Innovation Through Perspiration

Credit unions have always been outgunned, impeded, and underestimated. So why are these financial institutions winning at a time when so many others have fallen short?

 
 

In stark contrast to the dawdling national economy, credit unions kicked off 2014 with a record quarter for consumer lending, originating $48 billion in auto, credit card, signature, student, and other consumer loans. On the balance sheet, the $7.5 billion rise in outstanding loans achieved during the first three months of the year was the highest ever for this period.

Although trust in large businesses and government entities remains deeply bruised, consumers have been choosing to put their faith in credit unions in ever-greater numbers. Nearly 2.6 million new members joined a credit union over the past 12 months and the industry's total membership growth rate has accelerated for four consecutive years.

Credit unions have gained market share in first mortgage, auto, and credit card lending, despite interest rate developments that make it difficult to hold a significant pricing advantage.

Consumers clearly see inherent value in this proactive, nimble business model, yet that has not slowed the appearance of new roadblocks. Both the Consumer Financial Protection Bureau and the National Credit Union Administration continue to propose and impose new regulations that could imperil successful adaptation and differentiation in the future.

NCUA's risk-based capital proposal in particular highlights the flaws in the current rulemaking process, demonstrating a lack of appreciation for how the cooperative system was designed to function differently from banks and underscoring a growing disconnect between the regulator and the regulated.

Without consulting the industry in advance, this agency has proposed a rule that lacks coherence, logic, and even evidence of need. And although NCUA board members will participate in three listening sessions about the risk-based capital proposal, these will be held after the formal comment period has already ended.

By refusing to extend the comment period, the board's chairman Debbie Matz is effectively limiting the industry's ability to incorporate a wide range of perspectives on the proposal.

Yet, true to form, credit unions are refusing to stand meekly on the sidelines.

Industry efforts have already produced more than 2,200 comment letters from credit unions, members, credit union service organizations, and even Congress. For an industry already burdened in the aftermath of a financial crisis it did not cause, this may finally signal a tipping point and the beginning of a successful pushback against the rate and severity with which such undue impediments have been levied.

For an industry already burdened in the aftermath of a financial crisis it did not cause, this may finally signal a tipping point and the beginning of a successful pushback against the rate and severity with which such undue impediments have been levied. 

Thankfully, the broader economic outlook for the rest of 2014 is positive, with both employment and consumer confidence numbers continuing to rise. In this environment of growing opportunities, credit unions will have a dramatic head start over others due to their ample liquidity, solid and improving asset quality, and strong capital base.

Challenges will always abound in this industry. And whether they are driven by national developments, lawmakers and regulators in Washington, or issues a little closer to home, the cooperative model itself will not automatically eliminate or even lessen the weight of any such burdens.

However, through their willingness to step in, embrace the current environment for what it is, and tackle these issues together — compared to those who choose to play victim to fate's ebbs and flows — credit unions are proving they have what it takes to be leaders rather than followers in this new economy.

 

 

 

July 9, 2014


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