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The CU2.0 Podcast
This podcast explores contemporary, critical thinking and issues impacting the nation's credit unions. What do they need to be doing to not just survive but prosper?
The CU2.0 Podcast
CU 2.0 Podcast Episode 352 Jim Blaine Asks: Is this the twilight of the golden age of credit unions?
Is this the twilight of the golden age of credit unions? On the show to discuss exactly that question is Jim Blaine, the now retired longtime CEO of SECU, the second biggest credit union in the country. Blaine may be retired but he still has opinions about credit unions, as evidenced in his blog, SECU - Just Asking!
In this podcast Blaine also digs deep into the question: what exactly is a credit union? We also talk about democracy in credit unions and often the lack thereof.
Recently Blaine has been sparring with his old employer with the flash point being the institution’s new leadership’s desire to move to risk based pricing for loans. Blaine is against that and successfully resisted it in his years as SECU’s CEO.
Blaine, definitely, is opinionated. But he also is - undeniably - a credit union champion. What he says may make you mad - it definitely made various NCUA employees mad. But listen up because Blaine, very clearly, articulates a philosophy about credit unions that he didn’t just spout, he lived in building SECU into a US credit union powerhouse.
Listen up.
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SPEAKER_00:Hi, and welcome to the CU2.0 podcast with big new ideas about credit unions and conversations about innovative technology with credit union and fintech leaders. This podcast is brought to you by Quillo, the real-time loan syndication network for credit unions, and by your host, longtime credit union and financial technology journalist, Robert McGarvey. And now... The CU 2.0 podcast with Robert McGarvey.
SPEAKER_02:Is this the twilight of the golden age of credit unions? On the show to discuss exactly that question is Jim Blaine, the now retired longtime CEO of State Employees Credit Union, the second biggest credit union in the country. Blaine may be retired, but he still has opinions about credit unions. And you can see that in his blog, Secu Just Asking. There's a link to that blog in the show notes. In this podcast, Blaine also digs deep into another question. What exactly is a credit union? We also talk about democracy in credit unions and often the lack thereof. Recently, Blaine has been sparring with his old employer with the flashpoint being the institution's new leadership's desire to move to risk-based companies. pricing for loans. Blaine is adamantly against that, and he successfully resisted it in his years as state employee's credit union CEO. Blaine definitely is opinionated, but he also is undeniably a credit union champion, a great credit union champion. What he says may make you mad. It definitely made various NCUA employees and leaders mad. But listen up, because Blaine very clearly articulates a philosophy about credit unions that he didn't just spout. He lived in building state employees into a U.S. credit union powerhouse. Listen up. So you suggested that something to me in your email. Are we entering the end of the credit union era? We have things like the potential elimination of NCUA, potential loss of tax exemption. A lot of things are happening. Does this add up to the end of the credit union era? And a second question is, has it already ended?
SPEAKER_03:Well, maybe I ought to qualify it with an adjective to say this is perhaps the end of the golden era of credit unions. And I think that definitely is true. And in answer to your second question, I think that has already occurred. Now, what defines the golden era? I think what defines the golden era may be something as ancient as the Great Depression or and the need in finance that created credit unions as a alternative. And I think that era of cooperative or consumer finance or self-governance has ended. And part of that is due to growth. Part of it may be technology. Part of it may be that credit unions no longer really want to be credit unions. And maybe they don't need to be. So the golden era was when it was driven by purpose and was generally smaller in footprint and smaller in attitude and perhaps more member focused and member controlled. and i think that clearly has credit unions the larger ones in particular have seemed to have outgrown that as a you know bedrock robert what i find today is that many credit unions i think struggle to define who they are any longer and that used to be a fairly simple process i think you were a cooperative You were generally in consumer finance, and you had a limited membership focused around a company or a post office or a union or a government. And all that no longer seems to be top of mind. And when you ask a credit union these days, they're having trouble defining their purpose, I think.
SPEAKER_02:I agree with you. I've thought about this for a second. When those French Canadians in New Hampshire were turned away by banks because A, the banks didn't speak French and didn't want to. And B, they didn't really give a damn about these immigrants anyway. So the French Canadians said, fine, we'll start our own thing, the St. Mary's Bank thing. And at that moment, that institution was serving people that banks didn't want to serve. And that's the origin of credit unions, is serving people banks didn't want to serve. And it was also pretty clear cut. So it's a little credit union that serves like one Ford plant that makes batteries or something, but just one, not the whole corporation. And guy comes in, he wants like 500 bucks to put a new engine in his car. I call up the foreman and say, Is he a good worker? Are you going to keep him on? Are you going to fire him? Tell me about him. Foreman says he's a great guy. I'd give him the loan. I don't need to see his FICO score. There wasn't a FICO score. And that's how it worked, and it worked pretty well, really. As they moved into this national charters, geographic charters, etc., etc., The common bonds got shattered, and common bonds were the essence of the credit union.
SPEAKER_03:Well, I think you nailed it in one sense, but let me test you with another thought. In terms of common bond, generally smaller, generally locally focused, generally you knew your fellow members. That was the strength of the credit union. And as you grow, just normally, you grow away from those very personal relationships. And that to me, or the plant closes or, you know, whatever else. But that was what has been lost as credit unions grow. They no longer know their customer. They no longer know their member intimately. And part of that is accelerated by the impersonality of digital technology. Digital technology, everybody needs it. It's something you should have. It's a given. But it takes the person, both sides, the credit union employee and the member, out of the dialogue, the conversation. Like you say, it's by FICO number. It's by some other quantitative algorithm. And that, to me, ends the one great strength, small know-your-person intimacy of a credit union. And that was part of the original idea, membership, common bond. Well, I think you've got it. And what is it? 400 credit unions now represent 90% of the deposits and membership in the credit union movement. So, yeah. and that pace of growth is accelerating. So that may be, if the essence was intimacy, the end of the golden era has been the end of that intimacy, whether right or wrong. It's just gone away. But let me give you one other thing, because I keep hearing it. The credit unions were always, once family members were allowed to join, were diverse organizations. You know, I worked with one that was associated with state government and folks now say, well, you know, 80% of the members are not state government. It's a different organization. But if you go back to the sixties, if a state employee joined that person, normally a male would have his wife join and his two kids, the average family, right? And if you count heads, There was one member who was a state employee, but three members who had nothing to do with state government. So there was always 75% of the members being served were non-common bond members, once family members. So maybe when that was added or once a member, always a member, you sowed the seeds of this growth as the generations kept, you know, as we keep moving from generation to generation. there is less commonality of contact, experience, or purpose left in the credit union. Not necessarily the credit union's fault, but it's just a fact of life. So... Did that make sense, Robert, at all?
SPEAKER_02:Yeah, no, that makes perfect sense. And this is partly why you're not a fan of credit union mergers, because that makes any common bond, et cetera, more and more diffuse, and it's just not there.
SPEAKER_03:Well, I am not a fan of credit union mergers, but for a different reason. But I do believe that it is reached. There have always been mergers. You know this, Robert, that came from adversity or, again—
SPEAKER_02:There are always mergers, but I wrote about them. It was always, NCUA came to a guy like you saying, will you take over this$25 million credit union that we're going to have to conserve and we don't want to do that. So take it over, please. You said, and I know this from another CEO, not as big an institution as yours, but pretty big. You said, okay, I'll do it. Because I remember asking that guy, why did you do it? He said, A regulator asked me to do them a favor. I did a favor. They will probably do a favor for me someday. And besides which, even if this whole thing blows up, it's like a blip on my balance sheet. It doesn't make the slightest bit of difference. So why are you talking to me about it? And I said, okay, you're right. So, and those mergers, it was no big deal. It really didn't matter that much. Today is a different world.
SPEAKER_03:I agree with that. Also, the plant closed again, right? Or these days, the manager's retiring. We can't find anybody to take the job. We can't recruit directors or volunteer directors.
SPEAKER_02:NCOA now has a requirement. We're supposed to write down succession plans for key people. As I told the guy, the consultant in that business, If I were on the board of$150 million credit union for the CEO, I would write, my succession plan is to merge. I know that. And he said, I'm not sure how the regulator would react to that. And I said,
SPEAKER_03:but it's the truth. I think that is commonplace, but I think it's a false excuse. You know, credit union managers are not underpaid really these days. At least I don't think a hundred thousand six-figure salary is unusual, nor is it low. I think I know a lot of young people like that job.
SPEAKER_02:Oh, I think there are many more salaries in seven figures. Oh,
SPEAKER_03:well, let me get in. Well, if NCUA is so big on succession plans for credit unions, I certainly hope they have one for themselves these days. Well, I don't think they do, really. Well, wouldn't that be kind of hypocritical if they did? But they seem to be getting ready for some rocky times. So I hope they've got one in place. One in place. And maybe it's turned out the lights. Who knows?
SPEAKER_02:I remember talking with a CEO of a very small credit union who was retiring after 30 years. And that credit union merged out of existence because this guy wasn't getting paid six figures. It was less than that. And he was working like 60 hours a week. He was doing teller shifts on Saturday if the teller was sick that day. Someone had to fill it in. It was him. He never complained, mind you. He just retired at a normal retirement age. But you're a kid with an MBA from North Carolina State. You want that job for$75,000 a year? Really? You
SPEAKER_03:do? You sure? Well, in North Carolina, I think the maximum a college master degree teacher can make in this state is about$60,000, Robert. Wow. They're very bright people. They hard work. They have to deal with the complexities of bureaucracy and unruly employees, that being their students. So I'm sorry. There are a lot of folks that would love the experience. And what a resume builder to be a CEO, to run your own shop at a young age. I mean, it's all, you know, everybody has to apprentice somewhere. When I was working, we used to export a lot of folks to other credit unions, people that wanted the chance to do their own thing, try their own ambitions and ideas. And many of them were wildly successful. The local government
SPEAKER_02:guy
SPEAKER_03:who's now retired. Well, Suncoast, BiStar, American Heritage up in Philadelphia. Wow. There were 50 CEOs at one time. And people would call us to recruit them. Because they were saying, we're losing a manager. We don't really have somebody on staff. Can you send us a company? And, you know, again, the people didn't think the same way, but they had been trained in a particular way of doing business. And they understood what a credit union was and the opportunities and the problems. That is part of the problem, I think, that the smaller and mid-sized credit unions are going away. And quite often they were feeders. for the leadership of the larger ones. And these days, it seems that credit unions, if they don't go internally, are having to go outside to find the leadership they need. And I'm not quite sure that that is good for the idea of a cooperative. If I hire a banker, that person's been trained in banking, in a for-profit atmosphere, quarterly goals. It's just a different business. And nothing wrong with it. It's just a different business. And that person would bring those skills and that training to the credit union. And that is really a culture clash, I think, if credit unions really are different and really are an alternative.
SPEAKER_02:I often tell people a story that involves your name, and it's a totally fabricated story.
SPEAKER_03:All of them involving my name are fabricated.
SPEAKER_02:Yeah. I say, if I were involved in auto loans at the state employees when Jim Blaine was CEO and he was standing by my desk and overheard a conversation where I talked to a member out of buying a 7 Series BMW into buying a used Hyundai for 20 grand because that's the best the man could afford and still support his family. You would say, good work. That's credit you can take it. Whereas at Chase, I'd be fired.
UNKNOWN:Yeah.
SPEAKER_02:And that story kind of represents the way you think, right? Because I've told it a number of times.
SPEAKER_03:Yeah, you're supposed to do what's best for the member owner. That's the
SPEAKER_02:idea. It's to not drive profits for the institution. What good am I doing putting someone in a car they can barely afford so they're going to have to put their kids on food stamps or something? No, this is not good. I'd rather the person was in a Hyundai.
SPEAKER_03:Which
SPEAKER_02:is a perfectly good
SPEAKER_03:car. Robert, that kind of leads to, again, this change in purpose and trying to define what a credit union is. You know, as I think you said earlier, when credit unions got started, well, the banks weren't serving the working men and women anymore. I don't think that that was because they didn't want to. It was just not what they did, right, or depression or whatever else. So credit unions, one of the fundamental ideas, and it's in most everybody's charter, was to give access to credit, access to credit for profit and productive purposes. Today, what's changed is a credit union may be doing what need to be doing what you just said. Everybody's got access to too much credit. Yeah. And what a credit union, to me, if they're doing what's right for the member, should be in there trying to educate members on how much APR, what it means APR, what you ought to look at. Don't be bait and switch. Don't be sprinkled with pixie dust at the dealership. And that's not being done anymore that I can see what's being substituted. Here's a website. Go read it and send them more. And that just doesn't work, from my experience, with normal people. They don't get it. They need a guide. It's like being a doctor or something, right? You need somebody. You're a good journalist. You may not be great at finance. You need somebody you trust to guide you through that process. And the world is more and more complex in terms of the ability or willingness to for the marketplace to contrive a marketing campaign that will persuade you, lure you, or deceive you. And the cost is huge. And I don't see credit unions viewing that as one of their purposes anymore, other than the little, you know, click on this link and, you know, read this, which from my experience, people don't do. They don't have time. They're working two jobs. They've got other things, right? They need to focus on what they're good at at their career. I think
SPEAKER_02:most credit unions have an online module of financial education stuff. Absolutely true. My question is, does anybody actually use it?
SPEAKER_03:They don't, and they have the metrics to show you. It's kind of like if you look at some of the social media little blurbs and all that. The number of people following credit unions' event of the day is ridiculously low. Yeah. Do you go to your credit union website every day and see what is on Instagram?
SPEAKER_02:Ask me a better question. Ask me, when was the last time you went to your credit union website?
SPEAKER_03:And that's normal, and people know that. But, you know, we all know that.
SPEAKER_02:Basically, I use the mobile app, which is a tiny little screen, and I spend more time than I have to on it. Sure. Now, you're involved in something that intrigues me. And a little preface is, I've been a member of a big North Jersey credit union for, I don't know, 15 plus years. I have never voted in an election. I've never known there was an election. I'm sure there are notices on the website, but I have not seen them. On the other hand, I own stock in a couple of companies. Every year, not much stock, but every year they send me board election notices with a little ballot begging me to fill it out, blah, blah, blah. A, I don't think there's that much member participation in democratically running credit unions. B, you've been pretty successful at energizing a democratic movement within state employees. Now, not just you alone, but other people. What enabled you to do that, number one? Number two, do you disagree with me that there isn't a hell of a lot of democracy in most credit unions?
SPEAKER_03:The motivation depends on who you ask, but I'll tell you the truth, of course. But answer to your second question, no, there isn't much democracy within the credit union movement. And again, the credit unions as organizations quite often seem to have outgrown the member ownership and the member input. And having been a former manager, I can see why managers don't want too many folks kibitzing on their decisions and all that, right? So there's a natural tendency to go your own way as managers. But how it started at SECU is a, by the way, I've been retired for almost 10 years. I haven't been in the credit union other than maybe for a couple of retirement parties in those 10 years. Don't call folks, never talk to the board. When I left, I cut the cord, no consultant, no on the board, no nothing. I went, I had other things to do. So got drawn back into it when the credit SECU, appeared to be heading for some new directions, and perhaps they were justified. I didn't say anything for a year after the new leader was hired, but I kept getting calls and expressions of concerns from employees and members about just what's going on. I said, I don't know. I'm not following it. They said, well, I hope you would go to the annual meeting and ask some questions. And I said, I'm not going to do that. I'm out of here. You know, you do it. And of course, most people don't want to do it and employees are afraid to do it. So in 2022 presented a resolution, just saying, what are you doing? Why are you doing it? How does this benefit the current members? We take some time. I think it's a communication problem to take some time, you know, next six months and tell folks what's up. And so, uh, The resolution passed without objection. It was seconded by a board member. They did respond. The responses were not transparent, Robert. And that's when I got concerned that perhaps the board was overlooking the membership. But in terms of there's been contested elections since, I think that's easy to do. Generally, you just need 500 signatures, which, by the way, is not easy to get. So somebody just standing up and waving their hand won't get it. But it's easy to find folks that are interested and are qualified. And election in 23, the three incumbents were ousted. But at the next election, the credit union had gotten much better organized and got their incumbents reelected. So we're in about the third year of the process. But there had not been a contested election in 10 or 12 years. And in 23, there were about, I would say, 13,000 folks that voted, which was just unheard of. And then last year, there were 100,000 folks that voted. Wow. It sounds like a lot, but there are 2.8 million members. But I think if you want to do democracy, and I don't think there's much risk in it, is to assure that you have a contested election every year. Now, most credit unions have some sort of screening process, a nominating committee, and it's just as easy for that nominating committee to nominate two candidates for each open seat, including incumbents, or three. But generally, they only present the slate of incumbents. So the first step on democracy is to have a contested election. And what's still not, is very imperfect, is the ability for candidates to explain why they're running and what's good and what's bad and all that kind of stuff. That's not been worked out very well, at least not locally. The other thing that has increasingly happened is that with annual meetings, like you said, you have never heard of yours and never been to one. Well, to make it even worse, often they're now going over Zoom or virtual meetings. And it's very, very hard for members to ask questions and participate in the meeting and for the board, by the way, or CEO to answer questions in that format. So having a real meeting at a not only a time, but also a place where questions or resolutions can be presented, I think is fundamental for the future of the credit union. Every publicly traded company in this country is required to do that.
SPEAKER_02:You can own one share, and that's on mobile. Go to the annual meeting, and if you play your cards right, you can actually ask a question at the annual meeting.
SPEAKER_03:That's right. But in addition, and there's usually some set process that you can submit resolutions, you know, to the board for consideration and for the members to vote on, you know, compensation is one that is advisory, but I mean, you could, you know, ask somebody to open a branch in Timbuktu or something. I don't know. And have members vote on it. Hopefully there's substantive issues. It's not that, you know, I want you to lower interest rates. It's not managing the credit union. It's issues of governance and democracy that need to remain in the hands of credit union members. And I think a contested election and some resolutions to be voted on and transparency and publication by the credit union would add a whole lot to the credit union system. members' understanding of their organization. First, they feel they're involved. Second, they get a chance to see what the issues might be out there. Also, how management and the board respond to them, which has got to be helpful. And then a vote would give the board some legitimate feel of how these issues are considered by the members. Because people aren't going to take the time to vote, right? It's not like, you know, press a finger button if the service is great. Right. Those are faux measurements of the members. But anyway, it would involve folks in it. And I think it would help create an identity and people to understand the purpose and would make the credit union far stronger. But
SPEAKER_02:anyway, I think we would agree with me that. Discord can make the credit union stronger. You don't need compliance with everybody happy, smiling. A little disagreement and discord, and not a fistfight, but just disagreement and a civil discussion can, I think, make it stronger. I
SPEAKER_03:agree with that. And at least at SECU last year, the incumbents won two to one. It's like 60,000 for the top leading incumbent, 30,000 for one of the challengers. And I think that's good. First, you got 100,000 folks to vote. Second, it wasn't just a one-person show. There were 30,000 members that saw things a little differently in terms of who should be on the board. And that's not discordant. I mean, I think You and I go to the polls every four years to elect a president, more often for a House of Representatives. So, I mean, having active elections is key to democracy. And the fear, Robert, not only in credit unions, but in government, right, is folks are losing interest and participation is dwindling, at least at the federal level, I think, not the president, but People don't feel like they can touch or influence or have any effect on their government. That's bad news. And it's the same for the credit union. Then if I can't affect it, why should I be a member? Why did I join? Why do I care whether I stay a member? And these days with digital and open membership, you and I can join probably anywhere. 3,000 of the 4,000, 4,500 credit unions left. I mean, it's not that we have limited choices anymore, right?
SPEAKER_02:Oh, most credit unions. Not Navy Federal, maybe not State Employees, but I know definitely not Navy Federal. Most have a backdoor in. Absolutely. You give like 20 bucks to the widows of soldiers or something, and boom, you can get in. Again, not Navy.
SPEAKER_03:Well, to me, you raised another problem in terms of the positioning of credit unions as white hat, trusted advisor. When they're using a backdoor means to circumvent the laws, then that comes home to roost at some point. Whenever credit unions stop being straightforward, tell it like it is, the whole truth, nothing but the truth, you're going to have problems. And again, once you lose that trust, as you know, in any relationship, right, then you've lost it permanently. You don't get it back, especially when you have any number of equal opportunities to join. And I guess I would add that, Robert, I've been looking at several credit union websites and mission staves and vision staves and that kind of stuff. The most striking thing about all credit unions these days, not all, but most is they all look exactly the same. Yeah. Websites, their products. There's nothing that I can see that would attract me to join other than if I'm, you know, rate shopping. So
SPEAKER_02:that's, that's the problem credit using now in a rate shoppers world.
SPEAKER_03:If you're in a rate shoppers world, I think, I hope you and I know that then it gets dumbed down through bait and switch and some other things. And you get dragged down to the lowest possible denominator. You have to fool your member to get them to, you know, with some kind of bonus two for one, you know, free until Sunday, you know, whatever it
SPEAKER_02:is. No interest for the first 90 days, man. Doesn't that sound good to you? No interest payments at all. In fact, no payments at all. Don't worry about it.
UNKNOWN:Absolutely.
SPEAKER_03:Absolutely. And again, there goes the trust factor because we all learn. We realize when we're taken, right? It takes a while, but we know. And you don't
SPEAKER_02:deal with those people again. But yeah. Now, what do you think about the CDFI credit unions? The members, for instance, of Inclusive. I like Kathy Mann a great deal.
SPEAKER_03:Well, I think smaller credit unions in general do a better job better job serving folks, particularly of modest means, than do larger ones. And I think they always have. And some of your best managers in all the credit union movement were in the small credit unions. Why? Because generally, she had to do everything. There was one person and that was it. I think they serve a great role. My problem is this lowest common denominator. They're being dragged down by the bank-like focus of the large ones. And so you say you're a credit union and people think of the large ones and you're painted with the same brush. So I think their demise is part of the merger situation. You know, that people just don't believe that a credit union is any different. And therefore, you know, Why not go to the local bank? Well, there's this trend, and
SPEAKER_02:you're aware of this, is taking credit union out of the institution's name. Yeah. In Arizona, it had been Desert Schools. Now it's Desert Financial. What is Desert
SPEAKER_03:Financial? What is it? Most credit unions are now using the term bank with us, right? Where banking is better. Yes. And I admit that it's very hard and time consuming to try to tell or show members what the difference was. But when you stop trying, you've sealed your fate. Then they will never understand. I didn't finish the idea on mergers, the democracy and mergers and all that. My biggest concern is that we're going to head right back to an era that popped up about 2005, where credit unions started to convert. to mutual savings banks and to banks. And I am dead certain that that's what's starting and that is the end of the era for credit unions.
SPEAKER_02:Well, I've been saying that were the biggest credit unions to lose their tax exemption, most of them would demutualize as quickly as they could. I see that as absolute certainty. And remember, USAA, once upon a time, was a mutual association. But they demutualized. It's a straightforward process. And from what CEOs of big credit unions have told me, they lost the tax exemption. They're not really sure financially what the advantage to being a credit union would be
SPEAKER_03:for them. Let me ask you a question about it. First of all, you and I have been around too long because we happen to remember these things about demutualization. But the point is, you've been talking about it for a long, long time. I've been thinking about it for a long, long time. And when it now is getting ready to start, people will say, what happened? And I would go, oh. So would you. This has been going on a long time. It's just been building, you know, suddenly open membership, suddenly focus on commercial lending, suddenly, you know, focus on credit scores when approving people. Suddenly the members not involved. Suddenly annual meetings don't really occur. This has been going on. This has not happened all at once. But when it happens, people will act surprised. But here's the question was that you brought it up. Why is a credit union tax exempt, Robert?
SPEAKER_02:Because it's doing things, theoretically, for a membership that isn't necessarily profitable. It's making loans that aren't necessarily loans that Chase Manhattan Bank would want to make. And some credit unions are still doing that. Are all of them still doing that stuff? I don't know.
SPEAKER_03:I won't argue with your response because I think there's a lot of truth in it, but here's the second part of the question. First part was, why is the credit union tax exempt? Second part of the question is, would it still be a credit union if it weren't? So the idea is, why is the credit union tax exempt? And you say, because of what it does, blah, blah, blah. And so now I ask you, well, would it still be a credit union if it were taxed?
SPEAKER_02:Well, I remember some years ago I was at GAC, which I didn't go to often because God loves me too much to force me to do that. And I was talking to a woman who was a board member of a teeny tiny credit union in New Hampshire who told me she was going to go out and walk to hell to defend the tax exemption. And I was thinking, I did not say it to her, but I was thinking, honey, There's no way in hell your credit union would pay any taxes. You could barely pay your electric bill. And I think that's true for 90% of the credit unions. A good accountant could make it so that they're not paying any federal taxes at all.
SPEAKER_03:Well, let me ask it a little different way. Robert, were credit unions created because they were tax exempt? No. Was it even part of the 1909? They weren't tax exempt. Right. I think the federals didn't get tax exemption until, what, 35? Most states, you know. But is the essence of a credit union that it's tax exempt? Because I think you said, and that's why I think the demise and the end of the era is at hand, taxation in this environment is becoming a bigger issue. And level the playing field, you know that. And that government ought not to pick winners and losers anymore. That is the tone in our administration and may have been for a long, long time. So, you know, but does it change the credit? Is it no longer a credit union if it's not tax exempt?
SPEAKER_02:I agree with you. It really is not relevant. It's not part of the essence of a credit union.
SPEAKER_03:It's not a credit union because it's tax-exempt, is my opinion. It has nothing to do with what it was created for and what it sought to do, nor how it operated. But you're going to see large credit unions. You said it, Robert. If tax-exempt is waived, they're going to say, well, if we don't have the tax exemptions, we might as well go ahead and be a bank. That logic is imperfect, in my opinion. but it's what's going to happen. And you just listen to folks, and particularly with the, you know, ACU and the other credit union trade associations are gearing up for the tax fight. And that's part of what they're saying. You know, it'll crush us as a business. What effect does it have on our business? What is it that makes that tax exemption critical to a credit union? I don't know of an answer to that. I mean, if I had to choose between as an individual, whether it be tax exempt or tax, I'd choose tax exempt. I get that. But does it make any difference to a credit union? I wish folks would discuss that. Yeah, I think you're right.
SPEAKER_02:Cooperatives, I don't believe, immediately get a tax exemption just because they're cooperative. I don't think that's the case. And a credit union fundamentally is a cooperative. although most credit union executives don't know that. And
SPEAKER_03:as you said, you know, if I can barely break even and pay my light bill as a credit union, having an income tax on a zero bottom line really doesn't make any difference, does it? No. It's just, but look out for what you've got people leading credit unions that are going to use the loss of the tax exemption money when it occurs, if it occurs, as an excuse to convert to a bank. And the next level of question I hope you would pursue with somebody would be, well, what do you get if you're taxed and you convert to a bank? What do you get? Well, I can let anybody join. You already can. Well, I can make commercial loans. You already can, and you're pursuing it. What is it? And that's where I go, Credit unions are really struggling to define themselves as something different any longer because they don't have tax. They don't have closed membership. They're not small and locally focused. They're not focused necessarily on helping the people of modest means. And many of them are pursuing commercial lending, which is the bank's bread and butter, just furiously. And it's the fastest growing segment ever. in the credit union loan portfolio, if you look. And Robert, if I ask you this, if I asked you if all the credit unions had greater balances in new car loans or commercial loans, how would you answer? Which is larger? If you aggregated them all together, do they have more new car loans or more commercial loans?
SPEAKER_02:I would say new car loans, but since you're asking the question, I assume the answer is not new car loans.
SPEAKER_03:That's right. So it's kind of a trick question. It's commercial. There are more commercial loans on the balance sheets of all credit unions than there
SPEAKER_02:are... This is weird because that's not the essence of the credit
SPEAKER_03:union, was
SPEAKER_02:to do that car loan. That's exactly
SPEAKER_03:right. Well, let me give you another one. I won't raise the ante on you. Do you think there are more... credit card loans on the balance sheets of all credit unions in the country or more commercial loans. Now, that one's easy. You ought to get that
SPEAKER_02:one. Well, I would hope that there's more credit card loans. Wrong again. But yeah, I knew it had to be wrong.
SPEAKER_03:There are twice as many commercial loans on the balance sheets of credit unions as there are credit card loans. Now, that shocked me.
SPEAKER_02:Yeah, as we're talking, I remember that for 10 years I've been telling people, I really don't care about community banks because they are a dying species.
SPEAKER_03:Well, maybe like credit unions, right? Well,
SPEAKER_02:even some pretty big community banks are dying species. They're getting wiped out by the chases and the B of A's. So you take Pentagon Federal or state employees, you say, okay, fine, you can be a bank now. You're now a tiny bank. Used to be a big credit union. Now you're a tiny bank.
SPEAKER_03:Well, I think I've heard you make the point in some podcasts or writing that the four largest banks, right? What is yours like JP Morgan or Chase or somebody's larger than all the credit unions?
SPEAKER_02:I added up all the assets of credit unions. This was a few years ago. All the assets of all the credit unions, it was lower than JPMorgan Chase. Now, since that time, JPMorgan Chase has grown at a much faster rate than credit unions have. So I'm sure the difference is much bigger than it was. And as I say to people, I assure you, Jamie Dimon does not wake up in the morning saying, what is Navy Federal doing today? I'm sure that's true. And if you ran into Jamie's office and said, Mr. Diamond, Mr. Diamond, let me tell you what Navy Federal's doing today, he'd say, what the hell is that?
SPEAKER_03:Well, he's pretty shrewd. He probably knows, but it's not on his top 100.
SPEAKER_02:It's not. Tell him what Citi's doing. Tell him what BMA's doing. This will interest him. Even Deutsche Bank, but he's not interested in the credit union, nor should he be. So if my thesis is that community banks are dying, all credit unions that convert will become just kind of middling size, small and middling community banks. That's not a future. I think it is.
SPEAKER_03:Oh, no,
SPEAKER_02:I'm saying that's like converting yourself into a corpse. It's not healthy. You can differentiate yourself in the market if you are a credit union. And you explain how a credit union is different and better. You got an argument that I think is pretty exciting. It's why I got interested in credit unions some years ago. Whereas if someone said, do you want to do some writing on the Community Bank Association, ICBA or whatever that is? I'd say, no, it's boring.
SPEAKER_03:Well, I think I agree with what you said. Where I was trying to object a little bit is I think Most of us, after we get through with the large banks or large anything, we would prefer to have personal local service if we can get it, whether it's local food or local restaurant or local bank or local credit union. I think we'd all like to know somebody that It's in charge of the businesses we use or who will respond to us. It's been common knowledge, I think, for a long time that most business people follow their banker, not their bank. And so, as you say, the community bankers evolve and get bought out or merge or whatever else. That banker takes another job at another community bank and takes all the business with him. Because I don't want to have to explain my whole life story and business and balance sheet and how I came into being to a new bank or bank. So it's kind of like, you know, revolving chair, musical chairs, people. And I think it's true in credit unions. If you can stay local, that all of us would prefer to do that. But maybe I'm wrong. You know, I think that's the advantage that credit unions are losing is as they grow in size, and if they go to this all-look-the-same digital delivery. I use the mobile phone, too, but I used to know who I could call. And my kids are credit union members, various ones, and it's funny. They need to talk about a mortgage. They want to talk to Susan over at XYZ Branch. They have built a trusted relationship that transcends just transaction processing, which is a no-brainer, right? That's what mobile is. Or if they need some advice on their 401k, they want to go talk to somebody, right? Because they're uncertain or planning a will or doing taxes or whatever it might be. And if we can't get back to that, that's why I think it's an end of a golden era because I think that was in place when credit unions were more local, smaller, and maybe more focused on the consumer rather than the commercial. Another topic for another day, maybe debit cards is where credit unions need to go. They need to fight for that transaction account. But I don't see anybody doing that because they– They're so reliant on this interchange game. But they've got to figure that out. Most people, where they open their transaction account, which is called a checking account, is where their parents banked, unless they move a couple times in life, right? And not that you don't have multiple relationships, but your primary account is generally with the institution that your parents banked with. And most folks... even these days, stay pretty close to home. The majority of folks do, you know, within a state anyway. So if you can get them when they're young, you got them forever on the most important account, the transaction account. And that's become the debit card, right? People just don't write checks that much anymore. You will end up having direct deposit. It's also where you'll end up having bill pay, right? And you'll have a credit card, just an overdraft protection or something.
SPEAKER_02:The debit card is the gateway drug. Get them in the door at the debit card and then you can sell them some other products.
SPEAKER_03:Because they come to you multiple times a month, right? Writing a check or they're associating with you multiple times through the transactions and the direct deposit. It's interesting that if to me, one of the things in a veneer, I think credit unions, if they continue to pursue this, everything's done on a credit card. And we're all doing it because we're trying to accumulate those miles and discounts and stuff. If they get lured into that, they'll lose. They'll lose everything.
SPEAKER_02:I think you're absolutely right. What kind of credit unions sell? They can sell local human contact relationship. I know you, you know me. And Chase can never sell that. And don't even
SPEAKER_03:try. And don't try. But Robert, what you might find interesting is In North Carolina, Chase has opened, I think, within the last year, maybe 15 branch offices. Those branch offices are in our urban areas. They are in our higher wealth zip codes. And they're probably for teams of wealth managers. They're not after serving the local
SPEAKER_02:mom and pop. Personal bankers. I had a Chase account for a number of years. I get a call once a month from a guy who wanted to be my personal banker. A nice guy. But yeah, that's, yeah.
SPEAKER_03:But they now have wealth. And again, my concern in credit unions chasing the more affluent is that Chase will beat you on that because they will arrive ride with a team. They've got to count it. They've got a tax expert. They've got tickets to the ice hockey team. They're going to come get you, and you're not going to beat that kind of team because their expertise is greater than what a credit union normally has. A
SPEAKER_02:credit union needs to keep some of those wealthier members, obviously.
SPEAKER_03:I think you can if you can Decide who you are. By the way, I think these days, given the closing of plants and military bases, the common bond probably is geography and not on a global or nationwide basis. If you can create an image for your community, I mean, I guess it could be church or race or something else, but geography makes a whole lot of sense. People will want to stay local, going back to that idea. They will choose to have an account with you and give you a chance because you're local, because they can see the branch, although they may not use it, and that they can get a call back and they can talk to a live human being. People, I mean, we all do it, right? We root for the local football team. We understand local politics. We know our friends and neighbors are people we know. They're all local. But anyway, the other thing I see, by the way, that I think will hurt credit unions on the local is, at least I think it's true for all credit unions, there's an awful lot of local employment problems. in branches or contact centers or whatever else. So it is an economic benefit to the community or the state or whatever else. You'll see efficiency becomes too much of a buzzword that those calls will be routed to the Philippines or to India. It's happening now already, but credit unions will do that because it costs so much less and And so you're going to see the export of these jobs from the local area, which, again, kills the intimate local contact. The other thing that I see coming back, which I'm sad to see, is the selling of loans outside your market, where Fannie and Freddie are your best example. They make only mortgage loans under very strict rules. There's very little flexibility that the lender has. Even if you keep servicing, then, you know, there's a problem. You have very little flexibility to fix it. So, you know, you can't react to a member's individual local disaster, right? And help them go through it. But it also, the number one thing about, say, a mortgage loan is that if you keep it on your books, the interest that you earn is reinvested in your local community. When you sell the loan, that interest, the most
SPEAKER_00:important
SPEAKER_03:economic part of that loan, is exported to an investor in New York, Beijing, who knows?
SPEAKER_02:Before we go, think hard. about how you can help support this podcast so we can do more interviews with more thoughtful leaders in the credit union world. What we're trying to figure out here in these podcasts is what's next for credit unions. What can they do to really, really, really make a difference in the financial scene? Can't all be mega banks, can it? It's my hope it won't all be mega banks. It'll always be a place for credit unions. That's what we're discussing here. So figure out how you can help. Get in touch with me. This is rjmcgarvey at gmail.com. Robert McGarvey again. That's rjmcgarvey at gmail.com. Get in touch. We'll figure out a way that you can help. We need your support. We want your support. We thank you for your support. The CU2.0 Podcast.