Leveraging Our Competitive Difference

Are we ignoring the competitive difference that makes credit unions unique? The largest credit union charter conversion yet will be put to a vote in November – what does an action like this mean for the industry?


Editor's Note: The largest credit union charter conversion yet will be put to a vote in November. Michigan Credit Union is seeking to convert their $1 billion credit union into a mutual savings bank. Randy Karnes, CEO of CU*Answers, asks what actions like this mean for credit unions. Are we, in fact, ignoring the competitive difference that makes credit unions unique?

Imagine this news story showing up in the Washington Post: "GOP Offers Incentive To Vote ... The Republican Party would like to encourage you to vote this November. If you do, you'll be eligible to win a 3-year lease on your choice of a 2005 Cadillac CTS or SRX, or one of five $1,000 cash prizes. Of course it doesn't matter who you vote for, you'll still be eligible to win."

What's your initial reaction?

Now come a little closer to home. Lake Michigan Credit Union recently made this very offer to its membership in hopes that they will get out and vote for their proposed charter change to a federally chartered mutual savings institution.

According to Lake Michigan's informational mailing, "In order to proceed, the Plan of Conversion must be approved by two-thirds of the credit union's members who vote on the plan." (Emphasis added.) Does this mean that if only 100 people vote, that 66 people out of over 85,000 members can make this decision?

No matter how much this might bother us, Lake Michigan CU's plans are not the problem. They are simply a symptom related to a spreading disease in the credit union industry. And I don't mean charter conversions.

The industry is quickly losing its sense of being a cooperative. Many of today's practices at the most basic levels, are not standing up to the test of members being true owners of the credit union.

A Need to Gut Check on Fair Play
My comments are not heading towards an argument that big credit unions are ruining the industry. This is about how every credit union structures its policies, procedures, and culture to respect the rights of members as owners. To participate with an owner's voice. To run for the board of directors. To be represented, even years after they've left the credit union.


The people who build credit unions over their lifetimes, and plan for that equity to be passed on to new members and potentially their own families, need to be represented by the current leadership of every credit union.

In no way am I encouraging rules or industry barriers to charter conversions. Nor am I implying that credit unions can be run efficiently by a committee of the masses. I am simply saying that the individuals who lead a credit union, either as volunteers or professionals, need to gut check themselves on fair play.

It can be as simple as whether board members are elected from the membership at large. In many credit unions today, to be on the board, you have to jump through enough hoops to make volunteering look like a lifetime career goal, and even then it's up to a committee and not the members. Term limits are not the answer; marketing is the answer. A sincere effort to reach out and encourage credit union members to participate as owners is needed.


Walking the Talk
Most importantly, this falls on the heads of the professionals who lead our industry today. Our careers will not be secured without recognizing that the cooperative and volunteer spirit that was the seed for this industry is a competitive advantage. If we do not nurture this structure, declare it an advantage, and demand that we walk the talk, we will see credit union members flee to organizations where the owners are protected as stockholders.

Here in Michigan, many of the credit unions that have to coexist with LMCU have adopted a "good riddance" attitude. "We'll be able to kick their butt when they're not a credit union anymore," they say.

They miss the point.

It's not just the charter that's becoming a bank; it's 85,000+ members who are becoming bank customers. These members may have already missed the point. And potentially millions more will also miss the point if our industry doesn't start selling itself on the advantages that set us apart.

If you've never read a packet that encourages credit union members to convert their credit union ultimately to a bank, you might be surprised. Here's one example of great marketing, selling a great contest and effectively burying the details in a pile of paper. It follows all the rules. But it doesn't feel right.




Oct. 4, 2004


  • Very straight forward. Not quite as simple as saying "good riddance", but I'd sure be looking at ways to attract as many of the 85K members as possible. I'm not so convinced yet, that we have forgotten what differentiates us from a bank or a mutual savings bank. Lest, we do a much better job of educating not just our members, but addressing newer staff and resultant generational myopia.
  • Stirring the pot, and speaking out for credit unions' competitive advantage: We cannot become the competition to beat the competition. There is no single way to do things, but I am sure that we must still market our differences, drive our values, and commit ourselves to our collective futures. If not then no career is safe in credit unions, and all of us should put generic titles on what we do - financial service provider, data processor, accountant, lender, etc. It is important that we do what we do well, but it is more important for our organizations to tell who we are and take pride in that.

    Evolution might always round the edges of the differences that set anything apart for any other entry into the marketplace. However, commitment to being different, continuing to find solutions that say we are different, and taking pride in our differences will be the only thing that will stand against the process. Too many CUs and their leaders, and the leaders of the real money efforts in our industry, have already given in to the inevitable evolution of the industry guaranteeing they are right and our values are irrelevant.
  • Mr. Karnes seems to be lamenting the passing of the good old days, when the typical credit union was a small, cozy savings/borrowing club for its members, run by altruistic volunteers. Yet he calls the movement an "industry." You can't have it both ways. If credit unions are going to serve the rapidly evolving financial needs of their members as modern, full-service financial institutions, then they are going to have to compete with the biggest banks for management talent, staff, and a share of their members' wallets. Top-quality products, attractive pricing, convenient access and great service are the true sources of competitive advantage -- not cooperative ownership. For the vast majority of financial consumers, cooperative ownership is not a driver of choice of financial institution. Mr. Karnes says large credit unions are "ruining" the industry. The reality is, each year that goes by, large CUs control an ever-greater share of movement assets. There are lots of reasons for their growth, such as full product lines, a complete array of delivery channels, and excellent marketing. These are hallmarks of success, not ruin. And it's clearly what most members want and expect today from their credit union. Even then, there are CU leaders who feel the credit union charter doesn't allow it to go far enough. Its limitations mean that opportunities are being missed to serve members better. Lake Michigan Credit Union wants to grow faster than its retained earnings will permit under the CU charter. As a mutual savings bank, and ultimately a mutual holding company, LMCU can raise the capital it needs to do more in its communities. And it can do it under mutual ownership with full member control. Forward-thinking credit unions are increasing their relevance to today's consumer. If that means relegating cooperative values to a subordinate role in the pursuit of a modernized offering, so be it. They're simply meeting member demand. Those who don't are facing irrelevance and obscurity.