SEATTLE - Capital reform has moved to the forefront of issues credit unions must get Congress to address, according to former NCUA Chairman Dennis Dollar.
"Capital remains high, yet capital modernization is essential," he said. "Capital reform is the generational issue. If we don't fix it now, in this generation, I worry about the future generation of credit union leadership. Credit unions cannot become the dominant, locally owned financial institutions in our communities without capital reform."
Of course, capital isn't the only concern facing credit unions today. Dollar attempted to forecast the CU landscape for both 2009 and 2020. Included in his forecast to NASCUS' meeting here:
Membership Growth: Membership growth is stagnant, Dollar warned, with meager overall CU growth driven largely by mergers. "Even though there are more access points than ever before, membership growth last year was 1.2%, the lowest in 15 years," he said. "Growth though merger is not unhealthy and is a sign of a maturing industry. However, growth solely through merger can be unhealthy."
How bad is the situation? Some 4,208 CUs reported membership declines in 2007, roughly 50% of credit unions.
Part of the problem, Dollar believes, is consumers still are unaware of the options CUs offer them.
Unrelated Business Income Tax (UBIT): "UBIT," over which credit unions have filed suit against the IRS, , "must be watched for danger signs," said Dollar. "I think we'll maintain the tax exemption, just because taxing credit unions is a loser for congressmen. The banker/credit union battle is one between folks with a lot of votes and folks with a lot of money. Politicians avoid those battles."
Dollar emphasized the importance of the movement staying involved by supporting favorable candidates, opposing unfavorable ones, and contacting legislators at home.
Complacency: The political strength of credit unions is strong and recognized, but the proposal earlier this year by Treasury to eliminate dual chartering for CUs is a warning not to get complacent, Dollar advised.
"Treasury's proposal to, in effect, nationalize the credit union charter shows we're not invulnerable," he said. "The proposal was dead on arrival, but it was an attempt by lawmakers to say 'we're doing something' about banking losses. The problem is it plants a seed that could sprout later. Just know that, despite all our advocacy efforts, credit unions are not a force than cannot be challenged."
Compliance: CUs continue to be saddled with more regulations and more guidelines, leading to an atmosphere of "compliance, compliance, compliance," Dollar said. As credit unions are forced to deal with the BSA, OFAC and privacy laws, he said there is an accompanying costly impact on earnings, which in turn will impact CAMEL ratings as exams become more subjective. "Regulatory and compliance issues and costs are destined to become the primary driver of credit union mergers," he predicted. "I'm not anti-merger, as long as mergers are done under the right circumstances, but I'd hate to see a merger that takes place due to regulatory burden."
CU Version of CRA? Serving the underserved remains a priority, but Dollar said documentation of each CU's success in this area is a "growing concern."
According to the former chairman, the NCUA data collection program is becoming permanent, but problems arise in that "serving the underserved" is difficult to define and impossible to set uniform standards.
"Pressure for a credit union type of CRA will mount," he said. "The best way to stop CRA is for the credit union industry to develop its own documentation program."
CU-To-Bank Conversions: Dollar lamented the fact conversion to a mutual savings bank has been added to the option list at an "alarming number" of CUs. He pointed to data showing American consumers saved $13 billion last year thanks to credit unions - $8 billion in direct savings by members enjoying lower fees and better rates, and another $5 billion by bank customers simply because CUs were in the marketplace.
"If fields of membership are restricted, and if capital is not reformed, there will be more conversions," Dollar said. "Credit unions want to know their options, so conversion is being discussed. I don't think it is 33%, but the number weighing this option is increasing."
What to do? "We must provide a regulatory environment that supports credit unions," he said. "I think most credit union leaders want to remain credit unions."
Don't Count on Member Loyalty
The "consumerization" of the membership makes building a business plan based primarily on member loyalty a "dangerous assumption," Dollar said. "Do members see themselves as members? Or consumers? If they see themselves as consumers, then the credit union is just another commodity."
CUs must convert "mere members" into "sincere members," Dollar counseled. He acknowledged this is a severe challenge in a marketplace that has become more and more commoditized.
Cooperation Beats Competition
The competitive landscape credit unions operate in cannot prevent cooperation when it is beneficial to CUs, Dollar declared. He said the only way for credit unions to survive will be more "co-opetition," meaning more CUSOs, shared branching, cooperative marketing and political advocacy. (c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved. http://www.cujournal.com/ http://www.sourcemedia.com/
