The challenge of credit union literacy involves knowing who we are and how we got here.
NCUA passed a rule in December that puts the issue of volunteer financial literacy front and center. But there is a bigger literacy challenge: credit union literacy. Do leaders know the current financial facts about their institution as well as the legacy, social, and political context in which the credit union system was created? Why do credit unions have a tax exemption? Is a credit union just another financial flavor for consumers? Is selecting a credit union like selecting a favorite cereal at the grocery story?
Born of Necessity
Many leaders are familiar with the 1934 Federal Credit Union Act. But this was more than a legislative recognition of the need for a federal charter to complement the 25 years of state cooperative efforts.
The history of America is one of increasing inclusiveness and participation. Credit unions capture both the political and economic aspects of this ideal. The common resources of the group are directed in a simple, distinct manner: one person, one vote. The Federal Credit Union Act was a financial new deal for the common person as well as a new kind of financial organization.
But change is not inevitable because a law is passed. The law establishes guidelines; it’s what we do within those guidelines that makes a difference. An evolving system requires continuous effort and struggle in both economic and political competition. That struggle continues today.
How Credit Union Literacy Affects Today’s Choices
Credit union literacy is more than being knowledgeable about the system’s history, its unique vocabulary, or the growth of the system of cooperative organizations that serve upward of 90 million Americans.
Credit union literacy is a way to bring context to issues and priorities. Here are three examples:
In presenting the credit union message to legislators, can credit unions claim to be “progressive reformers” in the Filene tradition? If so, how are credit unions helping people and groups claim their full inheritance of America’s promise of equality, economic opportunity, and a fair share in the pursuit of happiness? Can we provide individual and system examples of these results?
When considering future business models, do we fully appreciate the interdependence at the core of any cooperative model? Credit union capital invested in networked entities such as CUSOs, corporate credit unions, and cooperative insurance funds carry risks but also significant benefits.
Participation in collaborative institutions should be a source of strength, confidence, and capability beyond the resources of a single organization. Regulatory structures are integral to the cooperative model.
In a February 8 letter to corporate credit unions, state regulators, and credit union trade organizations, NCUA director Scott Hunt makes the exact opposite statement: “Future agency action to provide such systemic support cannot be factored into contingency plans” for corporate credit unions. (read the Corporate Credit Union Guidance letter)
Even a superficial knowledge of both the statute and history of the NCUSIF and CLF demonstrates that their purpose is to provide collective contingency assistance when events overwhelm individual institutions, even corporate credit unions. If these resources are not going to be available in the future, credit unions must evaluate how to put these system solutions under different control to achieve these important and necessary purposes.
Hunt uses the “too big to fail” scenario to discourage CUSO and corporate combinations. Using that reasoning, then, how does one continue to justify keeping a NAVY Federal Credit Union ($44B, Merrifield, VA) or even State Employees’ Credit Union ($21.5B, Raleigh, NC) in the system when their size is two to 10 times that of individual corporate credit unions?
An Open Loan Window
According to the most recent data, 291 credit unions have applied to borrow from the Federal Reserve Bank, 1,015 credit unions have Federal Home Loan Bank membership, and 7,200 belong to a corporate credit union. There are slightly more than 7,400 credit unions at year-end 2010. One of the critical system solutions was the intra-industry consolidation and management of surplus funds so credit unions never had to close the loan window or establish a borrowers’ queue when granting credit. That system has been destroyed by NCUA’s September 24 takeover. All 7,400 credit unions have been directed to re-assess their settlement solutions and to re-evaluate any commitment to corporate credit union capital.
Forcing credit unions to rely on competitors or external institutions that were themselves compromised in the latest crisis is to put the entire credit union system at risk. Anyone who had experience with the liquidity strains caused by the run up in short-term rates in 1977-1981 would have been very careful not to place the credit union system back in that jeopardy. As Mark Twain once wrote, history might not repeat itself, but it surely does rhyme.
Credit union literacy will mean different things to different people, but we cannot maintain ignorance of the past or focus solely on present circumstance. It is the past that gives us the ability to stand in the present with the resources we have. More importantly, credit union literacy is a recognition that the credit union system is also a movement; it’s not just an amalgamation of 7,000 institutions and their followers. Ultimately that means credit unions are about hope, opportunity, and reform. Because of these ambitions we have financial outcomes that give us the chance to talk about our financial literacy. Without purpose, we are reduced to a set of facts.
Read more about credit union literacy in the March Callahan Report. Order your copy today.