CEO Interview: Watch For Unintended Consequences

Unfortunately, lawmakers are capable of writing flawed legislation, but meeting with and guiding them is easier than you would think.


Still a useful tool for helping credit unions improve lobbying techniques, this article originally ran in Callahan & Associates’ 3Q 2009 Credit Union Strategy And Performance (CUSP), a quarterly report on the industry.

Wright-Patt Credit Union (4Q 2011: $2.3B, Fairborn, OH) serves military personnel, government employees, and contractors at Wright-Patterson Air Force Base near Dayton, OH. In addition, the credit union provides cooperative services to individuals who live, work, worship, or attend school in any of the five counties in the Dayton region. Doug Fecher is president and CEO of Wright-Patt and serves on the board of Consumer Federation of America.

What are we facing in Washington?

DF: In my 25 years with credit unions I don’t recall a more significant period of legislative and regulative issues with such potential impact on credit unions and their members. It’s a serious time.

Should CEOs get involved?

DF: Definitely. CEOs can’t wait to see what happens. They can’t leave it up to the trade associations to handle this with lobbyists. Much of the proposed legislation has good intentions, but lurking is the menace of unintended consequences, which could really hurt credit unions, especially smaller ones.

How do you detect unintended consequences?

DF: People who have worked in this industry a long time can see them. An unintended consequence of the proposed consumer protection agency is that new regulations may both reduce the availability of credit and raise its cost. This is bad for credit union people because credit unions make a point of loaning to persons without the best credit ratings and at a significantly lower rate than does the for-profit sector. Moreover, although we are not really the people in need of consumer protection regulation, we are likely to have to bear a portion of the agency’s cost.

Here’s another example. In Ohio they are considering a bill requiring anyone who makes a mortgage hang onto 10% of it, that is, hold some of the risk. On the surface it makes perfect sense, except for small credit unions. One we process for has only $15 million in assets. Last year it made $16 million in mortgage loans, selling all of it to the secondary market. If this small credit union had to hold 10%, it would have to stop making mortgage loans because of liquidity issues. This is a bad consequence from a bill having good intentions.

Another example is the interchange fee bill. The merchants and legislators in favor of it ignore the resulting reduced income to the financial services institutions, which will have to find some way of making up for the lost income. They will add fees or more likely they will shut off financial services to marginal people. Unintended consequences tend to fall heaviest on small credit unions and the disadvantaged. We’ve already seen the new credit card bill result in higher interest rates.

What’s the solution?

DF: Educate the legislators to be aware of unintended consequences so they don’t write bills with problems. Let’s face it: Legislators are not in the financial services industry; they don’t understand the nuances of how their bills can affect people.

You see upheaval in much of the regulation being considered?

DF: Yes. Much of it is aimed at reducing fees charged to consumers. But if fee income is reduced, financial services institutions will be forced to making their income on balances. Banks will shed as many of the small  balances as they can, and we will take on those account holders with open arms, but their balances will still be small ones and unprofitable. So there has to be a reasonable opportunity to charge fees for services. If you take away the ability to receive revenue for services, the banking system will begin to shut people out.

How do you get your message across to legislators?

DF: CEOs need to know their legislators. It’s not that difficult. We brought our Congressman to our Board planning session. Despite what you hear, Congressmen are very interested in what goes on in their districts; most now recognize that credit unions are major players with significant resources to bring to bear for improving their districts. When we told our Congressman how much we lent in his district, his eyebrows went up – he had no idea of the extent of our mortgage, car, and student loans. The trade associations can’t do this; they can’t approach Congressmen as voters and people who help the district.

We might not always agree with the legislators – our Congressman is a former mayor of Dayton who believes CRA should apply to credit unions. But we at least talked about it and ended up better understanding one other’s position. If Congress got serious about passing a new CRA-related bill I think he would include language that would be helpful to us.

Here’s another example. In Ohio a year ago they were debating a payday lending bill. The chair of the committee was a credit union member and called me from the hallway outside the hearing room for some help calculating APR on some figures. He saw the credit union as being a resource in passing this bill and was very careful to put together a law that would not harm the payday lending program we had in place. Five years ago he would not have called us, not seen us as a resource. This shows how far we’ve come. It shows how he knows us – not as an occasional handshake, but as persons with whom to exchange telephone calls and to have lunch to learn what we are doing.

Is it difficult to get a legislator’s ear?

DF: No. This is what astounded me most when I started doing this. It’s surprising how easy it is to talk to them, how willing they are to listen, how interested they are in the work we do. They really do want to hear what is going on, what our perspective is.

Can you change lawmakers’ minds?

DF: Yes. We do not do a good enough job as credit unions telling our stories even to our own members and certainly not to our legislators. They don’t really understand us, but once you start telling the story to them face to face it is really helpful; they begin to get the big picture, and this is immensely helpful. I’ve talked with legislators who did not support us, not because they did not like us but because they did not understand us. When I explained what we did, they loved it. Or if the point is a particular issue – even a pretty important one – if you keep the conversation going you can change their minds.

What is the best way to approach legislators?

DF: I don’t advocate letters and phone calls. I believe in building relationships with staffers. When you know them and they know you, you email them and get a response quickly.

And one last thing: When I deal with staffers and legislators, I always finish by asking what we can do for them. You don’t want to look like you’ve got your hand out all the time. You’ve got to give something back. They really appreciate that.