Small Credit Union Roundtable, Big, Big Concerns
SAN FRANCISCO-There were few rays of optimism during a discussion among small credit unions here.
The 75-minute long give-and-take, a Small Credit Union Roundtable hosted by NAFCU at its annual meeting last week, was marked by pessimistic views regarding the "predatory" intentions of larger credit unions, the overwhelming burden of compliance and regulation, and a conviction most regulators would rather see small CUs merged out of existence than have to continue to examine them.
"The CEO of a $60-million CU sent me a comment saying the lack of concern for the small credit unions and the predatory practices of large credit unions feels like the sharks circling the victims of the USS Indianapolis," said Patty Dawson, president of the $28-million Taylor Model Basin FCU in Bethesda, Md., who moderated the discussion.
Credit Union Journal attended the meeting, but as a policy is not identifying any of the speakers, as many were unaware their comments might be reported. Dawson led the discussion by introducing talking points, but most of the commentary came from her audience.
"I have six employees, and it's a daily struggle to keep up with compliance," said Dawson, noting that whenever she can she reaches out to other credit unions for help and guidance.
That observation led to one person in the audience questioning the potential liability to Dawson's credit union from accepting too much guidance from other CUs, especially if one of those other CUs should make a mistake. Dawson said it's a necessary risk, but a minor one.
Overwhelmed by Compliance
One CEO in the audience said that roundtables hosted by credit unions in her area on both BSA and overall compliance have been "very effective." She also encouraged every credit union to rely on their trade association and to sign up for NAFCU's Daily Compliance Blog. When asked who in the room was a certified compliance officer, no one raised their hand.
"We do a lot of things with smaller credit unions where we offer our services to help, as well," said one CEO. "I think you should look at mentoring with a larger credit union-yes, there are some sharks, I'm not going to deny that-but we sponsor two credit unions and have brought in compliance officers to help. Getting copies of a larger CU's policies and procedures can save you a lot of aggravation. There's no real liability."
Another person in the room indicated they were increasingly relying on a compliance CUSO for assistance.
"The issue I see with a lot of this regulation is that there are a lot of resources, but there is just so much of it," lamented one manager. "How do you maintain an approach that is even remotely proactive on stuff that is exponentially increasing? There are times I feel it's almost ridiculous the stuff I have to keep up with. What do we do? We go back to NCUA's Risk Guidance of 2002, which makes some sense to me, and we prioritize our risk. All that other stuff? Whatever. If the regulators want to write me up, they will have to write me up. You have to finally just make some decisions on what your priorities are."
Qualifications of Examiners
That manager's comment led to discussion of the qualifications of examiners, with the room split on the issue.
Dawson noted, "As a smaller credit union, I seem to get the guy who's pretty green, or who is on his first stop after previously working with someone. But my last examiner was on one of his first solo exams, and he was pretty good."
Another person said in response, "I feel my examiner learns more from me than I from him."
One person noted that in recent exams considerable attention was paid to the CU's concentration limits, particularly in mortgage-backed securities. Even though the MBS was performing and it was guaranteed, NCUA forced the CU to make no further investments. "It's costing us $100,000 a year (in lost income). NCUA said they would rather we lose money than put the insurance fund at risk."
Said a CU volunteer who was nearby, "That's the problem with (NCUA) wearing two hats as regulator and operator of the insurance fund."
When another person asked, "Does anyone here believe that NCUA wouldn't retaliate in this environment?," the CEO whose CU was ordered to cease buying MBS answered, "We didn't complain, but I do believe if we had complained they would have come in and put us under a DOR."
Another person asked the room whether or not their CU had been told by an examiner to cease taking in new members, saying her own CU had been instructed to do so because the accompanying deposits were only lowering the capital ratio. "They're not running our credit unions, they just think they are," the person said.
The CEO of a Washington, D.C.-area credit union urged others to recognize the key is to "document everything you are doing, or you have your broker document a stress test for instance. Documentation is so important and that will save you in the long run."
Too Small To Save
But one other person believes no matter what small credit unions do, their days are numbered. "I think the heart of the matter is this: We've all heard about too big to fail, but there is also too small to save," said one manager. "They will throw us under the bus. It's easy to do with a $50 million CU. I had an examiner tell me after I said we're in good shape, 'Don't kid yourself, I could make you look bad if I wanted to.' He said it because he's a friend of mine. But he was saying NCUA can make you look any way you want."
When one person wondered whether NCUA's own days were numbered and that the agency would be swept into FDIC, NAFCU CEO Fred Becker, who was in the room for part of the discussion, said he believes there is no short-term threat to the agency. "I don't see NCUA going away any time soon. That being said I can't predict five to six years from now."
Like credit unions everywhere, smaller CUs are looking for more loans, but when Dawson asked, "Does anyone have any ideas on lending," hands were slow to be raised.
One manager said that the used car market has been "really good," as Cash for Clunkers took a lot of cars out of the market."
Another person said the problem isn't lending, it's marketing. "I don't think many credit unions are doing a very good job of marketing, especially in tough times," said one manager. "I'm surprised we still find members who say 'I didn't know you did that' or 'I didn't know you offered that.'"
One small CU said it had had very good luck with a car sale done in conjunction with Enterprise, noting Enterprise even brought a car to the credit union to display in the week leading up to the sale.
Another person said his credit union had had good luck with a "Strikeout Your Debt" promotion that was tied to sports seasons (such as "Kick Your Debt" in football season) in which it offered to do loan refinancings. "We talked to people about how we could get them debt free. The surprising thing about it was how many car loans we were able to cross sell out of it."
Touchy About Corporates
When the discussion turned to corporate CUs, the mood was particularly somber.
"I'm one of those credit unions that didn't use the corporate CU and boy, I hate this," said Dawson of her assessments. "I didn't use the corporate-we lived through CapCorp-and now we're paying for it. The only good news is we didn't lose any capital in a corporate. I use the Fed for just about everything."
Dawson's comments about the Fed were seconded by a number of people in the room.
"We just recently lost our shirt at WesCorp," said one person. "We decided not to recapitalize its replacement. We are using the Fed, and it's amazingly easy to use, and it is going to save us 50% in costs. We're using Bluepoint (for check images), but those expenses are being mitigated. We made that decision, and we are just thrilled. We have more control than we ever had before."
One person lamented that the corporates couldn't even pay more than the 25BPs they are earning on overnights at the Fed.
Others stressed how easy interacting with the Fed has been, including using the software the Fed provides.
"We are not going to recapitalize WesCorp, either," said one person, "but we only spend about $600 a month with WesCorp. So we're not sure."
Another said his CU is using a CUSO for remote deposit capture, which involved paying about $500 for the equipment. "We transmit our checks every night to them, and I pay a hundred-something a month."
When it came to one other aspect of the Fed, credit unions reported different experiences. "We have processed through Federal Reserve for number of years. For us it's second nature," said one CEO. "But the only problem we have had, and you must bring to Fed's attention, is it's easy to do check processing; the problem is in getting to use the Discount Window for a line of credit. If you were to call the Fed today you have a single contact for check processing and ACH. Ask about the Discount Window and that person will say 'I can't handle that for you,' and you will end up talking to five or 10 people."
But several other people said they had found the process to be pretty easy.
"We're 100% loaned out and always have liquidity issues, but I'm still unsure whether I should go to one of the corporates that didn't go under," said one CEO. "I don't know if I want to trust the Fed and the government to consider my individual issues in the event we have another liquidity crisis."
One manager urged other credit unions to consider moving to Alabama-based CorporateAmerica CU, noting no capital investment is required.
'I Want To Be Your Friend'
When Dawson turned the conversation to mergers and expanding FOMs, she shared her own experience. "I get calls from other CEOs saying, 'I want to be your friend.' And I wonder, 'Why do you want to be my friend?' The underlying tone was 'I want to get my foot in your door.' I've had two phone calls in last week like that. I think these larger CUs are getting pressured by their own boards to find ways to grow."
When Dawson pushed for other experiences, few people wanted to comment.
The Fading Cooperative Spirit?
The issue for most small CUs is they can survive if provided occasional assistance from larger CUs. But that's becoming a rarity, suggested one person.
"I've heard some CEOs say lately, 'It's not fun anymore. Large credit unions used to help small CUs, now it's small CUs helping other small CUs. I'm afraid to go to a larger credit union as I'm afraid they'll think I'm weak and want to take our CU away.'"
Dawson noted that in trade shows the first question from vendors often is "What size is your credit union?" When she responds, "$28 million," their next statement is, "That's very nice."
Similarly, another person said many vendors won't even respond to RFPs from smaller CUs.
"The cooperative spirit just seems to be disappearing," offered one volunteer. "We're not sharing like we used to."
But one CEO noted his $70-million credit union runs a CUSO that approximately 25 other credit unions also use, and added, "I find in talking with people there is a lot of cooperative goodwill. With the bigger CUs they are really under the gun. Management is feeling the pressure from the board, and the board is feeling it from regulators. I don't find the bigger credit unions to be predatory; they will help you when they can. I just think they are often too busy."
One manager suggested a strategy for asking for help he said has worked for him. "I find distance makes a difference," he said. "That is, the further away the other credit union is the more likely they are to help. There is no thought of a merger or takeover."