Group Buy Plan for Small CUs Being Advanced in Colorado

DENVER – The Colorado Credit Union System is looking into group purchasing deals to protect the future of its smallest CUs. The League said it expects in April to review recommendations of an “Emerging Credit Union Task Force” on proposals being pushed by under $20 million CUs in the state to organize new vehicles to address the rising cost problem on products and services. The discounts are being sought for small CUs on a diverse list ranging from data processing to office supplies and from health insurance to internet expense. The cost issue has become critical for some of the tiniest CUs facing merger or liquidation. “There are simply many credit unions in this state that cannot keep up with offering the most up-to-date products because without the computer capability of somebody like Ent or Bellco they have to pay the highest dollar,” explained Becky Brown, chairman of the Task Force and president of the $7.5 million Delta Federal Credit Union, a 1,500 member institution located on Colorado’s western slope. She said those large Colorado CUs, Ent Federal CU in Colorado Springs, and Bellco CU of Denver, have long been supportive of small CUs, but a formal structure of donation and financial aid in which all CUs contribute is needed. Regardless, members of the Task Force argue that a system needs to be put in place in which vendors bid on group business. “It’s really a question of economies of scale,” explained the Task Force’s vice chairman, Steven Pearce, who also is manager of the $8.5 million Fellowship Credit Union in Lamar. Pearce said, in particular, he would like a vendor to bid on employee health insurance for small CUs considering “it has become so expensive for us.” Fellowship’s premiums have risen 26% for the CU’s seven full time employees, he said. Fellowship also would like to save on data processing costs, he said . Commenting on the merger trend, Pearce noted that some of his peer CUs not only lack the capacity to grow but also “the motivation” to expand. The result, he observed, is they opt for merger. Brown said she is currently facing a merger situation affecting her job status with the imminent consolidation this month of three CUs including her own. Being combined are Delta Federal CU, Delta County Credit Union, which has offices in the Delta Federal building, and the nearby Hotchkiss Community Credit Union which was merged Nov. 1. “The Board hasn’t decided yet on a CEO,” she said. When the merger of all three is completed at month’s end, the combined CU is to be known as Delta County Federal Credit Union. It will have some $19 million in assets, she said. Discussing the group purchasing concept, Brown said “it’s simply hard for a small credit union to maintain its policies when it faces extra costs all the time,” citing, for example, a licensing fee for a new $12,000 audio teller system Delta CU wants to install. Brown said there are some 25 small Colorado CUs which fall in the under $20 million-in-asset category, but the League will also be addressing the needs of the under $50 million as well. A first step in the so-called “Credit Union Partnership” would be an “Emerging Credit Union Group Fund” which would try to meet the needs of small CUs through “group buying, resource sharing and technology training,” said a League presentation packet. A formula for contributing to the fund shows CUs over $1 billion paying $6,000 to the fund, while those under $1 million would pay $100. Those in the $1 million-$10 million category would pay $300. A summary of the League plan noted its goal would be to “increase the negotiating power” of smaller CUs so it could “customize and offer” products to members and employees at economical levels. “By purchasing in mass, the pricing structure will be better than a credit union could get individually,” said the report. Costs would be “spread across the entire group of emerging credit unions, thereby making high-ticket items cost effective on a per credit union basis.” To “minimize the risk to the contributing partners,” the report continued, a select group of products and services “will be implemented first.” Daniel Micale, senior vice president of business development for the League, said health insurance would probably be first to undergo a “pilot” testing with vendor bids. Meanwhile, letters seeking contributions from CUs would go out next month as the Task Force and the League staff work on recognizing one small CU that has performed well and is deserving of financial rewards. The “scholarship award,” said Brown, will be formally announced at the annual League meeting. “I think this is an important thing that we are doing in the League,” said Brown adding “my credit union has already handed over $1,000 to the League” to go toward the fund. -