Credit Unions Are for People, Not for Profit: PenFed CEO Responds to Bankers

This month, Progressive Credit Union successfully merged with PenFed Credit Union as part of an emergency merger that allows PenFed to support all of Progressive’s current members and loans in the months and years ahead.

Critics in the banking industry complain that this merger gives PenFed an open charter, allowing anyone nationwide to join. Others contend that when large credit unions acquire smaller credit unions, it threatens banks’ market share and profits.

But the conversation around this merger shouldn’t be about the banking industry, size, profits or numbers at all. It should be about the people.

Progressive, a credit union that made loans for drivers to finance New York City taxi medallions, was facing the same challenges that continue to pressure all taxi medallion lenders in overcrowded markets with Uber and other ride-sharing platforms. For decades, the taxi medallions required to operate cabs in New York City have been safe investments for taxi drivers. Borrowing to purchase taxi medallions allowed drivers with little capital to make a living and provide for their families – buying homes, sending their kids to school, and covering medical expenses for family members.

These drivers work hard, providing transportation to the public around the clock. Many work odd hours or through the night, and many are responsible borrowers who, through no fault of their own, are underwater on their taxi medallion loans. By absorbing Progressive’s taxi medallion loans, PenFed is able to offer Progressive members options to pay on medallion loans over time.

PenFed agreed to this merger because it was the right thing to do for these hard-working members. This “people helping people” philosophy defines every credit union. But PenFed was one of the few credit unions large enough to absorb Progressive’s loans and invest capital and liquidity that will better serve its members for the long term. And it doesn’t only save Progressive’s members from financial hardship. PenFed retained all of Progressive’s hard-working staff, saving them from potentially losing their livelihood.

Despite the criticism from bankers, PenFed already had nationwide membership eligibility through our existing field of membership, as well as a presence in all 50 states as a multiple-common-bond credit union.

This merger does not change PenFed’s focus on the national defense community and military servicemembers, veterans and their families. In fact, the merger will give PenFed its first retail presence to reach more than 250,000 PenFed members living in the New York City area, which is home to over a million veterans.

Membership restrictions, whether based on location or industry, do not make credit unions. What distinguishes credit unions from banks is that instead of being “for profit,” credit unions are “for people.”

Credit unions are not-for-profit financial institutions. They are cooperatives, owned and operated by their members – as opposed to being owned by stockholders, like a bank. When a person makes an initial membership deposit, he or she becomes part owner of the credit union; this means earnings are ultimately returned to members. That’s how PenFed offers some of the best rates on deposits and loans across America.

Even though bankers have feigned concern for small credit unions that will supposedly suffer because PenFed is now in their marketplace, the reality is that smaller credit unions would have been hit harder if PenFed didn’t absorb the losses from Progressive’s taxi medallion loans. Progressive’s losses would have impacted all 5,000+ credit unions paying into the National Credit Union Share Insurance Fund.

Furthermore, special interest groups funded by bankers are lobbying to remove credit unions’ exemption from federal income tax. Frankly, it is hard to take bankers seriously on tax status when they just received a $26 billion tax break.

But the tax status of credit unions is based on all credit unions’ structure as not-for-profit financial cooperatives and their mission to promote thrift and provide access to credit. And a tax on credit unions would be a tax on the 115 million people who are member-owners of credit unions.

Any bank is free to become a credit union. So why don’t they? Banks would have to replace their well-paid boards of directors with volunteers. They would have to convert every depositor into a voting member and distribute all shares equally among those members.

Don’t get me wrong; I’m a capitalist. There’s nothing inherently wrong with banks operating for profit. What’s wrong is trying to impose the banks’ business model on credit unions.

Credit unions were built on the idea that when people in communities support each other, everyone benefits – and this idea is still very much alive today. These values do not disappear when a credit union grows in size, or when it opens up its membership beyond a single community.

James R. Schenck is President and CEO of PenFed Credit Union and CEO of the PenFed Foundation.