The New Emerging Credit Union World

MODERN CREDIT UNIONS OF TODAY HAVE LITTLE RESEMBLANCE TO THOSE OF YESTERYEAR, SO THE CREDIT UNION WORLD IS EMERGING AS A FINANCIAL FORCE. Out of necessity, these financial organizations have become sophisticated and complex so that these institutions can practice a robust cooperative capitalism, which is a form of economic activity which helps neuter some of the criticisms of pure capitalism. In this form of capitalism profit is a secondary or even tertiary goal but nevertheless necessary. The credit union world now can compete with community and even mega banks quite effectively. In the early stages of the evolution of credit unions, those cooperatives emphasized the concepts of thrift and savings. Debt was discouraged; however, over time, the memberships of credit unions have philosophically changed, because of the financial milieu in which Americans found themselves, where debt and borrowing has been encouraged. In the past the credit union world did its best to counsel its membership about living within ones means.

Today, there is little motivation to build up deposits in savings accounts in credit unions, but tens of millions of credit union members do anyway. The reason most often given is that the money is safe in the credit union, because of the National Credit Union Share Insurance Fund (NCUSIF) and that is true up to $250,000, per individual deposit, accounts and for retirement accounts, and Keoghs. Joint accounts are insured up to the amount of $500,000, but after that, just like the Federal Deposit Insurance Corporation (FDIC) of the banking industry, those funds, too, areat risk. Many credit unions of decades past, and a few still, offer special savings opportunities in the form of a “Vacation Club” or “Christmas Club” among others. These types of programs encouraged saving more than borrowing. Some believe that it’s unseemly that financial institutions, like credit unions and banks, offer a one percent savings rate or less—this is especially true of credit unions—while borrowing rates to members average six to eight percent across all loan categories. Now, it’s all about the spread. Anything close to a three percent spread allows boards and managements of credit unions to expand services and facilities to current members and other consumers who are eligible to become members. This is not an indictment of credit unions, banks, and other financial organizations, because financial institutions of today are merely responding to the wants and demands (without regard for needs—those are a given) of a very fickle member/customer base. Consumers of the 21st century have little or no loyalty to their financial providers. If the credit union or other financial services provider won’t satisfy a want or demand, the member or customer immediately looks elsewhere.

This has become a debtor society, which practically disregards thrift and the concept of becoming debt free. Even the United States government stays in debt (currently pushing $16 trillion). All financial institutions, including credit unions, do not sufficiently discourage debt. There are literally thousands of financial organizations offering credit cards, and many of those credit cards are offered at confiscatory interest rates on unpaid balances and stinging fees if the payment is late. Then, those in the financial and credit union world become perplexed and are filled with consternation when delinquency rates and bankruptcies rise. Credit union leaders and managers should not want to be thought of as enablers. When credit unions are told that a 70-90% or greater loan to share ratio is good, why should CEOs and board members be surprised when membersget into fi nancial trouble? No wonder this has become a problem. Boards, managements, regulators, and members are all complicit in maintaining this debtor society.

The significance of debt is that an individual is no longer free—independence, individuality, and self-worth are compromised. Debt makes it imperative that a person work for someone, some company, business, or organization. According to the Federal Reserve in an article which appeared in USA TODAY April 28, 2006, Americans were in debt to the tune of $2.2 trillion with a negative savings rate of minus 0.4%. It is far worse in 2012 and will continue to be that way for some time to come. Bankruptcies are up and home foreclosure rates are up with no end in sight. Debt minimizes the ability to go into a business of one’s own. It’s all about control. When a person is in their 20s or 30s, has a responsible job (which at the time of this writing, the jobless rate is about 9%, which doesn’t include the structurally unemployed or those whom have simple given up, because the real number is somewhere around 18%), hefty credit card balances, owes for the new car and house, he or she must do the bidding of others without regard for personal choice, if they are fortunate enough to even have a job.

Unprecedented change is occurring at every level of human existence, as this earth spins on its axis at just over 1,000 miles per hour,. Though the earth was turning on its axis at the same speed 150 years ago, the rate of change economically, technologically, politically-legally, and culturally changed at a snail’s pace as compared to today. Yet, to understand where credit union thought is in the 21st century, we must revisit the past and trace the winding path of the “ credit union movement” to where it is now as the credit union world emerges as a major player in providing members products and services. The thread which has held cooperative credit union financial institutions in tact is people helping people—“not-for-profit, not for charity, but for service.” The early cooperative movement sought to improve the human condition. The movement was founded in the need for social reforms and some of the reformers came from unlikely places such as leaders of commerce in the newly industrialized sector of the economy.