Strengthened by a collaborative spirit, credit unions that have made it through the recession work to provide quality services for their members. Recently, Nevada executives in this industry met at the offices of Clark County Credit Union to discuss the trends and challenges facing their industry.
Connie Brennan, publisher and CEO of Nevada Business Magazine, served as moderator for the event. These monthly roundtables are designed to bring together leaders to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.
Has the industry bounced back from the recession?
Eric Estes: We’ve recovered most, if not all, of what we lost during the economic crisis. Now it’s a matter of positioning ourselves to refocus on the future. There’s an advantage that we have right now that can’t be underestimated. A lot of the millennials have learned not to trust financial institutions, especially on a large scale, after what we’ve been through. That mistrust that exists doesn’t necessarily exist for us. A great deal of the people in our community have learned to trust us because we have survived and we have done right by our members.
Wally Murray: Last year, credit unions just acknowledged that we surpassed, for the first time, 100 million members across the nation.
Dennis Flannigan: Most of us have gone into business lending and assuming that community bank role in many of our communities. We’re running smarter, we’ve been disciplined more and, in a sense, we’re stronger today than we were eight years ago.
John Lund: Part of the challenge is the national economy. It’s still somewhat fragile. Citizens and our members in general are still asking when interest rates are going to go up. There’s gridlock in our government in DC and we can’t get anything done, so it all makes us a bit nervous about what impact that will have. It feeds down to the local level.
Flannigan: There is a lack of lending involved in the environment. It’s still sluggish. When you consider the low-interest rate environment that is present, we should be making a lot more loans. There’s still a lot of uncertainty in the consumer’s mind.
How do credit unions differ from banks?
Schmidt: Credit unions are cooperative, not-for-profit organizations. That’s who we are, that’s who we will always be. We are not a for-profit industry that is trying to enhance shareholder value by virtue of stock price.
Flannigan: We’ve long been recognized as a not-for-profit. It is a very difficult thing for many people to understand that we are in business to make as little as possible. Everything we’re doing is to minimize fees, minimize loan interests and charges. When you reduce that and you’re giving more back to that member, that member has more money and they get taxed. It passes back through [the economy] that way.
Can Nevada expect to see more credit unions?
Wayne Tew: You could extrapolate from the national level. When I started there were 17,000 credit unions; we’re down to approximately 6,000. We will see fewer credit unions over the next 15 years.
Estes: New charter requests are essentially nonexistent.
Murray: The barriers for entering the market are so much higher than they used to be, both from a financial perspective and a regulatory perspective.
Estes: There’s a lot of talk about regulatory relief but the problem is two-fold right now. There are existing regulations and, whether it’s through the state or the federal legislature, getting them changed is nearly impossible. In the meantime, there’s the Consumer Financial Protection Bureau (CFPB) that’s proposing new stuff all the time.
Kelly Buckner: Credit unions are unique from the standpoint that we can’t raise capital. We can’t do anything but retain earnings. We can’t go out and solicit capital; we have to earn it and build it over time.
How do regulations and laws impact the industry?
Buckner: A consistent challenge that we face is the regulatory environment that we’re currently under with the National Credit Union Administration (NCUA) and the CFPB.
Rick Schmidt: Some regulations are good. You can’t operate without a safety net; there has to be protections in place. But some of the rules that have come down as a result of the Dodd-Frank and the CFPB have made it increasingly difficult to do business.
Tew: If we continue to merge and press, and have less and less competition with any kind of business, including the banking business, then the advantage to the consumer to choose and have options goes away. It has a chilling impact upon growth in the economy and innovation. Regulation has now dictated what we can or cannot do.
Estes: The regulations were brought in to deal with, primarily, large institution issues. But the regulatory reaction is being applied across the board down to the smallest of the industry who don’t have the resources nor the ability to deal with the costs. And we’re not part of the problems. It’s a very difficult scenario.
Tew: We’ve been very involved with the super priority liens with the homeowners associations (HOAs). It would alter what was happening with a third party coming in and paying for a lien held by a HOA without notification to the first mortgage holder or anyone else. They would be buying that mortgage or home for pennies on the dollar, then turning around and selling it with the lien-holder being stuck with this loss. That looks like it will be rectified. Another thing we’re all watching carefully is what will happen with Governor Sandoval’s proposal for the tax licensing fee. It’s essentially what we voted out with the Margins Tax and now it’s coming back as a licensing fee. We’re [also] lobbying to take away this business lending cap for all of us so we can help people.
Flannigan: Unfortunately, the state regulator looks to the federal regulator and follows their guidelines. That’s why, indirectly, the state credit unions also have that limit and it’s transferred through.
Murray: The CFPB was originally created from a mandate from the Dodd-Frank act, but once they implement everything that’s in this Dodd-Frank act, then their decision of what they want to do next is entirely their own. They have no formal congressional oversight; they report directly to and get their budget directly from the Department of Treasury. There’s no funding mechanism for Congress to oversee them. It’s a challenge we share with banks.
Lund: The NCUA’s purpose is to keep all of us safe and sound, as opposed to the CFPB, which could care less whether any of us are financially safe or sound. Those actions, from their perspective, to protect the consumer can go so far that it really cuts into the viability of the institutions.
Are Nevada credit unions more collaborative or competitive?
Murray: We have a shared branching network with over 6,000 branches. My members can walk into branches of other credit unions and use [the ATMs] for free, and vice versa. We’re not doing it to make a whole bunch of money off of people. Emphasizing free utilization for the consumer makes it more convenient and accessible. That’s all done through shared technology.
Hunter: Collaborative, but that’s not true everywhere. Geographically speaking, other places are more competitive than collaborative.
Schmidt: Even if we’re competitive in the same marketplaces, we all want the credit union industry to endure. We all recognize that if we fail individually, it potentially leads to the failure of everyone else.
Murray: One of our greatest challenges as we go forward is being mindful of our collaborative souls and not losing the spirit of collaboration that’s key to our very existence. There are times when we certainly compete with one another, but, at the end of the day, none of us can fly alone.
Lund: Technology changes so fast, it’s hard to keep up with if you don’t have the size or strength to offer those mobile services and other emerging technologies to members or customers. One of the nice things about credit unions is the cooperative nature even among ourselves. There are service organizations that many of us are a part of that help to bring that ability to provide technology services solutions to our members so we don’t have to pay for it individually. We can share the costs.
What sets credit unions Apart?
Estes: We’re seeing a lot of younger employees walk in the door and acknowledging the credit union is appealing to them because they see the social mission built into what we’re doing and they want to be a part of that. You get a lot of reward from that at the end of the day. You also see the next generation of employees with a greater concern for quality of life. Credit unions have the ability to sell themselves to the younger employees with both our social mission and our desire to make sure they have a good quality of life outside of what we do as a business.
Murray: We’ve identified a set of core values that have made us who we are today, and we don’t want to walk away from those. Our challenge is to find prospective employees that fit with that set of values and hold consistent values of their own. If they’re just there to punch a time-clock and collect a paycheck, that’s not going to what’s best for our members in terms of the type of service they get.
How do credit unions engage in the community?
Hunter: We set up a program at several schools where we encourage kids to save. Our staff really gets into it and we believe it is very helpful to teach the savings habit. We’re also supporting a bill that will require financial education to be taught as part of the math curriculum in middle school. There’s some financial education in high school, but nothing in middle school or lower.
Murray: One of the investments that many of us made during the economic downturn was creating teams of employees that could go out and teach financial literacy. It wasn’t cheap to do, but it was the right thing to do at the right time and we’ve sustained that. We teach hundreds of classes a year, we create time and pay [the employees] and we don’t charge anything to the consumers.
Tew: As an industry, we’ve adopted Children’s Miracle Network (CMN) as a prime recipient of funds. California and Nevada Credit Union League just had a wine auction this past year and the final tally of $1.2 million went back to local CMN hospitals in our respective communities.
Lund: Many credit unions also offer free financial counseling, where if a member does run into financial difficulties they can come in and meet with professional counselors to work through their budgets and plans. That’s one of the successes we had during those recessionary years that were so trying. Instead of writing those members or loans off, we worked with those folks through their hard times.
What are future plans for this industry?
John Lund: [We need to] maintain the trust relationship we have with our members, creating long-term, lifetime relationships with them. The membership population is aging and so it’s important, as credit unions, to attract younger members to keep the good things that we all do going strong.
Buckner: Everyone here is going to be in a better place [in the future] because we operate within certain core principles. We mind our business, take care of our members and take care of our credit union. We’re all going to be better off because we take care of business. We look out for our members, our employees and the communities that we serve.