It seems that everyone in the credit union sector should be happy. With expanded powers and greater institutional reach, today's credit union system is the best it's ever been. Employees are smart and caring. Regulatory ratios are impressive. Assets are growing. CEOs are community leaders. Facilities and delivery systems are modern. CU and CUSO product arrays offer more benefits and choices to consumers than ever before.
So why worry? After more than 100 years of business in North America, credit unions have seemingly ascended into a golden age of opportunity. Our institutions have grown to be recognized as full-status participants in the sovereign national financial system. Within public policy circles, credit union health is considered critical to the economic health of consumers.
Great times, right? Maybe not.
A surprising amount of pessimism persists. So do worries and fatigue. In their darkest moments of despair board members and executives fanaticize about giving up the credit union charter by converting to a bank.
The "bad times" theorists cite many reasons: Angry competitors, technical complexities, insufficient resources, unlicensed new entrants to the financial marketplace, narrowing spreads and capital restrictions. The NCUA board is still incomplete and its meetings are attended by an increasing number of ABA lawyers. Utah bankers just won a nasty lawsuit that could have nastier implications; financial service CONSUMER PROTECTION (not regulatory relief) is an avowed theme of lawmakers. And with an articulate, hardnosed Patriot Act author-attorney tapped to be the new Homeland Security czar, fears have already started surfacing about the desire to combine Homeland Security and banking databases.
Regardless of how anyone feels about the operating environment, there is depth in what needs to be done this year.
On the surface the system's lobbying agenda looks quite typical: Pushing for bankruptcy reform. Getting congressional cosigners for a new version of CURIA. Increasing attendance at state meetings in capitols. Persuading politicians to value the importance of credit unions to consumers as well as to the economic engine of the country.
Top 10 Ways To Increase Institutional Power
In reality, 2005 is a much more complex year for credit unions. There are a lot of issues needing attention, with more expected to come as the year progresses. Putting this into a management overview, below are ten of the top priorities for increasing our institutional power.
First, keeping the credit union community actively working together. Our credit unions' ability to work collaboratively is a sustainable industry advantage, and key to both past as well as future governmental affairs success. Everyone's partnership is valuable, as is help in keeping the credit union community appropriately optimistic about the future. The banker attacks reflect the desperate flailings of a group that is losing market share-and a progressive credit union renaissance. Credit unions are far more prominent in the financial system than at any time in history. We are winning a battle in progress. Accordingly, keeping us together, effective and happily optimistic is a top priority. It makes most other goals achievable.
Educating state legislators, and members of Congress, especially those consumed with solving their own budget crisis, rather than encouraging economic and social development in their region.
Attracting high-quality regulators. We are developing the most progressive state and federal charters in history-and at the same time increasing safety and soundness. But the charter still needs to continually expand to keep pace with the evolution of the overall financial services industry. Experience shows that conservative regulatory directors, or at worst-case a bank sympathizer, can intentionally re-interpret many of our regulations in a narrow and unacceptable way, reinstall FOM limitations or CRA, cause irreparable harm, diminish our future and kill attractive dual-chartering options.
More industry participation in all aspects of advocacy. The trade associations have fine lobbying teams, as measured in the number of bills and regulatory improvements passed in the past 10 years. To function, the best governmental affairs programs must be backed by CEOs who will write letters, make calls or lobbying visits, as well as volunteers who testify before legislative committees when needed. However each year there are fewer credit unions, resulting in fewer spokespersons. Today's sophisticated credit union system requires and increasing number of participants engaged in the political system. Additionally, CEOs need to groom and enable their senior managers to become comfortably involved in ongoing advocacy, as if the system, each institution's future and individual careers, depended upon it. Because they do. Future-leader initiatives are a key to long-term success.
Developing inroads for lobbying branches of government that are new to us. Current UBIT and IRS issues are an example. State and federal charter laws determine the scope of credit union operations. So do IRS rules. The IRS codification of our exempt status in the 1950s has been automatically updating itself to include all of the operations of modern financial institutions. However, the IRS (like congress and state legislatures) periodically reviews and reaffirms exemptions. Credit unions are now under scrutiny by the Exempt Organization Division of the IRS, along with other types of nonprofits and charities. Tax liaisons will become commonplace.
Get comfortable with lawyers and legal challenges. The banks appear to have tried five ways to beat up credit unions: with pricing in the market place, advertising, legislative initiatives, regulatory disruption, and legal challenges. Of the five, using lawyers and the court system is becoming their favorite. Banks probably like the comparatively low cost relative to other options. As a result, expect the legal needs and resources of state trade associations, and CUNA, to increase in 2005 and beyond. Suing our institutions and regulators may become common.
NCSL. The National Conference of State Legislatures holds a big annual gathering. Participants are legislative leaders and their staffs. At the NCSL meeting all types of public policy issues are debated by state lawmakers from across the nation and "boiler plate" laws are drafted, which typically are quickly adopted by almost every state. Bankers have made progress installing themselves into NCSL leadership roles. One objective is to have 50 states unite in asking Congress to eliminate the federal preemption that keeps states from charging sales tax to FCUs.
Other bank-driven schemes for limiting powers at the state level are equally disturbing. Banks seem shameless in corrupting this national forum. Heads up.
PAC contributions. State and federal political action committees are important to any interest group, especially heavily regulated industries. Credit unions are an interest group. Ask yourself, "Am I doing my part to ensure we have a great PAC, and the permission agreements, political encounters and fundraising that are a necessary part of overall success within the U.S. political system?" If not, why not?
Privacy protection. Identity theft and fraud are massive problems. Managing personal identifying information is challenging for consumers and all financial providers. Rules require every credit union to spell out how it collects, uses and safeguards customer records. And when there is shared information with a business partner or CUSO, credit unions now need proof of the partner's established standards that ensure the security and confidentiality of member information. These rules are fine. However, new rules from FinCEN and the Bank Secrecy Act mandate increasing amounts of reporting on member financial behaviors-and more extensive member record keeping. Yet all of this secrecy needs to be accomplished without impeding the free flow of information. Credit unions need an accurate and complete picture of personal creditworthiness to reduce the risk of lending, and thereby reduce the cost of credit. Greater availability of information about pools of consumers in a community is also important. The ability to collect and process large amounts of information about potential borrowers in new FOMs dramatically expands where and how credit unions will lend in tomorrow's marketplace. Privacy is fine, but credit unions need more information, not less.
Conversions to banks, along with the high rate of mergers and consolidation within the credit union market, interest us all. It is an emotionally charged issue with CEOs citing reasons that include business restrictions, capital accumulation, and outdated or needless overregulation of business operations. Who's at fault? Blame me, as a league president and my colleagues and predecessors before me, as the trade association executives who have not brought our system along fast enough. More should be done to avoid letting the CU charter fall behind. There is nothing in the entire realm of contemporary banking services that can't be done on a not-for-profit, people-first basis. Credit union charter limitations are senseless. Also blame regulators who don't act on the first sign of systemic stress, claiming they need a majority-rule mandate in order to green-light new activities that are done safely elsewhere in the financial services community. Part of the regulator responsibility is a real duty to maintain charter viability by keeping it up to date with the rest of the global financial marketplace. An excellent charter is an absolute necessity.
So, Is It Good Or Bad?
So is this a period of good times or bad times for the CUsystem?
It certainly feels to be an incredibly expansive, wonderful, exciting age we are entering. Two thousand five is definitely an important year for the governmental affairs programming of trade associations, as well as grassroots lobbying. Action lists will get longer, this year and next. Our credit union movement is growing in an increasingly complex, competitive and sophisticated environment. The credit union future is bright.
Importantly, our system needs everyone's help to make these promising times permanent. Congratulations to board members, professional staff and CEOs investing time and care and strength by volunteering in an advocacy role. Much of tomorrow's operating environment will be determined by today's work on Capitol Hill.
Many of our system executives share this positive perspective about addressing the challenges on the horizon. I am certain that by collectively approaching each of these issues in the right way, we can better showcase all of the great work done by our nation's credit unions, turn each challenge into an advantage, and secure an even more promising future for the credit union system.
These are very good times.
John Annaloro is president of the Washington Credit Union League, Federal Way, Wash.
