.jpg)
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 Golden Oldies #10 SECU's Jim Blaine on CU Past, Present, Future
This golden oldie turns the clock way back - to June 2019 when Jim Blaine, the retired CEO of SECU, then and now still one of the nation’s biggest credit unions, sat for an hour long session where Blaine muses about credit union past, peasant and future. Listen up.
This golden oldie turns the clock way back to June 2019, when Jim Blaine, the retired CEO of State Employees Credit Union in North Carolina, then and still now one of the nation's biggest credit unions, sat for an hour-long session where Blaine muses about credit union past, credit union present, credit union future. Blaine is a very, very smart, very, very caring guy, one of the creators of the contemporary credit union. Listen up. The CU2.0 podcast.
SPEAKER_00:A credit union that is considering merging. These days, the logical way to do it is to simply liquidate the credit union, split the multiple millions in equity among the members. In general, everybody would get about$1,000 if you look at capital ratios to assets. Every member gets$1,000 and can walk across the street to join the other community credit union. Why merge? Give me the$1,000. Who
SPEAKER_01:said that? Welcome to the CU2.0 podcast. This is your host, Robert McGarvey. You probably guessed who today's guest is. Jim Blaine, a legend in the credit union world. At 30, he took over the CEO job of a$300 million institution in North Carolina. 36, 37 years later, he retired. That institution had grown to more than$33 billion, with 2 million members, 5,800 employees. Just a staggeringly successful credit union, an institution in North Carolina, an institution in the world of credit unions. Jim has always been a person with strong opinions. In this podcast, you're going to hear very strong opinions. You're going to hear them constantly. Lament about the loss of local control where more and more credit unions merge. Decision making becomes centralized. The power of the local branch manager recedes. In many cases, that branch manager cannot even overturn or reverse an NSF charge. 30 bucks or something. Can't overturn that. Nope. Central decision. Jim is upset about the 200 or so credit union charters that just vanish every year, and he asks a provocative question. Could something be done with those charters to keep them alive instead of the laborious, painful, tedious five-year process of chartering a new credit union? What if entrepreneurs, visionaries could get their hands on one of those charters of a credit union that's about to disappear and Take control of that. Pump up a new institution around it. Be a real credit union. Live by all the regulatory rules. Just skip the entire process of chartering a new credit union. Fascinating. Provocative. We also talk about the role of the member owner. Is that actually a hoax? Is it real? What's going on? Jim has a lot to complain about about how many, many credit unions are becoming indistinguishable from banks. Instead of putting the interest of the member first, they're often putting the interest of the institution first. And that, from a true credit union person perspective, is just cockamamie. That's crazy. Credit unions were set up to help their members, to help members navigate through treacherous financial waters and to benefit those members. Credit union, of course, had to stay in business. It had to be solvent. It had to make sound decisions. But the goal was not to give that member credit A mortgage they could barely afford to give that member a new car loan they didn't need to give that member college loans they didn't need. Now, at many credit unions, it seems to be the business of the credit unions to make the business bigger. Who benefits? QE Bono. QE Bono. Interesting question in law and philosophy. QE Bono. Who benefits from today's credit unions? It's a philosophical discussion with Jim Blaine. He's going to upset a lot of people. It's going to make some people very happy. It will make all people think.
SPEAKER_00:You've been retired for what, about two years? Let's see, 2016. Yeah, just about two, two and a
SPEAKER_01:half. You took over as CEO of that credit union when you were about 30. Am I right? You got a great memory or you got good notes. I did a little research this morning. Usually I just wing these things, but I decided in your case, you have so much history to go over. I would do some research before we talk.
SPEAKER_00:Is it
SPEAKER_01:history or baggage? That's why in your case, I think it's history. So how the heck did you get the job when you were 30?
SPEAKER_00:I was the assistant general manager at the time. I had been with the credit union about seven years. It was a much smaller place, Robert. So when I started out, it was about$50 million in assets, which was a pretty good size in the mid-70s. And there was a reshuffle, and I got the second position. I turned it down. I didn't want it. But six or seven years later, the CEO retired, and I told the board that I would like the job, and in fact, I would do it for free if they'd give me the chance. I got it. That took me up on that offer. Now, did you take the job with no salary? No, but it's certainly not comparable to the salaries that are paid these days. I think it was about$12,000 or something like that. And I was glad to have it.
SPEAKER_01:Well, I think in general, credit union salaries still aren't comparable with banker salaries.
SPEAKER_00:I think that's very true for the smaller credit unions in general. Your best managers, your best leaders are those generally... Ladies who are doing everything at a$50 million credit union, superstars, and they're not paid adequately, I don't think. But I think the$500 million and billion dollar credit union folks are paid pretty handsomely these days from what I see.
SPEAKER_01:Could be. I also know those$50 million credit unions often merge because they can't find someone who will take the job. You know, there's a guy or a lady who's making 50 grand a year, working 60 hours a week, including teller shifts on Saturdays if the teller's sick. If the teller's sick, hey, it's my turn. No one else to do it. And then you say to kids with MBAs, hey, you want this job? They say, oh, gee, I'd love to be CEO of a credit union. Well, it pays about$60,000. We're going to raise it a little. The conversation kind of stops at that point.
SPEAKER_00:Well, first of all, boards probably need the$80,000 or$100,000 for any CEO-level job. It's a pretty sophisticated job, a lot of compliance and regulation. But they ought to up that. But I think it is a wonderful opportunity for a young person to get all kinds of experience. Being the CEO is a great resume builder, first of all. But second, meeting with the board, outside media relations, the kind of experiences you get are invaluable. So I think young people shouldn't undersell the idea of being top leader in a small credit union. It may not be where you want to stay. You don't get those kind of chances in life too often, I don't think. Larger banks and medium-sized banks are stripping the authority away from the local branch leader. It's centralized loan decision-making. It's centralized probably approval or disapproval of an NSF fee waiver. It's just completely insane. They're losing perhaps what credit unions are best at, that local personal touch of dealing directly with the member. And the member always would prefer to deal with the decision maker if you can, right? You and I would, right? Now, you're saying that's also happening in credit unions. Absolutely. That's part of the problem with the continuing increase in mergers. You're losing a lot of locally important senior executive jobs, personal decision making, local focus. You know, it's being consolidated into larger and larger credit unions who are, I think, not all, it's not true about all of them, that are less focused on the local needs of the local community. And for that matter, the local member being standardized, right? Standardization kills creativity, I'm pretty sure. Now, are you opposed
SPEAKER_01:to the mergers of two relatively healthy credit unions? We see this more and more. Two decent-sized credit unions merge, and they justify it on the grounds that this will let us compete better with the big banks. Oh, hooey, it's not going to let you compete better with Chase. Don't be silly. You're still going to be tiny. You're just a gnat, man. Do you have more insight, more intelligent insight than I do into that? Do you agree or
SPEAKER_00:disagree? I don't know that I have more insight, but first, a couple of things are pretty clear, I think. Just say opposed or not opposed, neither. Just analytically, if you look at the numbers, NCUA, for example, breaks out operational ratios by asset size, less than 50 million, 50 to 100. If you look at those ratios, particularly operating expense, you'll find that there's very little difference between a$50 million credit union and a$5 billion credit union in terms of cost of operation. So the economies of scale, it isn't clear to me that you gain those. And then if you look at the other side, the consumer side, the member side, there is not a great deal of lower NSF fees, lower rates, broader range of services. You can't make that real clear distinction that you get more from a larger credit union. It used to be you would get greater geographic reach. But with mobile nationwide ATMs and Visa, MasterCard, I mean, you've got even the smallest credit union can give you worldwide access to your account just through your cell phone. The economies of scale in terms of lower cost are not clear, and the geographic reach is no longer significant. Now, what do
SPEAKER_01:you think about this other trend we're seeing where It's a smaller trend. The merger trend has been going on for some years now. But the thing that's starting to happen is credit unions are buying bank charters, which I find really puzzling because for years I've seen the mantra that we're the unbanked. Hey, banks are evil, man. Well, are you still? Why don't you
SPEAKER_00:have a bank charter? Aren't you a bank too? Well, let me back up before I answer that one because the idea of mergers, Robert, the analytical To me, mergers are no longer generally justified. No lower costs, no geographical reach, no greater convenience, some of that. But what it really comes down to is a credit union that is considering merging. These days, the logical way to do it is to simply liquidate the credit union. split the multiple millions in equity among the members. In general, everybody would get about$1,000 if you look at capital ratios to assets. Every member gets$1,000 and can walk across the street to join the other community credit union. Why merge? Give me the$1,000 and let me make my new choice. It's not that hard, right, to reopen an account. And again, instead of merging me into whatever credit union you choose, let me re-choose where I want to do my business financially. Among generally several credit unions, there are many nationwide charters. So it's not just the local, other local hometown credit union I could join. And many people, as you know, are members of multiple credit unions anyway. So let's give me the thousand bucks and let me go on. And that to me, from a CPA, which I am, perspective is the right choice for most of them these days. Makes perfect sense. And again, if that option, again, if the board is representing the best interest of the members, members in a merger should be fully informed of all their options, what the benefits and the downsides would be, but liquidation should be one of those options. Most members having relatively small balances in their savings,$1,000 payout would be a great benefit to most of them. On the bank charter issue, That simply smacks of the commercialization of credit unions. I think something that a lot of us have been around a long time witnessing and are concerned about. I never, while I was at the credit union I worked for, I never had a member come in and ask, what's your asset size today? They were interested in the loan rates or they wanted lower fees or they had a complaint against an employee, but they were never concerned about the size of the credit union. So when you talk about gaining market share, I'm not sure who that's important to. It must be only to the manager, maybe that's salaries and benefits, or to the board for ego or prestige. But I can't see how buying assets from a bank is anything other than a commercial venture and not a cooperative venture. Why are you doing it? Are you buying it because you want to improve your earnings? When you buy, by the way, you don't buy a bank, you buy their assets and the charter goes away. You know that, right? Reported and misunderstood in the press. You don't end up owning a bank charter. A credit union cannot buy a bank charter. A credit union cannot own a bank. And I think that is not fully understood.
SPEAKER_01:No, I did not understand that. I thought it was like five years ago or so. Green Dot bought a bank charter, I believe, in Colorado. In Green Dot's case, they actually set up a separate corporation, which they then ran as a digital bank. So Green Dot was not a credit union, right? Right, right. They had a credit card operation, debit card operation. Well, it is illegal for a credit union to own the bank charter. Interesting, because I just assumed it was similar to the Green Dot thing, where they kept the charter. What they wanted was the charter. They didn't want the assets. And so
SPEAKER_00:if they don't own the charter, they don't get any of those banking benefits. you know, regulatory benefits or service benefits or greater commercial lending. No, they're just buying the building and the loans. Credit unions can buy loans from anybody. That's been going on forever. You can buy deposits from anybody, I guess. That's
SPEAKER_01:weird. I thought they were looking for an exit route in the case, in the event 20 years from now, credit unions as a whole go away. And I can come up with scenarios where that happens. I thought, wow, that's pretty cool. You're planning 20 years ahead for an exit route.
SPEAKER_00:No, no. It's just like they're going out and buying a Pizza Hut franchise. I mean, they do not...
SPEAKER_01:Well, it's like Bill Bynum buying some bank branches in Alabama where he's not continuing to operate as a bank. He's trying to convert those customers over into being credit union members with considerable success.
SPEAKER_00:Yeah, well, as you're well aware, Bill Bonham is a very shrewd man, and I would bet you that he's not buying them, that the bank is giving them the branches, paying him to take it, because many of the banks, as you're well aware, fleeing small town America.
SPEAKER_01:They certainly are in
SPEAKER_00:North
SPEAKER_01:Carolina. In many cases, I've talked to Bill a number of times about this, and my understanding is that in many cases, he was given branches. Absolutely. In some cases, he may have paid probably a token amount for the branch. But again, I'm just speculating there. But
SPEAKER_00:as I understand the current, quote unquote, buying a bank, it is simply buying their assets to increase the size of the credit union. I would tell you that a credit union negotiating with a banker is probably not a really shrewd. I would bet the banker wins in all cases. I might bet on Bill.
SPEAKER_01:Bill's a pretty shrewd guy. Bill's the exception. He can make money on a$2,000 car loan, which no one else in the world wants to touch. I'm not saying he makes a lot of money, but he doesn't lose money on those$1,000 to$2,000.
SPEAKER_00:Yes, because those folks over in Durham, North Carolina, trained him well. You know, North
SPEAKER_01:Carolinians want to take credit for Bill. He's a proud self-help alumnus. He's very happy to say that's where he learned his art.
SPEAKER_00:But the merger, if you got one more second for the merger question, liquidation, full information, full transparency, full disclosure to members of a credit union being merged, including the option in the alternatives, an option to liquidate and receive a payout. The other thing is credit unions in general seems to me should fight harder to keep charters alive. There's this general feeling that a credit union less than, name your number,$500 million can't make it anymore. And I think that is clearly a misstatement. There are many, many successful ones in the$100,$200 million range. And they're doing especially effective services for their local community. I think they're far more effective in terms of reaching special needs in communities than are the larger ones. So we shouldn't let them go away. And again, I think it's a great training opportunity. It's good for the local community to have a CEO. You know, all the CEOs now live in the big cities. So they're not available for the Chamber of Commerce and the PTA and the planning boards and all that. We need to keep those kind of folks active. It's as bad as letting the manufacturing go to Mexico or China. We're now stripping the service component, service leaders in our economy out of the local communities. So there's going to be a wasteland of service leaders, banking and credit union being a service economy that... is disappearing from the rural small town America.
SPEAKER_01:I'm sure you remember, I remember when credit unions made lending decisions based not upon a FICO score, but upon a judgment of the person's character and ability to repay. It's not that they ignored a FICO score, there was no FICO score. So you're running a credit union in a small factory in a small town in North Carolina or New Jersey or wherever, Guy comes in, he wants 500 bucks to buy a car. You make the decision, is he good? You ask the foreman, is he going to keep him around or is he going to get fired? No, he's a good guy. Okay, fine. And you ask a few other people and if they all tell you he's a good guy, you make the loan. And that was a good way to do business, I think. And credit unions don't do business that way anymore.
SPEAKER_00:Well, you know, the one I work for, State Employees in North Carolina, still does it that way. It does not have risk-based lending, so they don't use a full credit score to start a discussion. But everybody gets the same rate. I think SCCU is the only major, or not major, but larger financial institution that still does it that way. The decision is still made over the phone, in person. Character is still very important. Members still have the ability to appeal a loan officer's decision to their peers in the community, still have loan committees. And again, bad things happen to good people. Listening to the story is still the fundamental beginning step in a lending process at the credit union I work for. And it's been very effective. I mean, your losses are lower. I mean, you still don't make loans to people that aren't going to pay you back. But you do help some people that have had a divorce or major illness or job loss and those kind of normal things that happen to good people that will financially set them back. Credit scoring system will write them off in a hurry and it's hard to get to recover from it. Keep the character personal touch. You help more people. You help them get back on their feet longer. It's the best marketing you ever want to help somebody when they're down. You get well known in the community word of mouth. The guys that will help you are people at the credit union. So the credit scoring is a good example of standardization, takes the creativity out of the loan decision-making process. If you're a 675 credit scorer, then you're just like everybody else with 675, which is just not true. We're all different individuals. And that was the fundamental thing that credit unions were set up to judge, right? You were judged by your peers in the fire station if it was a fire credit union or in local government if it's local government or the post office, right? And collection is real good when it's peer pressure too, right? Get a better loan decision-making process out of not standardizing. That idea about creativity in your merger thing, the smaller credit unions go away and after a while, the medium-sized ones go away. Then the more it's standardized... the more it's less important to the local community. The less the member feels like they are part of something. And I think you've said it before, at that point when I don't feel like I am a part and that they will work to my advantage, then it's no longer really a credit union. You can call it whatever you want, but it's just another, it's just a price choice or a convenience choice. And I think credit unions were set up to be something different in the 30s when most of them were set up. As you know, Robert, it was a question of not price or convenience. It was a question of having access. Most of the working people had been turned away by the banking system in the 30s because times were tough or jobs were uncertain or whatever it was, right? Credit unions answered that need by people that knew each other coming together to say, let's help each other. I think as you take that personalization out, then the original idea goes away very, very quickly. And the need for credit unions goes away. What is so special if it isn't a matter of having access to somebody that will listen to you and give you fair advice? Well, which brings
SPEAKER_01:us to a topic I know you have an interest in. It's becoming increasingly of interest to me, which is member ownership. I've written myself Many times, credit unions are different because they're member-owned. Some of the trade associations use that as a linchpin of their marketing. And increasingly, the question I ask is, does it matter? Or is it all just a hoax? I have never voted in a credit union election. My principal credit union is 2,500 miles away from me, and they don't have voting by mail. They don't have voting online. It's in person. And probably about 12 people are in a little hotel room, would be my guess, even though it's a big credit union. The more I talk to people, so many people tell me, hey, you're right. There's elections. I've never voted. I didn't know there were elections. Am I just talking with weird people? And do I have a weird experience? Or is this more commonplace? And if so, is any of this really a problem? It
SPEAKER_00:is a problem, in my opinion. Of course, I'm more of a traditionalist. I think, first of all, it's not a matter of voting. I don't think. It's a matter of thinking or attitude or approach or commitment. I don't know what you want to call it. But if you would, Robert, on a piece of paper, just draw a box and inside the box, write credit union, CU member, right? And to me, the way a credit union started out, credit union and the member were inside a box. They were one entity. These days, if you draw a line down the middle of that box and separate CU, Remember, that's where we are today. The credit union as an organization has become something separate and distinct from the member. And the credit union as an organization quite often these days has goals and objectives and practices that are disadvantageous to the membership. And when you get that kind of thinking, then you have moved from a cooperative to a commercial enterprise, call it a bank or whatever you want. that the interest of the business, the credit union, are different from the interest of the member is not a cooperative. So it has nothing to do with voting. It's how the organization has evolved. The credit union, to me, started out as being a shepherd, right? You know, the flock, but they were together. The interest of the shepherd and the sheep were the same. And in that sense, sheep may be a good word because many, many members are cooperating great policemen, firemen, teachers, but they're not good at finance. And part of the original idea to me was the credit union as a group of people were going to take control of the financial operation, make sure that the people got the best they could, that they didn't have to focus on being financial experts, that as a group, they would adopt financial practices that served everybody well. When you draw a line and the credit union becomes an entity under itself, how do you notice it? Well, suddenly they have NSF fees that are$30. Now, maybe that's better than the banks at$32. But, Robert, whether it's children or family or your mom, You wouldn't want your mom to be paying$30 for an NSF, right? And you certainly wouldn't want her to pay eight of them a day or$800 a month. You would stop that practice. You wouldn't let that go on. These days, many of these bounce protection, any number of practices that are commercial and take advantage of the members' ignorance of the financial marketplace. The point being that the credit union is no longer serving the best interests of its members. It's serving its own best self-interest. Maybe that's management and the board and a limited number of folks, but it no longer serves the greater good. If I am giving you financial advice as a cooperative leader, I would never advise you to have a bounce protection or to pay overdraft fees or to pay 24% on a credit card. I would tell you to get another alternative. or to make your car loan through a dealer, whether you're not getting the best rate. All these are exempt, not condemn the practices, but they are indications that the credit union original ideal has shifted to something that is more commercial and bank-like. And the member becomes, you know, just, you know, if you sign the paper and you're dumb enough to sign it, then it's your fault. Credit union doesn't have a responsibility to make sure you're using your money as well as you can. Maybe we have moved from being a shepherd to being a wolf and not realizing how badly we impact some folks who were originally relied on their credit union to look after that part of their lives, just like they looked to a doctor to look after their health. you've somehow lost the spirit of the original idea.
SPEAKER_01:That's a serious indictment. I don't disagree. Now, or is it the case that credit unions are bifurcating where many are acting in the way you're describing? And then there's the CDFI institutions, which at least on paper are following an entirely different agenda. And in practice, at least many of them are following a different agenda. I mean, Bill Bynum is very proud that his mobile app is really cut down on his overdraft fees. Because instead of guessing at your balance, you just look on your phone, it pops up and says, hey, dude, check's going to bounce. And Bynum's excited about that. He sees this as the institution doing good for its members.
SPEAKER_00:Sure. And it's not to condemn anybody. Credit unions believe they're operating in the best interest of their members. And financially, they're all very successful. But from my 50 years of perspective, the basic equation that the working man and woman who was not fully astute in terms of finances always got a bad deal in the financial marketplace. These days, those who know the lease are still getting the worst deal. And Robert, it is often punitive and destructive of a family when you start paying these. Payday lending is another example. And again, very high credit card rates and exorbitant fees for minor mistakes. Again, I think the original idea of lowering costs and lowering the risk of being part of the financial marketplace has gone away. It's not just the large credit unions, but credit unions are now judging themselves by the bottom line, by their capital position, by their growth, and less about what the purpose of the organization really is. Bottom line growth, market share, all that is a commercial kind of for-profit value judgments. It has nothing to do with the overall value to the community. The CDFIs are great, and they've always been great, but they often are painted as serving just the low and the downtrodden and all that. As we're all well aware, the 99% Probably 90% of the less affluent people in America are living paycheck to paycheck. They don't have a reserve fund. And they are desperate. Their standard of living is going down. So the original thing, the original goal of improving the financial status of people that, to me, credit unions set out to achieve, we're losing that battle. Individual institutions are very successful. More power to them. But they haven't changed the basic equation of helping average men and women in America get through interface with the financial system without being penalized. People
SPEAKER_01:forget that credit unions were formed to provide financial services for people whom banks did not want to serve. They weren't winning members from banks. Banks didn't want them. You could have them by the busload. Banks didn't care. And still, a third of America are people no one wants to serve, including most credit unions, unfortunately.
SPEAKER_00:Let me give that a slightly different tack. Let's go back to the original idea that in the 30s, credit unions were set up to help give folks access to the financial system. You know, small loans, safe place to save. Today, I think most Americans suffer from not having access to having too much access to credit. And the problem is, All right, well, if you're still in, I need to have more branches, I need to grow and all that. That's not the problem. The problem is that individuals are being led to bad decisions by the current financial system. Look
SPEAKER_01:at the amount of dead kids graduate college with. All right. And if I'd been a kid, if I'd had that credit availability, I probably would have done the same. And it's
SPEAKER_00:easy money. Well, I think that's an excellent example. And if you look at it, let's stop. I'm not trying to condemn credit unions bank. Let's look at the university and college system who are raising their car and particularly the for-profit colleges, right? Many of them who are making credit easy and maybe the degree degrees are not that valuable. You know, it, it, it's, You used to think that the college was there to educate you and get you through. Well, I'm not sure that they're not in the business of churning people through the college system, right, and collecting the fees and the money, just like the financial institutions. But you point out, yeah, well, how did we get to the point in this country where you have a trillion and a half dollars of college debt that people, in theory, can't repay? Who said that nobody is going to make sure that a student who doesn't know better isn't going to fall under that trap. When did we let down the defenses? The same is true on the financial side. And that's, to me, where credit unions were supposed to be the alternative, the ones that really would not allow you to do something that would financially harm you. But they would do all kinds of things like no down payment mortgage loans to help you get into a house if it made sense to you. Same thing on a car, no down payment car loan at a reasonable
SPEAKER_01:rate. Well, credit unions used to also pride themselves on their financial education. So if you inquired about a car loan, they might say, hey, we got this class. Why don't you come take the class and then we can talk about the car loan? And you might leave the class and, well, my car's fine as is. I don't need a car loan. And that was good, too. That was fine. Whereas now the credit union wants to make the car loan. That's
SPEAKER_00:right. Making the loan trumps everything else, right? If you meet the algorithm or the equation or the matrix, then we'll make it to you without looking further into whether it's beneficial to you. But again, payday lending, you mentioned that. That's a great example that credit unions should be working hard to stop payday lending because I think everybody agrees that it's detrimental to everybody that uses it. But you see our trade associations this week backing CFPB, pulling back from trying to limit the scope of payday lending. And there's something wrong. I mean, I think that's the wrong message that credit unions are sending. And it will be life-threatening at some point to credit unions because they do look like the banks in that respect or with the payday lenders. Having no regulation at all is not wise in businesses that can permanently hurt you. That's why we license doctors. That's why we should have controls in finance. That's why somebody inspects our meat. The idea that regulation is intrusive, it's intrusive only to some people if it restricts their limit, limits them in doing damage to other folks. It's not an arm's length transaction in finance, generally, Robert, from my experience. If I'm a financial person and I understand finance, The person I'm most often dealing with as a credit union member doesn't have a clue. I can tell them yes, no, and they will believe me. And again, going back to the idea of a shepherd, I think credit unions are obligated to tell the truth to the member what they need and not what they want. There's an obligation there to a member owner. that isn't there to a client
SPEAKER_01:of a bank. I remember 10, 15 years ago, I was buying a house and it seemed like a lot of money to me. Various lenders said, geez, why do you want that house? We can give you a loan 50% bigger and you can get a bigger, better house. And I said, no, thank you. This is really the top of the market for me. And these were mainline lenders. This wasn't, you know, these weren't criminals. They were mainline banks. It's like, no, no, you can qualify for a whole lot
SPEAKER_00:more. But it had a long history. running argument about the words that are used in the credit union movement. And movement, of course, is one. I think you've discussed that on some of your shows. Yeah, what's your
SPEAKER_01:opinion
SPEAKER_00:about movement? Well, that it is a social movement with a social purpose is all that I think that a credit union is about. You know, there's a social responsibility to the members to put them in the right product at the right price and not damage them, you know, the doctors saying do no harm should be, should apply to credit unions as much as it does to medicine. And as we see the consolidation and the move away from the, intimacy with the member, then that's being lost. I think it's
SPEAKER_01:horrible. I think that's horrible. With your credit union, many people have told me over the years that you were extremely generous in helping small credit unions in the state of North Carolina with some staff consulting, free access to ATMs, that kind of stuff, where I don't think many other large credit unions can make the same set of claims, though. What you were doing was living part of a movement where it was in your interest and perhaps your duty to help these small credit unions, not to the point where it hurt your institution, but to a point where you were doing good and it wasn't hurting you in the slightest. And I don't see many other large credit unions doing that same stuff, which is, it's not that hard. I mean, you know better than I am how hard it is, but it's just being a decent person decent member of a community. Well, that's
SPEAKER_00:the way our board and staff at SECU viewed it. It was improving the local community, and it wasn't that there was one pie and we need to have it all, but the Latino Credit Union was a group effort by a number of credit unions in North Carolina, not just SECU, to provide financial access to the growing Latino population. I think it's 300 or 400 million now. We had the same thing with local government. Small local government units didn't have a credit union. Fought with the banks over it. Finally created local government. I think it's$2 billion now. We have the last predominantly African-American credit union from Jim Crow era that is being helped to be managed by SECU. Trying to keep those original ideas and niches alive. and make them grow, and they can do a better job than a larger credit union can. By the way, Robert, one of the things going back to something said earlier, in North Carolina, a lot of times when a smaller credit union lost a manager, lost their CEO, they would call us and we'd say, well, here are three or four candidates. that we thought were great folks. It was a great training area for our staff. In a large credit union, it's a pyramid kind of thing. There are only so many CEO spots. If you could offer CEO jobs to staff that were all young folks that were on the rise, and folks like Tom Doherty and Terry West came out of our credit union. Maurice Smith, who's head of CUNA now, came out of all those guys and gals, by the way, that started as loan officers. So a large credit union could help keep, the point being, could keep smaller credit unions in business by simply being the source for their next CEO. And quite often, not only is it a promotion in decision-making and stature, but it's a monetary increase for a branch manager to be promoted to CEO in their local community. And they love that kind of opportunity and already understand the landscape with them. It's as you say, A credit union is dealing with folks on a level that quite often the banks are not willing to deal with them on. They're more chasing the wealth management kind of folks where we're trying to help get the rent paid, get the ballet lessons for the kids, make the car payment, take a vacation every three or four years kind of folks. And there are more of them than there are the wealthy, and they're more appreciative, and they're more loyal. to tell you the truth, too, if you will help. So there are a lot of good reasons for a credit union to stop looking upward and start looking inward and think inside the box. Going back to that idea, go back inside the box. Make the credit union and the member one and the same again. The need is still there. The one thing that I hope that credit unions would consider would be sustaining these charters that are evaporating. You know, it's very, very... We talked about merger. It's very, very difficult to charter a new credit union these days, despite what state or NCUA regulators may say. It's very hard to do it. But we're letting 200 or 300 charters evaporate every year. Rather than let that charter go, somebody needs to find, you know, maybe it's the SECU model. Call a large credit union. Say, I need a new CEO. Send me somebody over here. and let the board pick somebody new and keep them going to maintain the numbers and the personal service and the original purpose and train a lot of new leaders. It would help in terms of credit unions politically to have a local institution. Who has a local financial institution headquartered in their town any longer? Very, very few people. See,
SPEAKER_01:the picture I see is a small credit union could stay in business independently if, say, SECU did all the back office for them, all the compliance. And we're talking a small credit union. This would be like a blip in a moment of time for an institution of SECU size. And the credit union itself would do the marketing and be the face of the institution. And all I'm saying is get rid of all the ledger sheets, stuff like that, the stuff you don't want to do anyway. Give it to someone who's better at it. They have better computers. Let their computers do it for you. And in Maine, the Maine League does pretty much the same thing for pretty much all of its small and mid-sized credit unions. And there's a new one being chartered in Maine, Maine Harvest. And I think it will be chartered. It will be small. It will make only agriculture loans. What makes that possible is the back office technology from the Maine League. They wouldn't even dream of trying to open if they couldn't do that. So we could keep pretty much all these institutions alive if we encouraged pooling technology. Robert, you just said it.
SPEAKER_00:Instead of trying, it harvests, right? Main harvest, yeah. Rather than going, and as I understand it, that's been a couple year process, right? Oh,
SPEAKER_01:that's been four or five years, but they're pretty close to getting
SPEAKER_00:it. Robert, just think about this. Four years ago, you could have picked one of the 250 institutions and let's just say they're all federal charters, 250 credit unions that were being merged out. Pick one of those and put in your management, ask for a change in field of membership to Maine, and you've been ready to go. The backbone is there. The people are there. That's what I'm saying. This wildly valuable charters, existing credit unions, I mean, again, 200 a year, they could be redeployed and refashioned without having to go through all the, they got the board, they got the equity, they've got the systems, they've got the compliance, right? They're one, two rated back. Just take those credit unions, put new management in and refashion the field of membership. And you're ready to go without the four year wait. That's brilliant.
SPEAKER_01:I'm sure there have been credit unions in Maine. Just do it. Just do it. I mean, there are credit unions in Maine that have gone out of business in the last five years. Sure they are. And
SPEAKER_00:this is where, when you come to a merger, before you merge the thing out of existence, I said liquidation should be reestablishing. If the CEO's tired, pay him out, get you another one. There are a lot of very bright young people that would love that job. If the board's tired, get some new folks from the community. Reintroduce, but the framework, the hard part is they're done now. and is running fine. So just put new people in the driver's seat. Maintain the tradition. And so these very enthusiastic people at Maine Harvest could have started four years ago with their enthusiasm while they learned the system with people in place, right? There are tellers that were there, right? There's lung collections. So this is, at any rate, but who is going to champion that, you know? Our trade associations are neutral on most everything other than taxation. You know, there's no compelling issues.
SPEAKER_01:When the trade associations take positions, I usually oppose the positions. Not that my opinion matters that much, but I remember I was at a GAC meeting when CFPB was just coming into formation. And the prevailing sentiment was, we have met Satan. and Satan is the CFPB. I say, wait, aren't they against the bad predatory people? Could you tell me what's wrong with that? What's evil about that? No one could tell me what was evil about it, but they were against it because the trade associations were against it.
SPEAKER_00:CFPB is not a perfect animal
SPEAKER_01:in SECU, the credit union with which I work. You were actually under their purview, one of a handful of credit unions that
SPEAKER_00:worked. And it was very difficult and they were very precise and they were reactionary and they were overbearing and all that. But with a good intent, it was a new organization. They were trying to learn. They were coming off the worst financial disaster right in our history where banks had and others had legitimately and purposefully, illegally busted the system. So, I mean... Somebody had to write a check for, what,$900 billion over a weekend to salvage the financial system. That wasn't the credit unions. But it was a real taking advantage of this country. So the CFPB was a reaction to that. And yeah, we wanted to try to make sure we hopefully will not let that happen again. But reactionary kind of thing. They were overdoing it. But I think some pullback is fine, but it's not pulling back from things like payday lending and abusive credit practice. We still need those controls reimposed because or else you'll end up with students with$1.5 trillion in student debt they can't pay or about the same amount of credit cards that are And people with no savings and no fallback and no pension these days.
SPEAKER_01:Well, when I was a kid, when you were a kid, there was unofficial predatory lending. It was criminal predatory lending. Every factory in New Jersey had a loan shark. And if you needed five bucks today, he'd give you five. Payday, you gave him six. And he
SPEAKER_00:met you at
SPEAKER_01:the gate, right? Exactly. With your pay packet in your hand. And you were paid in cash in those days.
SPEAKER_00:So we've always had that. The word usury evidently has been taken out of our vocabulary. We no longer think it's wrong for payday. Payday lenders truthfully disclose that the rate is about three, four, five hundred percent and it's permitted. Credit unions, again, if we were set up to counter the Loan Shark and all that. The Loan Shark was, I think, cheaper than that.
SPEAKER_01:Why credit unions? And some really are trying to offer payday loan alternatives, but so many just have no interest in it. It's not their customer. They want to fight with Chase for a nice upper middle class customers.
SPEAKER_00:Well, again, I think that's the idea that the credit union as an organization, has separated itself from the interest of most of its people. Competing with Chase may be good for the credit union, but it's not really what the membership needs. One thing we talked about, Robert, that I didn't finish, you talked about chartering a new credit union. There is a, and having the under the operational part done by another credit union or something like that. Have you ever talked to CU Answers? Are you familiar with them? Yeah, yeah. That is a cooperatively owned technology platform. So it's cooperatively owned versus Fiserv and some of the other. Four or 500 credit unions, as I understand it, Randy Carnes and crew provide the first couple of years for free, will help people. So the point being, there is at least one organization I'm familiar with out there that is providing compliance, data processing, alpha to omega for a startup credit union. And being cooperatively owned and cooperatively directed should supply some help long term.
SPEAKER_01:Now, I've talked to them in the past, and I definitely like that approach because so much of people think of a credit. No one in the history of credit unions has ever called up a credit union saying, I'm thinking of opening a new account with you. Could you tell me what your core system is? No one has ever made that call. So why do you need to worry about what your core system is? Why don't you just share a core system with 100 other small credit unions? So, yeah, I truly believe that. And I'd like to say we can keep hundreds, thousands of credit unions alive if they do more back office sharing. You don't need to sleep with your core, man. I've told credit union CEOs that. You don't need to.
SPEAKER_00:If you've got one more second, let me try two more real quick about what do you think this concept of preserving charters, got any ideas on how to do it and who would lead it out? Because I think it's an opportunity that's being wasted, and it's horrible to let that go.
SPEAKER_01:I had never thought of that idea until you mentioned it today. I want to think about it more before answering your question. I assure you, I'm really intrigued by it and I do want to think about it more. Remember, I used to do some business with what was called small cap companies. One way you go public is you buy a shell of a publicly held company. Usually, it's called a reverse merger. The publicly held company really isn't doing anything, but they're public. So boom, there you are now. Now you're public. And you're talking about something a little similar. It's a paper shuffle, but there's nothing illegal about it. There's nothing deceptive or crooked about
SPEAKER_00:it. No. And you've got NCUA would have to bless it and all that, but why wouldn't they want to keep a reasonably good credit union in business? Why not? Well,
SPEAKER_01:NCUA has to begin to think if the number of credit unions reaches a certain point, when does the federal government say, you know, we're just going to fold this whole thing into FDIC and fire all you guys.
SPEAKER_00:Why don't you think they get that? Because, I mean, that tipping point is at hand as far as I'm concerned. Why don't you think they see that or do they not care?
SPEAKER_01:I think they live in a bubble and in the bubble, they're still real important. Everybody who lives in a bubble thinks the bubble defines the universe.
SPEAKER_00:So try one more with me. Now take this idea that these charters that are evaporating, if you could sustain them, let's say, why not capture one of these charters that is an operating business and put Start operating it the way you think it should be operated. You know the way to do this, Jim?
SPEAKER_01:All right. Thank you. Please. To get people interested in taking over a charter and turning it into a worker hybrid member-owned co-op. The hottest thing in co-ops today is worker ownership. Yeah. And there are hybrids that blend both of those models. And if you get a worker-owned co-op that was also member-owned Everybody in the co-op movement would be so jazzed about this. People in the credit union movement wouldn't know what the hell you're talking about. So you get away with it for a long time because of the confusion. Well,
SPEAKER_00:riff on that a bit because every employee is a member of the co-op. So are you not already there other than policies or whatever? Every employee of SECU was a member of SECU.
SPEAKER_01:Yeah, but are they actively involved in the... direction and governance of the credit union?
SPEAKER_00:Well, I would say, well, they participate in electing the board that sets those policies, not only for employees, but products and services. So the answer is yes. And that's where I go back to saying, and if you scale it at$100 million,$100 million credit union in every state, who has cooperative technology. I mean, you're a$5 billion organization. You got a heck of a lot of buying, right? But they're independent practices in each state. Whatever's, if it's main harvest, is that about the fishermen and the farmers? It's
SPEAKER_01:mainly about small-scale agriculture, which is very profitable at this point. There's federal loans for big agriculture. If you want to have a 40- or 100-acre blueberry farm, there's no federal money for you. You're too small. Uh-huh. And wouldn't that apply in every state? I mean, isn't that... No, I've talked with those guys about, do you see this as an exportable model? Could there be a Vermont harvest credit union? And they said, yep.
SPEAKER_00:Or if you had a Vermont credit union that was independent, then they could bring their friends over from Maine and teach or adopt their share, like a credit union should, share their lending policies and their techniques of analysis, right? The idea of a small credit union being the most creative financial institution on the planet is what we need to go back to. That was one of the real strengths of having 20,000 credit unions in the 40s and the 50s. They didn't know what the hell they were doing. They were inventing it as they went, right? They were non-standardized. So that creative juice has been squeezed out of the credit union, whether you can blame it on NCUA or standardization or merger, whatever you want. But the larger you get, the more it has to be standardized, the less creativity is there. So we're killing ourselves in terms of creativity. If you think that's what changes the world and local solutions and all that. You can't do that at all.
SPEAKER_01:Well, to me, co-ops that solve problems that no one else wants to solve are the ones that succeed. Credit unions, most of them aren't solving a problem that no one else wants to solve. Not really. If a CDFI credit union calls up Chase and says, hey, do you want to take us over? They'd laugh and hang up. But if... SECU calls up Bank of America and says, you want to take us over? They'd say, well, think about it. Yeah, maybe, possibly. They laugh about it, too. You don't realize the scale of that, baby. Oh, hey, no, no, no. I've done the math. I've added up the assets of every credit union. This was a couple of years ago. And it was about equal to the assets of JPMorgan Chase. Every credit union in America.
UNKNOWN:Yeah.
SPEAKER_01:And that's just one of the money center banks. So yeah, the scale is, I admit you're not that big compared to the bank.
SPEAKER_00:Let me try one other on you that, you know, the tune up new program, they're spending a hundred million dollars on
SPEAKER_01:marketing. I'll open your eyes to a credit union. Yeah. I interviewed Teresa Freeboard, who's the credit union spokesperson for that.
SPEAKER_00:Well, Robert, think of the message. If I'm the receiver, open your eyes. Doesn't that insult the hell out of me? I mean, is that not an example of the organization or the credit union not realizing the members condescending to say, open your eyes. Man, I'm fully awake. What do you mean open your eyes?
SPEAKER_01:That's a good point. You're saying to the American people, hey, dummy, there's another option out here. Before we go. The CU2.0 podcast is looking for a few good sponsors to help us spread the word about the digital transformation of credit unions. You could be one of them. Contact Robert McGarvey for details at rjmcgarvey at gmail.com. First come, first served. Again, that's rjmcgarvey at gmail.com. The CU2.0 podcast.