operation: About three hours, depending on the speed of the editor and Linotype operator.
Today, this entire publication is produced with the use of computers-from the author's original composition, to the editor's review, to the "back room" typesetting. Total time of operation: About 15 minutes, not including composition- but certainly including the time of review.
However, this publication of today serves the mission a similar publication would have served four decades ago: to inform readers. Credit unions are no different in that their mission remains the same: to serve their members.
The point is, many industries-including financial services-perform their operations and business today much differently than they did decades ago, primarily to realize cost efficiencies or to provide their customers better service (and thus, a better deal). Credit unions are no different.
CUNA makes this argument effectively to lawmakers and the public in response to banker challenges, particularly by pointing out the unique qualities of credit unions (not-for-profit, cooperatively owned, directed by volunteers), and how those qualities have remained intact over the years.
What Relief Is Necessary
At the same time, CUNA is also urging Congress to adopt regulatory relief for credit unions, along the lines of the Credit Union Regulatory improvements Act (CURIA), to give credit unions more flexibility in serving their members. Although CURIA contains a number of important provisions, two key elements-improvement of Prompt Corrective Action requirements, and giving credit unions more flexibility in extending loans for business purposes to their members.
The PCA improvement would modernize credit union capital requirements by redefining the net worth ratio to include a risk-based asset approach to (PCA). The change would institute a new measurement that would improve the safety and soundness of credit unions and the safety of the National Credit Union Share Insurance Fund.
Flexibility in business lending would help credit unions serve a need expressed by their members, and help improve access to credit for small business owners, a niche that is not being served by many banks.
Finally, and perhaps the biggest challenge credit unions face, is maintaining our tax status. There is no question that Congress is carefully watching this subject-which it has a right and an obligation to do.
CUNA thus focuses on showing Congress how credit unions pass along their tax exemption to their members-a straight-line realization of the benefits to the consumer-owners.
Specifically, statistics that CUNA has gathered and analyzed show that nationally, credit union member benefits are about four times larger than the tax exemption. Further, bank customer benefits arising from the influence of credit unions are almost three times larger than the tax exemption.
In fact, all of these numbers are available on the basis of state-by-state (or congressional district-by-district) merely by going to CUNA's website and clicking on the "Bank Attacks: Credit Unions Fight Back" logo. Click on the first item in "New Additions," and all of the information is available.
There surely are challenges facing credit unions these days-and these challenges must be met. But with the support of credit union members, sound management by credit union boards and staff, and the continued support of CUNA and the leagues, credit unions will meet these challenges, and then some.
Dan Mica is the president of CUNA.