Things were pretty serious last week with the private insurance column. This week I want to lighten up a bit with a new code credit union leaders should live by given recent events.

“I pledge not to sell swamp land in Florida.” While this sounds silly, it's not after considering what happened to three credit unions (see story page 1) and the trouble they got into over what amounts to a real estate loan scam out of Florida. What makes this worse is these credit unions weren't based in Florida! No they were based in Colorado (Norlarco CU and New Horizons CU), and Michigan (Huron Area River CU). We're talking infomercials for real estate classes called Millionaire University and promises of real estate riches! This doesn't sound like anything credit unions should be involved in. It led to heavy losses and all three credit unions being conserved. Critics of private insurance talk about the reputational risk that credit unions have should private insurance experience a failure–stories like this carry very heavy reputational risks. Where were the regulators on this one? Didn't the out of state aspect signal any red flags. Reporters at a Colorado newspaper have dug in to this story and are ready to expose all the ugly details. We are working in conjunction with them so look for more updates in the weeks ahead.

This is going to fall under public scrutiny. It's a nasty black mark on the credit union reputation. I don't believe it was bad intentions by these CUs. Instead, like a lot of recent bad credit union news, it's credit unions looking to make up for the tough margins of the last few years. Rather than riding it out and using traditional methods, more and more credit unions are making risky moves to make up for the margin squeeze.

“I won't pretend my members are stupid.” This one goes out to the folks at Lafayette Federal Credit Union who arrogantly attempted to convert to a bank without giving solid reasons or even answering many members' questions. The desire to do more business loans was hard to swallow given they weren't near the MBL cap and had made very little effort to do any MBL loans. I've heard from insiders (Lafayette defenders) on this that Lafayette did hold town hall style meetings to inform members. The problem was no one was there. Lafayette's chairman was high and mighty from the beginning and now the CU is feeling the pain. In an incredible show of defiance, the CU has yet to officially announce that its CEO during the conversion, Michael Hearne, is no longer with the CU. Hearne has told other leaders he's not with the CU, but the CU will not confirm his departure. Incredible!!

Take a look at the CU's financials. It has lost members, loans and lots of deposits since the conversion debacle. Lafayette's assets are down from $332 million to $295 million from June 2006 to June 2007. I will have so much respect for any converting CU that goes about it in a completely transparent manner. If you have nothing to hide, tell the members what they want to know? Members aren't stupid. The CU was the stupid one here and it's feeling the pain in its financials.

“I will not blindly buy into endorsements.” Look hard enough and you can find a vendor endorsement for just about any type of product a credit union could want. Whether it's an association, CUSO or a vendor doing the endorsement, credit unions need to do their own due diligence. Credit unions that put their trust in endorsements without doing their own research are not doing their job. Endorsements, like it or not, are about money. That's not to say the organizations doing the endorsements are just endorsing anybody, but any time there is a financial stake extra scrutiny is necessary. I won't point just at Centrix and all of its endorsements because I think that firm, as I said over a year ago in a column, didn't have much of a chance to get back on the right track or at least limit losses after NCUA's risk alert put a stop to its business. There have been many other endorsements that have been less than stellar.

“I will not give up on my credit card program.” There was some bad credit card news last week. Credit card companies reported that they wrote off 30% more payments in the first six months of '07 than they did in '06. The ongoing mortgage problems appear to be spilling into the card world.

Credit unions have been selling off their card programs over the past five years, many saying cards are a commodity and it's difficult to compete with the big card issuers who can afford to send out tons of direct mail and offer terrific teaser rates.

Many credit unions that have sold their portfolios say it's not a bad thing because they are joining with a partner who can make their programs more robust, to the benefit of members.

According to the latest data, credit union card programs are strong! One study showed card portfolios of over a $1 million saw their average account balances grow by $2,300. Credit card assets year over year from this June to last are up 12.8% to $26 billion. Credit unions can succeed in the card game! Don't give up on your card programs! And it's hard not to be impressed by how the various credit union card firms have stepped up to help credit unions succeed.

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