It’s Time to Remind Credit Union Members of What They Are: Owners

As credit unions continue to scale up, I am worried they will stray from what their founders intended for them in terms of mission, culture, member governance and member control of credit sources.

The credit union movement was created in the United States because of a need for credit, and individuals’ strong desire to control their access to credit and ensure its availability at fair rates and terms. For farmers, workers and small business owners, access to dependable credit was the difference between success and failure, and their control of and access to credit was based on the concept of mutual support.

Changes in scale have led to major shifts in credit unions’ mission, culture, governance and member control. Since credit unions first began in the U.S., they have increased their scale and benefited in terms of their efficiency and impact. An increase in scale is a sign of success, but it also makes it harder to be a credit union. The union between members and their credit union is much harder to maintain as size increases.

So what is the credit union mission today? For most credit unions, it is broadly stated as helping members improve their financial well-being. At one time, a member’s financial well-being was indirectly measured on a two-page loan application. Members were frequent borrowers and their profiles were updated regularly and stored in a loan folder. In the late ’70s, my credit union was still providing credit references to merchants for members who had listed the credit union as a reference (an early form of credit reporting). With today’s automated lending, we know the member’s credit score and maybe see the credit report itself. The lending process has been reduced to giving the member an answer, and most of the time, no advice or financial literacy education is involved. We may have a mission of improving a member’s financial well-being, but we don’t have a very good way of measuring the member’s financial well-being or changes to their well-being.

For many years, the culture of credit unions was like that of an extended family. Members worked in the same workplace and experienced the same concerns. At my credit union, members were civilian workers on an Air Force Base. When the federal government shut down due to a funding impasse, the credit union covered members’ payroll with direct deposit until funding was restored. The credit union’s annual meeting was a well-attended event and a chance for friends to meet, share a meal, hear how the credit union was doing and elect their leadership.  Like an extended family, the credit union board and executives lived in the same neighborhoods as our members. Board members and executives interacted with members daily on weekdays. The credit union and the workplace were often in the same general area if not in the same complex.

Credit unions today are for the most part no longer tied to one workplace and instead have open fields of membership. The only common bond is credit union membership. Credit union executives work in corporate headquarters that are not frequented by members. Executives in many cases are paid much more than their members and live in different neighborhoods. It is more difficult for credit unions to help members if their leaders doesn’t have the same life experiences as their members. That was the problem with bank leadership, and it created the need for credit unions.

Relationships between members are no longer defined by a common employer and often not even by a common community. It is simply credit union membership that is shared. Members are for the most part not involved in governance and don’t see themselves as owners. They have no stake in the credit union beyond their account relationship. They rarely vote in elections, don’t attend annual meetings, are unaware of the credit union’s financial results and probably don’t know who is on the board (if the board is appointed rather than elected by the members).

I would argue that members don’t control their source of credit any more than bank customers do. Members who don’t participate in governance by voting, attending annual meetings and monitoring the credit union’s financial results are not exercising control. They are customers, not owners.

It seems to me that the credit union mission is to be better than banks – to be more convenient, offer better rates, grow faster and make loans faster. They focus on serving members who have good credit and want to borrow, open checking accounts and build savings.

So what could help move credit unions closer back to their founding principles of allowing members to control of their sources of credit, serving the underserved, and acting as an extended family to members? Here are some suggestions:

• Offer incentives for active members who vote, attend annual meetings and volunteer.
• Provide members with more information about financial and operational results. I support sharing the big picture of the regulatory exam. If members are owners, why can’t the NCUA allow credit unions to share their CAMEL rating with members? They are always the last to know when the credit union is having problems.
• Conduct a real election process that provides members with an easy way to vote, candidate information and bios, and a path to leadership that prepares members for leadership on the board through other volunteer work and training to be a director.
• Make the annual meeting a fun event that will draw thousands of members. One thing the pandemic has taught is that we can have meetings virtually and still connect with others on them successfully.
• Build and monitor metrics that measure how well the credit union is achieving its mission.
• Provide members with a way to measure their financial well-being and the progress or lack of progress they are making.
• Measure and monitor how well management is in touch with members and their needs.
• Base the credit union culture on that of an extended family that follows the Golden Rule.

Henry Wirz is the former President/CEO of SAFE Credit Union in Sacramento.