|Posted by Scott Butterfield on August 4, 2016 at 2:05 PM||comments (0)|
Someone once said “the first step is always admitting you have a problem.” When it comes to ineffective supervisory committees, the credit union space definitely has a problem.
Heather Anderson, co-founder, OmniChannel Communications, Inc., aptly pointed it out in her July 21, 2016 blog post, Fraud Killed Almost All Failed CUs in Q2. Heather also correctly points out that for the most part, it’s a smaller credit union problem.
We see the headlines, and while I’m not keeping track of the year-over-year change of reported credit union fraud, the number seems to be a lot higher these days. It’s mind-boggling to consider how long some of these internal fraud schemes have gone on. In these cases, especially, I have to ask where the heck the supervisory committee was at these credit unions.
Five common problems we see
As part of the compliance work we do at Your Credit Union Partner, we see many supervisory committee issues. Most fall into the following five areas:
• Lack of commitment and high turnover. These credit unions never really get a good audit program off the ground, or create any consistency. The people they do train leave not long after the training, and they always seem to be starting over.
• Ineffective audit scope of work. Their primary audit focus is very limited to cash counts and checking for new member qualifications. It’s what they’ve always looked at, and it has always worked. But they are only scratching the surface.
• Lack of confidence in what they’re doing. These committees lack experience, training, and probably have committee members who don’t have the right aptitudes for an audit role. They’re afraid to ask questions, and they lack the confidence to articulately defend their work. Because they lack confidence, they get walked over by examiners and they’re also more likely to spend more time with auditors and examiners who are not convinced they know what they’re doing.
• Lack clarity on what to look for, and why what they’re looking for is important. These are the committees who look at what they were told to, and then check off boxes. I’ve witnessed examples where folks were checking off boxes, and when asked couldn’t tell me why they were checking them off! Scary!
• Little or no training. These struggling committees receive sporadic training whenever there is a free league or NCUA webinar. It’s usually good training, but it happens so infrequently that much of what was learned is lost and never really influences behavior. Credit unions and supervisory committee members need to take training and their roles seriously. Members who are not willing to invest time in training should probably step down.
It’s in situations like these that fraud occurs. These visible weaknesses become easy pickings for someone (or a group of someone’s) who want to take advantage of the credit union.
A simple but effective solution for smaller credit unions
Unfortunately, this article has a word limit, so I’m not able to include a long list of solutions. But I will offer one best practice that I believe could help scores of smaller credit unions build out stronger supervisory committee teams.
Three years ago, $27.6-million IBEW 76 Federal Credit Union (Tacoma, Wash.) found itself with a completely new supervisory committee – a group of individuals who were committed to doing a good job for the credit union, but didn’t know where to begin. In their search of the most effective and affordable training solution, CEO Sheila Augustine selected a retired credit union veteran to work with the committee. The consultant began with a review of the previous supervisory committee’s scope of work and past issues, and recommended improvements, making sure the review included everything necessary for a robust internal audit. Next, the consultant taught the committee at each of the following internal audits what to review and, most importantly, why they needed to review it. During the course of a year, the consultant worked with the committee, teaching and mentoring through each of the audit functions. The results are fantastic! There has been no turnover on the supervisory committee, the team knows what it’s doing and members are more confident when speaking with examiners. The results are apparent in the squeaky-clean regulatory exams and CPA audits received since the training began. For this credit union, this form of supervisory committee training was the most effective and most affordable.
Why we need to solve the problem
Besides the cost of the fraud itself, these problems cost us in other ways, too. Ineffective supervisory committees have a higher maintenance cost. Consider the time expended to recruit due to high turnover. You’ll also spend more time with auditors and examiners – the good ones can smell weakness a mile away. Don’t throw stones at me, but maybe this is why some examinations last three weeks and require six examiners. I know firsthand the correlation between effective and well-functioning supervisory committees, and cleaner examinations and audits. This effectiveness breeds confidence, and eliminates and reduces fraud.
I believe credit union charters matter. I fight to protect them and the legacy each has created by helping members over a long period of time. I can’t imagine the shame of being a CEO or Board Member responsible for losing a decades-old credit union charter, all because I couldn’t detect and protect against large-scale internal fraud that sunk the ship.
Smaller credit unions have enough challenges facing them; we need to do a better job developing and leveraging our supervisory committees. I realize it isn’t easy, but we really don’t have
|Posted by Scott Butterfield on July 10, 2016 at 2:10 PM||comments (0)|
Last month’s Americas Credit Union Conference didn’t disappoint. In addition to the highly informative sessions, it served as the perfect catalyst to reconnect with our credit union friends near and far. Our Your Credit Union Partner team and the Your Marketing Company team took the opportunity to host a reception at the conclusion of the event to express our gratitude to a group of credit union friends who have supported us from the beginning.
Although there are many new friendships forming within the group, they are all old friends of ours. Friends who were the first to support our consulting work, and who have stuck with us every step of the way. Having this group together in one place and reflecting on their support and friendship was a very humbling experience that filled my heart with overwhelming gratitude.
This reflection on gratitude expanded beyond kind acts or support of others to include other experiences (some that were very painful) along the way. I’m grateful for these experiences also, as they helped to shape and prepare me for a more abundant life.
The regular expression of gratitude is key to a more abundant life.
Count your blessings
If you haven’t done so lately, I recommend you assess your life’s journey thus far, including your current situation. Take a moment to count or list all of the things for which you are truly grateful.
Here are a few questions to get you started:
Increase the experience and expression of gratitude in your life
Find ways to frequently remind yourself of the many things you could (and should) be grateful for. Keep a list. Over the years, I’ve found that this is a great way to feel better and have a greater overall outlook on life (especially if I’m feeling down). Or keep a journal. I believe that people who think about, talk about, or write about their gratitude regularly are more likely to be happier and help more people.
The more we express gratitude, the less importance we place on material things. We are less likely to judge our own success in terms of our material possessions, are less envious, and are more likely to share with or serve others.
Find ways to express gratitude every day. When you think about it, every single one of us have something to be grateful for. Just the fact that you’re reading this article says a lot about the overall state of your life.
I challenge you to take some time to ponder those things you are grateful for, create a list, and step out of your comfort zone and express sincere gratitude to someone – this week. Here are a few potential opportunities to express yourself at work:
How you express your gratitude is up to you. It can begin with a simple “thank you.” Try sharing a specific example of something they did for you and how it benefited you. Give them a handshake or hug (whichever is most appropriate). Consider doing something small, but thoughtful for them, such as sending a card. Make sure they know that you are there for them. Listen – nothing shows gratitude more than hearing and considering what they have to say. Compliment them on a talent, skill, or strength that you admire. Help them find resources that may help them grow, as they might have done for you. Smile and show patience. Buy them a cup of coffee (or a Diet Coke). Write a LinkedIn recommendation for them. Help lighten their workload in some way, if you are able. Respect their time. You don’t have to pry into personal business to ask them how they or their family are doing.
Why gratitude matters in the credit union space
At a minimum, we spend one-third of our lives at work. The culture in which we spend this time strongly influences our wellness and development. Life in credit union land is stressful for most of us. Many among us are experiencing personal challenges we know nothing about, and they struggle. Identifying and expressing gratitude helps both the giver and the receiver. We know this right? Each of us probably has a memory of someone expressing gratitude for something we have done, and it lifted and sustained us – even if for a short period of time. I don’t know the exact numbers, but I do know that the number of people feeling unappreciated in their everyday lives is high.
Regardless of title or position at our credit unions, each of us has the opportunity to look outside of ourselves, recognizing those people who bless our lives. I believe that people or groups who consistently and sincerely do this are happier. And in credit union land, happier people results in a better quality of work life, greater member service, and financial goal attainment.
I hope you will reflect, and reach out and thank someone!
|Posted by Scott Butterfield on June 14, 2016 at 1:20 PM||comments (0)|
Another busy summer vehicle-selling season is upon us, and a majority of us are looking for the best strategies to maximize loan growth.
Considering the volume of vehicles to be sold, prospects are good. According to NADA (Nov. 2015), “New light-vehicle sales are expected to rise to 17.7 million units in 2016. This would mark the seventh straight year of increasing U.S. new-vehicle sales.”
While prospects are good, competition has never been tougher. If your shop is into indirect lending, you’ll be competing with a long list of other lenders (many of whom are other, larger credit unions) on price, dealer reserve, terms and credit standards, and response and turnaround time. In the credit union space, large lenders with significant scale typically rule the day. If your shop is not into indirect lending, you’ll be competing with those picking off your members at the dealership.
Modern techniques available
Credit union pioneer Louise Herring said, “We must remember what we started out to do and then find ways to do it with the modern techniques available.” We’re lenders. It’s at the heart of what we do – that hasn’t changed. But the way we get those loans has changed for many of us since Louise Herring helped charter more than 500 credit unions back in her day. None of us can afford to sit back and wait for members to call on us with a loan request. Rest assured, there is always some organization who wants our members’ loans, be it a prime or predatory lender. We’ll have to fight for every loan we win. Fortunately, we have modern techniques available to help us identify and capture loan opportunities.
Below are several modern techniques to consider when formulating your summer auto-loan growth strategy. I recommend using the Experian products below because of my experience with the company. It has the largest share of the CU marketplace for a reason – reliable turnkey solutions, and a demonstrated commitment to credit unions in the underserved consumer space.
Recapture your members who were “sold” the dealer financing. I recommend using Experian to compare your existing member list to find auto loans that were recently financed elsewhere. Use this list to take back the loans. It’s amazing how far prescreening tools have advanced since I was actively in the lending business. Experian’s experts can help you craft a custom list to target the best loans you want to recapture, picking only those that match your yield and risk criteria.
Prospect potential buyers before they start shopping! Dang, I wish I had this tool back in the early 90s when I was VP of Marketing and doing my best to grow loans! Experian’s In The Market Model for Auto enables credit unions to proactively market to members before they are actively shopping for credit. Credit Unions can target prospective buyers BEFORE the onslaught of marketing during the busy summer auto-buying season. Great timing is critical to success, as it’s easier to get a loan at the time of purchase than to try to recapture it later. Credit unions have a long, successful track record of loan pre-approvals. Experian offers sophisticated, easy to deploy prescreen solutions as a modern-day technique to get the most out of our efforts to keep our members’ business.
Target thinner-credit-file Millennials. Millennials are buying cars in big numbers these days. Now the largest generation in the country, Millennials bought 4 million cars and trucks in 2015 – second only to the Baby Boomers, according to J.D. Power’s Power Information Network. Millennials’ share of the new-car market jumped to 28 percent. In the country’s biggest car market, California, Millennials outpaced Boomers for the first time.
Another modern technique I’m excited about is Experian’s Extended View program, which helps lenders qualify thin-credit-file consumers. These consumers have little or no traditional credit, but have established good credit with other providers, such as cell phone companies, rent, utilities, etc. Extended View provides credit union lenders with enough supporting data to approve a much larger pool of good loans.
The season is here, what’s your strategy?
We are lenders. Consistent, profitable loan growth should always be our top priority. The challenge is that many of our credit union shops have non-loan related priorities that will trump an appropriate focus on this busy lending season. These credit unions will miss out on the opportunity (while it is here). We never know what the economy will be tomorrow, and have to seize what we can today.
The good news is that, overall, our credit union space is growing loans at a good pace, and that means many of us will likely make gains during this summer season. However, if your credit union is not attaining the profitable loan growth you need or desire, I challenge you to look at new techniques and different strategies to make the most of this peak auto-buying season – before it’s too late.
|Posted by Scott Butterfield on June 11, 2016 at 2:15 PM||comments (0)|
I still hear it a lot: credit unions that profess a “cradle-to-grave” or “one-stop shop” value proposition. I’m not opposed to credit unions trying to offer as much to their members as possible – as long as they have the scale to profitably offer a superior product.
One of the biggest challenges I see can be found among smaller credit unions that don’t have the scale to offer everything. These credit unions are working hard just to tread water, yet offering products, services, and even branches that provide little financial value and aren’t focused on what they need most: consistent loan growth. They continue to commit resources to labor-intensive products, such as Individual Retirement Accounts, that frankly aren’t usually the best value for their members and provide excess liquidity the credit union doesn’t need. Yet, they hold on because they don’t want to upset the 50 to 100 people who are using the product.
And before all of the credit card vendors pile up on me, let me just say in advance that I support credit unions offering a credit card program if they can afford it financially, and have the operational and human resources to support a strong and competitive program (the world is full of mediocre credit card offerings). Unfortunately, I’ve seen smaller credit unions race down this rabbit hole because 50 members said they wanted a credit union credit card. The credit union wants to please its membership, and grow loans and revenue, but what frequently occurs is a mediocre program (at best) that fails to generate the loan balances, products per member, or profitability desired. Most of the board members of these credit unions don’t even use the credit union credit card they voted to create because it doesn’t have the high-end rewards they want. If your board members and staff are not using your credit union’s products and services, you have to be honest with yourself and consider why.
Considering all of the financial choices consumers have today, it’s difficult for any credit union, regardless of size, to be all things to all people. I would rather see these credit union leaders focus on what they need most, usually loan-growth strategies.
Genesis of the problem
My friend and colleague Randy Thompson explains the genesis of this problem better than anyone I know. Give him a minute and Randy will explain that credit unions chased expansion of products and services (like IRAs) that opened up due to deregulation in the 70s and 80s. I believe expansion was a good thing, but for many of us, we signed up for everything as it became available because we wanted to say we had it all. Yet, many of these added products never really became profitable, and, most problematic, they diverted our attention from what made us truly different. Cast stones if you like, but I definitely believe we behave like a herd of sheep sometimes. Times change and facts change.
Simon Sinek said, “We can’t be everything to everyone, but we can be something to someone…even a lot of someones.” Instead of a one-stop shop approach, consider a particular stage of life or well-defined market segment, and become GREAT there, providing a clearly different and better option.
In a 1934 lecture at the University of California, Berkley, credit union pioneer Edward Filene expounded on the Morals of Business. He put forth that there are two ways to become good (something all credit unions aspire to be). One way is to become interested in goodness, and the other is to become interested in the facts of life. He said there are many good people in business, but fewer good business people.
Filene taught that a good person in business will not cheat you any more than they would cheat themselves. Being interested in goodness, however, rather than the facts of business, they are all too likely to cheat themselves, and the business gets bad and cannot serve anyone very well. It takes a good business person to provide great service.
When well-intending credit union people ignore the facts and are either off on some idealistic path, or else hell-bent on staying the course on an outdated strategy they still consider practical, the business suffers – which in our world means the membership suffers.
One example: good, well-intentioned credit union people who offer an IRA product to a handful of members who are clamoring for it, even though the facts may show that the credit union doesn’t have the scale to provide a broader range of retirement services. In trying to be good, a member gets less than the best deal, and the credit union spends resources, human and financial, to manage an unprofitable offering. I’m picking on IRAs now, but this thinking can apply to a lot of credit union products and services. We need to balance our abundant goodness with a constant review of the facts.
Why it matters
Profitable and sustainable growth requires focus – intense focus on what really matters, clarity on why we exist, whom we serve, and how we are different and better than our competitors. Credit unions with thin bottom lines and negative (or breakeven) loan-growth trends need to carefully consider where their time and money will be invested.
Give me a minute and I can share a long list of best-practice credit unions that are thriving without IRA accounts, credit card programs, youth accounts, financial planning services, etc. Again, these products aren’t bad. I just see too many that aren’t profitable and divert attention that needs to be focused somewhere else. These successful credit unions offer a smaller bundle of services, but are crystal-clear on who they are, what they do, and how they do it better than everyone else. They spend more time on the right strategies, generating better-than-peer results. These effective leaders aren’t afraid to say “no” to products/services/branches that aren’t closely aligned with their purpose. They aren’t afraid to pull the plug on those things that are underperforming (including people), because they know their survival depends on clarity of purpose. Better-run credit union businesses create greater capacity to do more good.
I believe credit unions are clearly different and better when it comes to goodness, but some of us have a way to go in becoming really good business people – leaders capable at creating clarity of purpose and strong skill sets to evaluate the ever-changing facts of life and act accordingly.
|Posted by Scott Butterfield on April 27, 2016 at 10:10 PM||comments (0)|
More and more often these days, I find myself reflecting on the lyrics of Pink Floyd’s “Us and Them.”
“Down and out, it can’t be helped but there’s a lot of it about; with, without, and who’ll deny that’s what the fighting’s all about; get out of the way, it’s a busy day and I’ve got things on my mind; for want of the price of tea and a slice, the old man died.”
We find ourselves in a painful political cycle hell bent on pitting us against one another. And as if this political maelstrom isn’t challenging enough, I frequently find myself having to explain the pitfalls of “Us and Them” thinking to credit union folks. Personally, it’s frustrating, because I view credit unions as the original source of financial inclusion. After all, it was credit unions that championed providing access to affordable credit to the little guy.
The topic usually surfaces during strategic planning conversations, and it’s usually with credit unions that are growth- (and identity-) challenged, and trying to find a target market where they can compete and win. Many credit unions define “us” as the people with good credit, good incomes – well-established prime consumers. Past strategies to compete with the best services and rates in very competitive markets have not been as successful as hoped. It’s usually at that point in the conversation that I bring up opportunities for serving emerging and underserved markets, like credit-challenged, lower-income, and Hispanic consumers. Then follow the “Us and Them” questions: “Do we really want to serve ‘those people?’ Why would we want to serve ‘them?’”
Stephen Covey said, “seek first to understand, then to be understood”
Covey has it right. It’s amazing how quickly barriers come down when well-intentioned people take a few minutes to first understand. When they do, they realize that not all credit-challenged consumers are deadbeats, and not all low-income people are waiting for a free handout. Many good credit union people are shocked when I share the average incomes or credit scores of the communities they currently serve. Nationally, more than half of all consumer credit scores are considered subprime, and 51 percent of all consumers make less than $30,000 annually. It’s time for a wake-up call: there are now more of “them” than of “us.” Now is the time for more “we.” After all, isn’t that why not-for-profit financial cooperatives were chartered? It’s a time for less judgement, and more innovation to figure out how we can more fully leverage our charters. It’s been my experience that “financial inclusion” nets greater results and is more rewarding than “convenient, friendly service and great rates.”
My understanding of the complex issues surrounding modern-day poverty began in 2004, when my credit union brought in consultant Sandy Maynard to discuss poverty and income class-issues. She helped us break down walls, creating empathy and understanding among the staff. Hearing her words and personal experiences influenced me greatly. It was from that moment on that my credit union career focus shifted to one of greater financial inclusion. Sandy’s training and mentorship helped me understand why income classes make very different financial decisions. Having a better understanding of each group’s life experiences and values helped me identify areas of opportunity to reach out and serve more people. It’s been among the most rewarding work of my career, and it’s helped many of my credit union clients, many of whom are now among the fastest-growing and most profitable credit unions in the country. “We” is better. If your team could use more understanding, I highly recommend Sandy’s poverty workshop and group facilitation. It’s the perfect place to begin your understanding of the serious and complex economic issues currently facing our nation.
Why it matters
Purpose – Real people’s lives improve when we begin to understand, and then we boldly act. When we extend credit to someone who is overlooked and underserved, accompanied by some type of development (training, coaching, education), they make their payments on time, and their credit score improves. When their credit score improves, they can get a better job, get better rates, pay less in insurance premiums, build assets, and buy a home. This is a much stronger brand-value proposition than better rates and fees. Is there a better explanation for our not-for-profit cooperative financial model? Our movement is founded on our acting to teach and lend to people the banks wouldn’t serve. Our model wasn’t built around having the lowest rate in town. I wonder when that mindset changed? Access to credit (and thrift) was our chartering cry. It’s in our roots, and it should still be in our DNA. It’s all about social purpose. “We” is better!
Profitability and growth – The market is flooded with financial service providers who want over-served prime borrowers. That’s why so many credit unions are having a difficult time growing and thriving. So called “prime” consumers can go wherever they want to – and they do. It’s usually to the organization that has the greatest scale to leverage convenience, technology, and rate. Small and medium credit unions lack the scale to consistently and effectively compete in this type of market. To survive, they have to find a space or market where they can compete and win. Marketing 101 will tell you that you want to be number one, or at worst number two in your market. Being number 20 gets you nowhere. Today, there are hundreds of credit unions that have figured out how to profitably serve underserved markets, reaching lower-income, credit-challenged, and immigrant communities. No charity offered here. Remember, “not for profit, not for charity, but for service.” My perspective on service is more about access than being friendly and perky. The cool thing about these credit unions is that they are extremely relevant in their communities; they are thriving. Why? The communities and the people they serve need them.
Preserving our charters – I believe the best path to greater legislative advocacy and victories is through financial inclusion. We’ll win more with “we,” meaning we should more closely align ourselves with the people others don’t want to serve and focus less of drawing a line between “us” and “them.”
If you’re the least bit worried about the long-term growth and/or relevance of your charter – I recommend you take a closer look at any underserved or overlooked communities within your marketplace. If your organization has an “Us” and “Them” mentality – I highly recommend you first “seek to understand” and invite someone like Sandy to visit your team to share some insights and challenge your assumptions in this area. If you are truly committed to becoming more “We” focused, but are unsure how to be more inclusive and maintain profitability – send me an email and I would be happy to share with you best practices and references to assist you in this process.
|Posted by Scott Butterfield on April 27, 2016 at 10:10 PM||comments (0)|
During a press conference last month to announce Microsoft’s acquisition of Nokia, Nokia CEO Stephen Elop ended his speech saying, “we didn’t do anything wrong, but somehow, we lost.” Upon this conclusion, he and the entire management team publicly wept.
Nokia was a strong corporation. Incorporated in 1865, it became one of the biggest corporations in the world. What happened? I believe the simple answer is that a dynamic, evolving marketplace outpaced company leaders’ strategic thinking.
I wonder how many consolidated credit union boards and CEOs felt the same way on their way out – a fair number, I suppose. I don’t envy them their positions. I wouldn’t want to be the one who had squandered a long legacy of relevancy because I failed to think and adapt strategically. It’s sad really, considering some of the credit unions that are going away have been around for nearly 80 years. Eighty-years of helping members, creating good jobs and supporting communities…gone. Charters no longer relevant, and no longer able to compete and win in today’s marketplace.
I see it all the time: operationally obsessed leadership. Good people with good intentions who are micro-focused on the operational issues of the day, so busy managing processes and “doin’ the doin’” that they spend little if any time thinking strategically.
It’s sad, but true. Many credit unions have become so focused on making sure they don’t do anything wrong, e.g., maintaining (and measuring) perfect practices to support policies, zero loan exceptions, great exams, etc., that leaders spend very little time focusing on what’s going on around them. Many of these operationally obsessed credit unions are dying a slow death. They are probably well-capitalized (legacy equity), risk-adverse credit unions who are managed, but not led. Their leaders are focused on managing to operational systems and processes, but they are not strategic or entrepreneurial. These are the credit unions with very thin margins that have ceased to grow in a meaningful way. If they disappeared tomorrow, their members would have countless other options available to meet their needs. These credit unions have become good at managing processes and, like Nokia, they haven’t done anything wrong, but they have become irrelevant and they have lost.
I get to work with a broad range of credit unions, some that fit in with the operationally obsessed group and some that are very strategically focused credit unions. I’ve seen small- to medium-sized examples from both groups. I have small-credit-union clients who are amazing strategic thinkers and planners. It’s easy to tell the difference between the two paradigms. One group is just surviving, while the other group is thriving with remarkable results.
Assess yourself and your team, asking where you focus most of your energy: operationally focused, making sure you don’t do anything wrong; or strategically focused, making sure you’re aware of your surroundings, planning ahead in the right direction.
Look at where you spend most of your time. Review past board (or management team) minutes and identify how much meeting time is focused on:
• Clear strategic priorities versus conversations about operational things, such as a $300 marketing expense;
• Justifying why things won’t work versus conversations about how the world is changing, and how the credit union must adapt to survive;
• Consistently rewarding operational (process) excellence versus rewarding entrepreneurial and strategic excellence (it’s okay to reward both, but your team knows what their leader really values – make sure it’s thinking strategically).
To survive and thrive, your thoughts and mindsets must be strategically focused. The primary goal is to serve our membership and, over the long term, the only way we can ensure that we do it is to be more focused on remaining relevant and less focused on making sure we don’t do anything wrong.
More than ever, the world we operate in is in flux. Things that worked yesterday and may be working today will be replaced by the realities of tomorrow. Your mindset and receptiveness to change is in your hands.
Don’t get me wrong, I know how important operational processes and clean exams can be. I’m not proposing that we overlook those things. However, if your shop is more concerned with getting a clean exam and less concerned with a negative loan/membership trend, you might need to refocus your priorities. I don’t have the numbers, but I’m guessing that more credit unions are merged because they lack relevancy then for non-compliance to a regulation.
Those of us who constantly think strategically and have the discipline to adapt as needed are strengthening their relevance and will leave their space better when they step aside. The only tears from this group will be from the pride they feel for their contribution and leaving their credit union and their team better than they found it.
|Posted by Scott Butterfield on April 27, 2016 at 9:50 PM||comments (0)|
Financial inclusion has become an important means of promoting social justice in the world.
The movement emphasizes continually improving and increasing the availability of products and services that enable overlooked and underserved, lower-income consumers obtain affordable, convenient, and relevant financial services.
The term “social justice” is the buzzword of the moment in some circles, but in the credit union space, social justice and financial inclusion are more than just terms. They encompass where we started, and they represent what thousands of us continue to pursue each day, working together to find ways to reach and help advance the overlooked and underserved among us.
Financial inclusion best practice today
Last month, I was an honored guest of Lower Valley Credit Union (LVCU) in Sunnyside, Wash. at the recognition of their national Juntos Avanzamos designation. LVCU and their fellow Juntos Avanzamos program partners and certified credit unions are great examples of financial inclusion and social justice in action.
Juntos Avanzamos, Together We Advance, is a designation for credit unions committed to serving and empowering Hispanic consumers. Juntos Avanzamos was developed by the Cornerstone Credit Union League. Working together, the National Federation of Community Development Credit Unions, the Cornerstone League, Coopera, and a growing number of other credit union leagues have expanded the program to a national footprint.
The Juntos Avanzamos designation is earned through a commitment to providing affordable financial access and development services to increase financial capability in the Hispanic community. This commitment is expansive, and includes things such as adequate bilingual staff, management, and board; cultural buy-in and a commitment to financial inclusion; active relationships within the Hispanic community; relevant products and services, such as credit-builder loans, ITIN loans, second-chance checking, and financial education and counseling; and developing a formal Hispanic outreach strategy.
Today, there are more than 40 credit unions nationally that have received this designation. LVCU is the most recent, and the first credit union in the Pacific Northwest to be so honored.
LVCU’s story of financial inclusion and impact
LVCU has created and leveraged its assets and capacity to organize with others to benefit its entire community. It’s an amazing story, and I take every opportunity to share it, because it exemplifies the original purpose of credit unions, and demonstrates that credit unions and leaders can do well by doing good.
LVCU has a long history of serving the lower-income, Hispanic community in southeastern Washington State. In 2010, the credit union’s focus on serving this market intensified as the board selected Suzy Fonseca as the new President/CEO. Suzy grew up in the area, and is a first-generation Mexican American.
Suzy’s passion for LVCU and the communities it serves is best described as relentless. In 2011, Suzy rallied her team and board as they worked collectively to clarify their vision to “plant seeds of opportunity for a better tomorrow.” This simple vision statement clearly articulates the reason so many of the people in her community migrated to the United States. It’s intentional that LVCU’s culture, products, and services are the seeds of financial inclusion that lead to a better quality of life.
Here are three examples of how LVCU’s products and development services impact its members and community:
Reliable Rides to Work - Transportation, job access, and income go hand-in-hand. In order for families to gain employment, arrive at work on time, and be available for extra shifts (which translate into greater income), they need reliable transportation that provides access to suitable jobs. Unfortunately, many of the families in low-income neighborhoods are at a disadvantage because of non-existent public transportation, and mainstream financial institutions that refuse to fund loans to low-income, unbanked, underbanked, and migrant consumers.
At LVCU, affordable used-auto loans are offered to low-income and credit-challenged consumers. At 13.2 percent, the average subprime interest rates at LVCU are 127 percent lower than the average 30-percent rate charged by the “Buy Here, Pay Here” lots. LVCU will make $500 used-auto loans, which is something most of the traditional lenders will not do in these low-income communities.
ITIN Lending - The ITIN is an official number issued by the Internal Revenue Service that allows working nonresidents to declare their taxes. Unlike most financial institutions, LVCU will use the ITIN document (when a Social Security Number is not available) for opening new accounts and for making loans. Many of LVCU’s members come to them with just an ITIN and no formal credit rating. LVCU staff provide one-on-one counseling, explaining to members how to use their ITIN to open an account and apply for their first loan to establish credit. LVCU’s first-time program gives people their first shot at credit, and as the credit union’s low average delinquency and charge-off ratio demonstrates, these first time borrowers pay back their loans. LVCU’s remarkably strong membership growth demonstrates the high volume of referrals generated from serving this loyal demographic.
Since 2012, LVCU has originated 2,432 ITIN loans for hardworking, lower-income consumers. The quality of life impact on these consumers is measurable and significant. LVCU measures the progress these members make in building and maintaining their credit. Credit Migration reports reflect that 67 percent of these members have increased their credit score by at least one tier. Improved credit creates opportunities for better jobs, better pay, and lower premiums and interest rates. It also prepares these consumers for future homeownership.
Path to U.S. Citizenship - A 2012 study by the Migration Policy Institute found that naturalized citizens earn more than their non-citizen counterparts, are less likely to be unemployed, and are better represented in highly skilled jobs. Naturalized immigrants have higher levels of education, better language skills and more work experience within the country than non-citizens. Despite the potential economic and other benefits of citizenship, far fewer immigrants naturalize than are eligible to do so. An estimated 8 million lawful permanent residents are eligible to apply, but haven’t done so because of the cost associated with the process.
Working with its partners, LVCU launched a statewide citizenship loan program in 2014 that is relevant and affordable for foreign-born, Hispanic consumers living in the Lower Valley. Besides LVCU, the program consists of three key partners: OneAmerica, Washington New Americans, and the American Immigration Lawyers Association. Working together, this partnership is focused on reaching the immigrant community, providing the education needed to navigate the complicated citizenship process, reviewing potential legal issues, and completing all of the documents necessary to submit to U.S. Department of Homeland Security.
Since the program’s inception in 2014, more than 300 consumers have completed the pathway to citizenship and are now being sworn in as U.S. citizens. Approximately 150 people were sworn in on July 4 at the local town park.
Why it matters
Today, tens of millions of consumers are overlooked and underserved. Credit unions were charted to serve the overlooked and underserved. It’s what we do.
Unfortunately, a fair number of us are having an identity crisis, and needs to reconnect with our roots to find greater meaning and relevance in a financial market that is hyper-focused on people perceived worthy enough to be included.
Perhaps there has never been a better time for credit unions, especially those that are stagnant and having a difficult time growing, to focus on financial inclusion and social justice. For many credit unions, choosing to focus on underserved markets provides for their bottom lines as well. LVCU is a great example of a credit union that has demonstrated financial strength through a philosophy of inclusion.
Consider LVCU’s five-year annual average growth ratios:
• Loan growth: 21.93%
• Membership growth: 17.86%
• Asset growth: 15.67%
• Net Worth growth: 11.24%
The good news is that everyone wins (credit unions, communities, members) when credit unions focus on financial inclusion. Look around you. If you have an underserved market in one of the communities you serve – even if its small and emerging – you may want to investigate opportunities to reach out and include those groups. It just might prove to be the shot in the arm your credit union and community needs for a better quality of life!
Juntos Avanzamos Indeed!!!
|Posted by Scott Butterfield on January 6, 2016 at 8:05 PM||comments (0)|
I’ve had a chance to work with a number of amazing credit union leaders, great leaders who know how to foster an ideal environment for collaboration, innovation, risk-taking, and action. I believe their success is built on their ability to create a very high level of trust, and because of that trust, I felt comfortable taking the right amount of risk, and was willing to stick my neck out for them. I tried new things, stretched, grew, and together we hit more home runs. Some of my greatest accomplishments occurred while working with these great leaders. Give me someone I can trust along with a noble vision, and I will follow them almost anywhere. These special leaders deserve (and earn) our very best effort. You always know where you stand – nothing unspoken, no innuendo. Succeed or fail, you know they have your back.
These great leaders treat individuals with respect and dignity. They value the uniqueness of each member of their team. Even when they disagree with an idea or outcome, they always respond with dignity and respect. I never wanted to let leaders like these down. I always wanted to give them my very best. They strengthen others, making each person feel capable and powerful.
The bottom line is that working in an environment of trust, respect, and dignity enables individuals and teams to act boldly. Bold action has always been important, but given the environment we are working in, bold action has never been more important than it is today.
Why is it so important to boldly act?
Consistent, bold action is required if we are to survive and thrive in the rapidly evolving environment we find ourselves in. Today’s credit union leaders can’t help but consider current trends and environmental reviews such as CUES Scenarios through 2020 or Filenes Trending: Credit Unions in 2025 and feel a sense of urgency.
New technology, changing demographics, and emerging competitors are driving our need to adapt and change. Some of the changes required will be small, but many will be huge, and will require great leadership and inspired teams with the right skill sets that have been enabled to act boldly. Truly, the greatest risk credit unions can take right now is to NOT take any risks.
Where are the great leaders?
First, having spent time with hundreds of credit union leaders just this year, I can tell you there are many good leaders out there who are up for the challenge. Unfortunately, I can also say that there are a number of credit unions who lack capable leadership, and even some who are stuck with toxic leaders. If you grow with talented, capable leaders, you die with toxic leaders. Fortunately, there are inspiring thought leaders and leadership programs in place to help develop and strengthen bold leadership.
Recently, I was fortunate to share a Strategic Advancement presentation at the Connecticut Credit Union Management Program. The leadership program is a two-year program of the Credit Union League of Connecticut designed for rising leaders seeking well-rounded credit union knowledge and development. The lessons and experiences gained from the program will broaden their experience and prepare them for future leadership opportunities. I was very impressed with the large group of leaders; their input and enthusiasm made the day. In particular, I was very impressed with the message their leader, League CEO/President Jill Nowacki, had for the group. Two strong messages really. The first was non-verbal. Jill facilitated the event and spent the entire day with the group. Her presence and involvement speaks volumes about the value she places on the individuals in this group. Second, Jill shared personal leadership challenges she has faced and how she was able to overcome them. Jill’s humble examples speak volumes about the value she places on the members of the leadership team. Truly, this is leadership that will enable (and inspire) others to act.
Looking for inspiration and leadership tools? Look to the leadership thought leaders in our midst. One of my favorites is Matt Monge at the Mojo Company. Matt gets it! He is bold and unapologetic in his approach to servant leadership and his focus on building a culture founded on trust. In my experience both are the ingredients needed to enable others to act.
Why it matters
Strong credit union leaders with the ability to enable others to boldly act will spread their influence far beyond their office, organization, or community. They will win. Leaders with an inspiring vision, leading in a culture built on trust, will inspire their teams to reflect the vision and act to make it a reality. These effective leaders will build teams that are not afraid to boldly act in the credit unions, members’ and community’s best interests.
No one can do it alone. It will be those leaders with the ability to enable others to act that will not only survive, but thrive tomorrow and ensure the legacy of their credit unions. The others will always be relegated to a long list of mediocre impact.
|Posted by Scott Butterfield on January 6, 2016 at 8:05 PM||comments (0)|
It’s quite the conundrum: credit union leaders know they can’t afford to skip over lending to Millennials, but many haven’t yet figured out how to successfully attract enough borrowers under age 35 to impact their average age of membership. There’s so much talk about how to woo this 80-million consumer market – and so few bragging rights.
Frequently the problem is many of us pursue the Millennial market as though it was one homogeneous group. But it’s very far from it. The Millennial generation is a diverse group of consumers made up of different ages, lifestyles, cultures, interests, and credit histories. I think this reality explains why technology and digital marketing alone haven’t been enough to capture the results we desire.
Consider the following broad groups that comprise, in part, today’s largest demographic:
But, of course defining this group runs deeper. Within these groups we find cause-and-community-driven, diverse income levels, credit challenges – you get the idea.
Which Millennial target(s) is right for your credit union?
Start with an internal perspective. Today, who are your most profitable Millennial members? Identify unique traits, product usage, credit score, or service behaviors that set this group apart. If you like what you find, judge whether your success has been by chance or part of a strategic focus. Can you find more opportunities to leverage what’s working?
Next, look externally to your potential field of membership. Who are the Millennials living within your potential service area? Are there any dominant groups, such as active-duty military, students, or Hispanics? What is the local economic landscape like? Is your credit union located in a lower-income area with lower average credit scores? Or are your potential Millennials in the upper-age bracket in a booming suburban market? What types of financial products and services are your local, dominant Millennial groups using? If your local area is dotted with predatory Payday and “Buy Here, Pay Here” car lenders, you may want to consider second-chance and credit-builder products to develop and improve credit. If you have a growing Hispanic community (average age is 22), you may want to have bicultural staff and communication to reach this market. If the economy in your market is more robust, you may want to target Millennials interested in applying for their first mortgage loan. To be successful, you need to have more than convenient access and technology. You will need to align the right products and services with the right demographics. Do you offer the products they are using elsewhere? From their perspective, will they view your product type, terms, benefits, features, etc. as relevant?
You don’t have to solve the conundrum alone
If your credit union isn’t succeeding, it’s time to re-examine your tactics.
I’ve spent a majority of my professional credit union career responsible for successful marketing strategies, profitable membership and loan growth, sales, and community development. I learned there’s no reason to go it alone, and you don’t have to re-create the wheel – but you do need to act.
Leveraging high-quality analytical tools is a start. Companies like Experian can help you quickly identify your most profitable Millennial member with its credit and account review products, then overlay Millennial lifestyle information to help you identify the best Millennials to target for your credit unions’ branches. Depending on your resources and budget considerations, you can gather this information by either working with Experian’s credit union consulting team or through a set of self-service tools. Pre-qualification and prescreening tools can then help you make the right offer to the Millennials who best match your risk-based criteria, and serve up digital invitations and offers.
Why it matters
Success finding (and lending) to your Millennial market is going to require investment (time, money) and prioritization. Time and resources are limited. There are just so many tasks that can be done, and a limited amount of money to do them. But consider this: if your credit union isn’t attracting and lending to the Millennial market it needs to survive, what else could be a higher priority?
No credit union can afford to skip over this generation during its prime borrowing years. Indeed, one might say the fate of the entire credit union system hinges on our collective ability to serve this generation.
If you’re not yet engaged, now is the time to act.
|Posted by Scott Butterfield on November 5, 2015 at 7:35 PM||comments (0)|
Recently, I had the opportunity to present at the Carolina’s Credit Union Leagues Leadership Conference. In between presentations, I was invited to attend the League’s CUaware Protégé presentation competition. I am glad I did; this is an amazing program!
The CUaware Protégé Competition is an opportunity for credit unions and chapters to recognize the value and potential in rising professionals age 35 and under; enhance chapter programming and credit union interest; reinforce cooperative principles and credit union philosophy; and support CUaware and the League’s investment in developing leadership.
Each of the Protégé presentations were outstanding, and their messages were passionate and inspiring. In fact, the title of this article was inspired by Zack DeMoya, Lending Assistant at Palmetto Citizens FCU. Zach was a Protégé finalist representing the Columbia Credit Union Chapter. During his remarks, he asked the question, “Are credit unions people helping people, or are we people helping some people? In my opinion, Zack made the case for credit unions serving overlooked and underserved consumers.
I get to work with scores of credit unions, small, medium and large, that are intentionally focused on serving underserved, and overlooked consumers and communities. Though diverse, their activities of service are among the most inspiring examples of people helping people. What continues to surprise people is how well financially these credit unions are doing – they are well-capitalized, strong ROA, and double digit loan and membership growth. It’s simple: they are relevant, providing products and services everyday people need, and they are operating in an environment where they can compete and win.
“For where your treasure is, there your heart will be also”
I think our numbers are a fair place to look to see how well we are doing with people helping people. Many (most?) have loan portfolios with very high average beacon scores and very low delinquency and charge-off ratios. If fact, for some of us, it’s become a point of boasting to share with our colleagues just how high our average beacon score is and how low our charge-off ratio is. The irony is that I hear now more than ever stories of examiners telling credit unions they can afford to take a little more risk.
Since the Great Depression, there hasn’t been a better time for credit unions to energetically return to their roots of helping overlooked consumers get financial education and access to affordable credit.
Consider the economic realities of the world we live in today:
• 55% of U.S. consumers have subprime credit
• 50% of working adults make less than $30,000 a year
• 75% of consumers are living paycheck to paycheck
• Millennials are carrying more debt and make less than previous generations
• There are more than 20,000 payday lending outlets and 33,000 predatory Buy Here, Pay Here used car lots.
Truly, if consumers ever needed credit unions, it’s today.
From a business perspective, the best opportunity for success and growth is to find an underserved market where one can clearly differentiate, compete, and win. Like sheep, too many of us try to grow and differentiate the same way: indirect loan (and membership) growth for platinum borrowers, and mission statements focused on personal friendly service. How’s that working for most of us?
Today, there are scores of successful credit unions who are truly focused on people helping people. They serve underserved lower-income, credit-challenged, and other underserved groups, such as Millennials and Hispanic communities. They know why they exist, and their “walk” reflects their “talk.” They have strong capital, earnings, and double-digit member and loan growth. They are inspiring and, believe me, if their credit union went away, the loss would be felt not only by their members, but by their whole community. Most of these credit unions fly under our radar, but they are the heart and soul of our movement. We would have an industry rather than a consumer movement without these credit unions.
Besides the passionate mission and the focused intention of serving underserved communities, what do these credit unions have in common? High average loan yields, and fee income that compensates for higher operating expenses and loan loss expenses. It’s funny, but in spite of the extra risk, their net charge-offs are frequently lower than their more risk-adverse peer group. These credit unions have developed underwriters who know how to underwrite higher risk. While others have been developing expert indirect or mortgage lenders, these shops have developed risk-based lending experts. These credit unions have front-line teams who know how to provide relevant financial education. They have certified team members with CUNA’s FiCEP program. They do a very good job of balancing purpose with profit. Seriously, how many of us would pass on an average loan yield of 7 percent and average provision expense of 1 percent? But we do every day.
Why it matters
The behavior of people helping some people will not generate a strong enough advocacy message to differentiate credit unions from the banks, achieve meaningful legislative wins, or significantly increase market share. People helping some people does not inspire anyone.
In my opinion, the boldest meaning of people helping people is tied to providing affordable access to credit. It’s finding ways to help people improve their quality of life through affordable access to credit. It’s helping thin file and poor credit file consumers get access to credit for things like a reliable used car. If we don’t make more of these loans, these people will continue to end up at the predatory Buy Here Pay Here lenders and paying an interest rate of 30 percent (or more). People helping people is so much more than helping platinum credit consumers (who can go wherever the hell they want to) get an extra .25 bp off the competitors’ best rate. People helping people only becomes an authentic rallying cry when we collectively walk the talk and it’s meaningful.
Thank you Carolina’s young Protégés! You are an amazing group of future leaders (I hope we can hold on to you). I’m confident that our movement will continue in your capable hands. Thanks for inspiring me!
|Posted by Scott Butterfield on November 5, 2015 at 7:25 PM||comments (0)|
There are a lot of hot topics in the credit union space today, including three that are near (and dear) to my heart: serving the underserved, loan growth, and the ability to attract and leverage secondary capital. When these three things come together, amazing things happen – both to the individuals and communities credit unions serve, and in terms of tremendous credit union growth.
What it looks like
I recently spent several days with my friends at Mendo Lake Credit Union (MLCU) in Ukiah, Calif. MLCU, with $200 million in assets, is a best practice example of a Virtuous Growth Cycle.
MLCU’s Virtuous Growth Cycle began with its strategic focus and commitment to providing loans to its lower-income, Hispanic, and Native American Communities (ask anyone on their team, and they will tell you their “ why”;). Over the years, MLCU has become expert at lending to this higher-risk market with lots of success; helped thousands of people improve credit scores and improve their quality of life; become entrenched in its community securing scores of community partnerships, each committed to serving the underserved; seen higher morale and staff engagement; and experienced the financial benefits of higher net interest margins and high loan deployment. What more could you ask for, right? Believe it or not, there is more that can come from a foundation of serving the underserved: secondary capital.
As part of approximately 2,200 Low-Income Designated Credit Unions, MLCU has the regulatory flexibility to accept secondary capital. Since 2005, MLCU has leveraged its strong lending practices to underserved communities and extensive community outreach to obtain U.S. Treasury CDFI grants for secondary capital. Between 2005 and 2011, MLCU received $4.9 million in grant funding that has been used for capital to leverage growth. With this capital, the credit union has had the resources to leverage growth 166 percent. Today, MLCU is a vibrant, larger – and most importantly, relevant – best practice credit union.
Here’s a look at how MLCU’s-five year annual averages compare to the rest of the credit union space:
Access to secondary capital
Secondary capital access for Low Income Designated credit unions has long been one of the best-kept secrets in credit union land, but that is changing with credit unions of all sizes in pursuit of a better understanding of secondary capital flexibility with the lower-income designations and best practices in serving these lower-income markets. (Click here for more information regarding the designation and secondary capital.)
MLCU accessed secondary capital through U.S. Treasury CDFI grants (Click here for more information regarding the CDFI Program), but there are other sources available for secondary capital through subordinated debt. Secondary Capital Loans are subordinated, long-term (five years or more) debt available to credit unions with low-income designation from their regulator. Secondary capital can count as part of net worth for regulatory purposes, and as such can help growing credit unions achieve the required minimum capital standards.
The National Federation of Community Development Credit Unions is one source for secondary capital loans. The Federation makes Secondary Capital Loans of up to $1 million. (Click here to learn more about their loan program).
Another source of secondary capital loans is credit union to credit union. Low Income Designated credit unions have learned how to approach peer credit unions for subordinated debt. This is a great opportunity for credit union collaboration. The receiving credit union benefits from access to secondary capital, and the investing credit union benefits from higher investment yields and a deeper relationship with the credit union partner.
Why it matters
The Virtual Growth Cycle is important in many ways:
Serving underserved markets support strong purpose and profit. The fact is that underserved communities are growing, ranging from low- to moderate-income blue collar workers to emerging Hispanic/Latino markets. These markets are exploding and represent huge opportunities for fulfilling our core credit union focus. As so many best practices reflect, these communities are a rich source of profitable loans and potential growth. It might surprise you to know how many large credit unions have focused in on these communities to fulfil purpose, profit, and growth. Most of the credit unions I consult with these days are mid-sized and large credit unions.
Advocacy. I was fortunate to hear Jim Nussle, CUNA president/CEO, speak at the CUNA Community Credit Union Conference that was held jointly with the National Federation of Community Development Credit Union’s annual meeting. In his remarks, Mr. Nussle said that it’s time for the movement to marshal a credit union advocacy army. He said that it’s an advocacy army that we need to create in order to change the game.
I couldn’t agree more. Adding my two cents worth, I can’t think of a stronger national advocacy message than the Virtual Growth Cycle at a time when minority populations are exploding and in need of credit and education; millennial populations have more of a debt burden than any other generation; 55 percent of the national consumer base has sub-prime credit; and consumers who haven’t seen real wages grow in a decade. It’s this kind of advocacy that wins the argument for secondary capital access for all credit unions, and that will lift the MBL cap for all of credit unions. After all, it’s the Virtuous Growth Cycle that paved the way for NCUA to approve secondary capital and eliminate the MBL cap for all of the 2,200 Low Income Designated credit unions.
Now is the time for a consumer advocacy renaissance in reaching out to and serving the underserved markets. We all know that this market worked for us in the past (circa 1934) and its working again today in so many markets across the country. Our national and statewide advocates need more stories from us about how we serve our underserved communities. We need more credit unions to get involved in the profitable lending and extensive community partnerships that are available as well. Finally, we need more credit unions to embrace the Virtuous Growth Cycle for the benefit of their members, their communities, their bottom-lines, and greater regulatory relief.
|Posted by Scott Butterfield on August 27, 2015 at 10:10 PM||comments (0)|
I am a huge documentary fan, and one of my favorites is Ancients Behaving Badly on the History Channel. This series discusses the worst of the ancients: Caligula, Nero, Attila the Hun, Caesar, Alexander the Great, Nero, Hannibal, and Genghis Khan. Obviously I’m making this comparison to board members for shock value, but some of the examples below of poor board behavior is worthy of sharing in hopes of educating and encouraging change (especially if that change is the removal of the worst offenders).
Pitchforks and torches
I don’t know what it is, but there’s been a string of abuses that I’ve either heard about or witnessed. For me, it’s disheartening that so many CEOs and executive management teams have to work around or deal with this bad behavior. In one case, the angst regarding some board members was so strong it reminded me of the serfs with pitchforks rising up in old black and white monster movies.
Sins of Omission
Bad behavior ranges from unintended to intentional. Regardless, both are harmful to personal interaction, culture, and ultimately to the credit union’s performance and future.
First, let’s start with Sins of Omission. For those of you who didn’t spend as much time in Sunday school as I did, Sins of Omission are those we committed when we knew we should’ve done something good, but refused. Here are a couple of examples of board members behaving badly:
• Lack of commitment – These boards and board members do the bare minimum. They attend meetings but contribute very little. They frequently have attendance issues. When they do attend, they lack preparation, don’t read their board packet or other valuable information carefully prepared by staff to educate the board. They don’t really understand the credit union’s business model, they don’t promote their credit union, and they don’t use any of their credit unions products or services. Their lack of commitment retards growth, morale, and the constant improvement needed to remain relevant in the future. They hold valuable seats that should be held by others who will contribute considerably more.
• Turning a blind eye – These boards and board members often turn a blind eye to avoid conflict, failing to hold others accountable. This includes other board members and management.
• Little or no diversity – This isn’t always intentional, but it occurs when friends refer friends, and there is very little turn over on the board. The average board member is a 61-year-old white male. Communities, field of memberships and staff have changed, and our boards should reflect these stakeholders.
Sins of Commission
A Sin of Commission is a sin we take action to commit, whether in thought, word, or deed. A Sin of Commission can be intentional or unintentional. Here are a few of the worst committed by board members:
• Passive/aggressive behavior – Quiet, but intentional resistance to strategies, initiatives, change, and support. This frequently leads to a “board meeting after the board meeting,” usually in the parking lot after a more formal meeting. Decisions made at these meetings undercut trust, kill morale, and stop progress.
• Theft – It’s a bold accusation, but what else do you call misuse or abuse of expense budgets. Unfortunately, I have seen this abuse range from board members who order $100 shots at the bar during conventions to educational junkets that are so far out of budget or are demanded at a time when the credit union can least afford it. One can try to justify it, but I consider it theft and I think most CEOs do too. But why does it still occur? Not for profit, not for charity, but for service?
• Sexism and racism – It’s sad, but it still exists in the credit union movement. This immoral behavior is sad and discouraging. Great CEOs are held back, talked down to, and mistreated because of their gender, and vibrant, diverse, and underserved communities aren’t served because of the color of their skin, lifestyle, or economic condition. The real power of our credit union movement will not be realized until all people are treated equally and fairly.
• Bullying – These credit unions have a bully on their board who dominates everything. Nothing happens unless they agree. They are condescending and disrespectful to others, which leads to less input, inferior decisions, poor performance, and unhappy people.
Making things right – here are a few things to consider:
• Get the right people on the board, those with the ethics, commitment, connections, diversity, skill-sets, and attributes that strongly support the credit union’s vision and mission.
• Have clear expectations for board engagement, behavior, and compliance, and hold them accountable.
• Educate the board – there are many quality board-education programs. I’m frequently asked to provide education on board roles, responsibilities, and best practices as part of my credit union strategic planning sessions. Sometimes it easier to have facilitators pull the bandage off or expose the white elephant in the room.
• Nominate a board chair who sets an example of best behavior and who will inspire others to act accordingly.
• Keep score and assess performance. There are many quality individual and group assessment programs specifically designed for credit union board members.
• Create and maintain a good working relationship with the CEO. This is key to making sure the CEO can freely share their thoughts and provide fair feedback on issues that arise.
• Have zero tolerance for unethical and unprofessional behavior.
• Consider board term limits. Don’t get me wrong, I know scores of outstanding board members who have been on their boards for decades, and these good people are best practices for volunteer engagement. However, we do have far too many board members whose time has passed and need to move on. One easy way to facilitate this is clear board term limits in the bylaws.
Why it matters
If ever there was a time for quality, high-performing boards “behaving well,” it’s now. Credit unions must be governed by strong boards if they are to survive.
If you are reading this and feeling frustrated with the conditions in your shop. I encourage you to have the courage to lead the change that is needed. Your credit union and our credit union movement are depending on you.
|Posted by Scott Butterfield on August 27, 2015 at 10:05 PM||comments (0)|
More than a year remains before we as a nation vote to elect the next President of the United States; for some, the coming year will feel like five. Already, increasingly bombastic rhetoric on both sides clearly illuminates the deep divide we face. So many comments made in the name of public – and credit union – discourse are at best judgmental and at worst downright hateful.
Modeling cooperation in word and deed
It’s funny, but I have friends across the political spectrum who will read this and absolutely agree, then lay all the blame at the door of the “other side.” Simple conversations can easily spin out of control, especially when discussing how politics and our shared credit union world could (or should) intersect. For example, I have close friends who believe the CFPB is a godsend, and other who are so against the Bureau, it might as well be the anti-Christ. Who is right?
It’s important to remember that one of our core values is cooperation, and I believe that to be more cooperative we have to find a better way to get along. Sometimes I read or hear comments, from both our rank-and-file and our thought leaders, and am left to wonder with whom we really want to cooperate? Is it just those who see the world exactly as we see it? Or people with different, sometimes opposing viewpoints? Does our public dialogue model the spirit of cooperation, or is it judgmental, condemning, or divisive? Is our rhetoric so strong that we are willing to alienate the people in the middle?
I believe it’s important that our core cooperative values are supported by our words as well as our actions. We have to do a better job of finding middle ground where we can agree and from which we can make progress.
I’m not a perfect example and have on more than one occasion lost my patience and been baited into an argument (or post). Heated, spiteful, and condescending arguments rarely go anywhere positive and rarely convince people to our way of thinking.
When in doubt, remember Filene (and Carnegie)
I’ll admit that when it comes to credit unions, I am a Kool-Aid drinker. It’s remarkable (even more so today) that Filene was so diverse in his advocacy. Besides playing a decisive role in the foundation and formation of a trillion-dollar cooperative credit union movement, he was also influential in the formation of one of the first trade unions to represent a select group of his rank-and-file employees. On the other side, Filene was one of the premier capitalists of his day and championed the creation of the U.S. Chamber of Commerce. Try pigeonholing Filene into one of today’s modern political camps.
This is where it gets tricky for me. I passionately believe that each of us should be guided by what we believe is true about the world, and I’m not advocating that any of us abandon our beliefs. They’re what make us who we are. However, I also believe in the sage advice of Dale Carnegie, who taught in How to Win Friends and Influence people, that if we want to win someone to our way of thinking it’s best to be “hearty in your approbation and lavish in your praise.”
Why it matters
We are a cooperative movement, and that means working with people – diverse people who each have closely held beliefs and passions. Our words and deeds matter. People watch what we do and what we say, and it’s these words and actions that will positively or adversely influence whether or not they want to cooperate, befriend, partner or do business with us. I hope that as credit union leaders, we can rise above this age of divisiveness and set examples of respectful dialogue and actions that will strengthen our friendships and, most importantly, our movement.
|Posted by Scott Butterfield on August 27, 2015 at 10:00 PM||comments (0)|
The competition for loans has never been greater. It’s a market long crowded with traditional and non-traditional players, including credit unions large and small looking for the best options to make the most of their efforts.
In spite of drastically changing consumer social and economic demographics, most of us are still using the same old growth strategies when it comes to lending: solely seeking out prime borrowers for indirect, recapture (steal-a-loan), mortgage, and business lending. One percent new auto loan rates are common, an example of myriad “get lost in a sea of low-rate” offerings, each targeted to a prime borrower who can take their business anywhere. And while we are all slugging it out for the prime borrowers, the pool is shrinking.
According to the Corporation for Enterprise Development (CFED), 55.6 percent of consumers have sub-prime credit. Consider this for a moment: when we limit our sights to prime borrowers, we effectively cut the potential loan market in half!
What’s going on out there?
Our consumer market is changing, with three key emerging markets growing in number that collectively have thinner or sub-prime credit files:
• Millennials (18-33 year olds)
• Lower- to moderate-income consumers (earn less than 80 percent of the area median income)
These emerging markets are underserved, and for the most part overlooked. Ask most credit union leaders and they will tell you they want to grow millennials, but become skittish when they confront a thin file. Credit union leaders will also say they want more loyal members – it’s difficult to find more loyal members than lower-income consumers or those from minority communities who receive affordable access to credit. I believe (and scores of credit union best practices bear this out) that credit unions who dig a little deeper, reaching and lending to these emerging markets with sub-prime, thin credit files, are more relevant to their membership and to their communities.
How to reach and serve these underserved credit markets
There are hundreds of credit unions that have very long and successful track records serving consumers with little or no traditional credit histories. Talk to these expert lenders and your will sense their strong determination to approve more loans for their members. They don’t give up when they pull a thin file report. They know how to dig a little deeper…. They are no stranger to including payment histories for rent and utilities into the loan decision making process.
Just ask Teri Robinson, President/CEO of Pacific Northwest Ironworkers Federal Credit Union. Teri has been digging deeper to serve members for years. Her passionate commitment to her members is demonstrated by finding more ways to get to an approval. This has led to dramatic member development stories, strong loan growth and higher profitability. Teri believes “We exist to serve and educate our members, we find and consider every piece of information we can about each member to help us in the decision making process, this includes non-traditional payment histories.”
Today, credit union leaders like Teri are looking at new ways to assess the credit worthiness of the 64MM consumers with little to no traditional credit history. Using comprehensive data and analytics, Experian partners with credit unions to continually improve ways to score and reach this underserved market. One specific and successful example is Experian’s Extended View Score, an FCRA-compliant credit model that pulls both traditional credit and alternative consumer information such as rental data and full file public records into one predictive score. This additional information helps credit unions to reach more members and get more approvals.
Why it matters
To be successful, each and every credit union must find spaces where they can compete and consistently win. Serving sub-prime and underserved consumers is a good market for thousands of credit unions that are trying to remain relevant and profitable in a rapidly changing environment. Here’s why I believe these markets are a good fit for so many credit unions:
Values – Lending to underserved consumers is a core credit union value that will resonate – but you have to “walk the talk.”
Aging membership – Credit unions’ traditional membership is reaching saturation point and is in need of younger borrowers. An average membership age of 49 is hurting many of us. None of us can afford to skip over the younger generations of borrowers.
Future growth – Emerging millennial and Hispanic markets are growing rapidly. Millennials recently overtook the number of Boomers. The Hispanic/Latino market has reached 53 million, and is expected to reach 86 million by 2030, and 133 million by 2050. Successful credit unions will not ignore these demographic and economic realities.
Middle market – Most mainstream financial lenders are focused on the middle market. That is where competition is the most intense. Underserved communities are predominantly ignored by mainstream lenders, giving credit unions a niche to win. Mid-sized and smaller credit unions can become “bigger fish in a smaller pond,” and more clearly stand out.
Profitability – When properly managed, sub-prime and thin-file consumer loan portfolios are very profitable, with high average net loan yields. How many of us would snub our nose at average portfolio yields of seven to 10 percent?
Loyalty – The most loyal consumers are those who you have truly helped in a meaningful way, and this goes way beyond a loan rate and extending “personal, friendly service.” Loyalty comes from people you have helped when others would not. It comes when they remember that first or second chance that helped them really move forward in life. People who improved credit and made better decisions will not easily forget you. Just ask your credit union peers who actively serve these markets; they will tell you the referral business alone drives tremendous loan and profitability growth.
Community focus – Consumers who receive affordable access to credit build personal assets that lead to stronger communities. Today’s younger and diverse consumers place a very high priority on community development. Wise credit union leaders will leverage a commitment to serving the underserved and overlooked consumer by seeking out like-minded, non-financial community leaders to increase impact.
If your credit union is not reaching the level of loan growth, profitability, diversification, member loyalty, or community development results you desire, I encourage you to take a closer look at your underserved and overlooked communities and consider leveraging the tools that are now available to better reach out to, analyze, and serve more consumers.
|Posted by Scott Butterfield on May 25, 2015 at 4:20 PM||comments (0)|
One of my FB friends is a passionate storm chaser, this time of year, Ed Turk, President/ CEO Heritage Community Credit Union is out chasing storms. I enjoy following the pictures of funnel clouds and colorful radar maps and of course the thrill of the chase. There is just something about it, managing the risk for the ultimate reward of seeing nature at its most dynamic and powerful.
Travelling like I do, I have a fair share of time to think about things and while driving - the dark storm clouds gathering in NC and my pending topic at the small credit union round table…”how to grow loans when you are a small fish in a big pond”, got me thinking about a perfect storm that I believe is brewing and worth chasing for small to mid-sized credit unions.
The perfect loan storm
I believe a number of things have come together, creating a perform opportunity for credit unions to lend and grow. It’s direct and in keeping with our credit union roots. The following facts are in play and developing this near perfect situation.
Fact 1: a majority – 56% of consumers have sub-prime credit . Depending on where you live, you may have an average in the higher sixties. For the most part, these consumers are shut out of non-predatory mainstream credit market.
Fact 2: Regardless of bad credit, consumers still need reliable transportation to get to work. For the nearly two-thirds of credit impaired consumers, this means financing a used car at a predatory “buy here, pay here” used auto lot at rates from 25 – 40%. Many of the people in this category have good job time, non-documented credit (i.e. rent, utilities, etc.), capacity to pay and a little bit of savings (after all the predatory auto lender is probably going to require a down payment of some kind).
Fact 3: Younger consumers (coveted millennials) need a financial institution to give them a first chance. Many are looking for someone to agree to granting their first loan…. Millennials, are credit and income challenged. Unfortunately, some made the mistake of applying for a bank credit card to get the free- beach-towel-with-the-almamater-screen-printed-on-it and it didn’t turn out well. They lack adults in their life who will (or can) co-sign for their first loan. Credit unions who truly want to serve Millennials will find a way to grant them a loan.
Fact 4: Alternative Financial Services are the dominant lenders serving these groups. Its big business in excess of $100 billion annually. Buy Here, Pay Here used auto loans are the largest group within the alternatives market category. For the most part, these lenders are left unchecked (regulatory and competitive) for a very booming used auto market.
Fact 5: There are scores of credit unions, small, medium and large that are demonstrating how successful serving these underserved markets can be. They are typically growing loans (directly) at a double digit pace, with higher average loan yields of 8 – 10 percent and loan loss ratios near or below their peer groups. They have learned (or been reminded) that most consumers will not bite the hand that feeds them. Sure they have extra ways to mitigate the risk, but they will tell you they gain palpable loyalty.
Fact 6: We have been here done this before. Credit unions were founded on the principle of providing affordable access to credit for tens of millions of consumers who were ignored by the banks and considered too risky. Credit unions found ways to grant loans to those considered unbankable. Not only surviving, but thriving in these markets..
Fact 7: While loan growth has been strong overall, there are far too many credit unions who have flat or negative loan growth. Smaller credit unions are trying to compete in the low-rate, indirect wars, lacking the scale to truly compete and win in that market. Ultimately, I believe most credit unions go away because of their inability to grow profitable loans. The 10% largest credit unions are responsible for the majority of all credit union loan growth. Smaller credit unions must a find (and defend) a loan niche where they can compete and win.
Let’s do some “disrupting” ourselves
The opportunity is ripe for credit unions to disrupt the alternative financial services market, compete and win in a market that is (currently) overlooked by mainstream financial institutions.
These facts are coming together at a time when many are again questioning credit union tax exempt status and in many markets, credit union relevance in an overcrowded market focused on serving the overserved.
Millions of hard working (and younger) Americans need credit unions today more than ever. They need affordable access to credit and a path to asset building, a better credit score and financial behavior. I believe this is a perfect opportunity for credit unions to return to their roots and find profitable ways to serve this group.
Just like my storm chasing FB friend Ed. We need to prepare for and mitigate the risk. But where there is risk, were likely to find abundant reward. And in this case the reward can be substantial;
• Higher consumer impact that is material
• Loyalty that is worth more than 25 Basis points
• Referrals from friends, family and coworkers
• Higher average loan yield to drive strong earnings and fuel growth
• Loan growth from a market where you can compete and win
And who knows…. You may make that one change that will ensure your brand will be around for another 50 or 75 years. Now that is worth chasing!
|Posted by Scott Butterfield on May 25, 2015 at 4:15 PM||comments (0)|
Collectively and individually, our futures hold limitless opportunities and threats – some known, others unknown. We regularly consider these opportunities and threats, whether as part of the strategic-planning process or in an ongoing manner as we are faced with emerging events. Our longevity and vitality depends on our ability to prepare for and adapt to as many of these events as possible.
I like history. History helps me put things into context. Consider the following historical events and their outcomes, which dramatically changed the world. What if...
• Socrates had died in the Peloponnesian War of 424 B.C.? He would have missed the next 25 years, which where the greatest years of his influence. What if he had not met and taught a young Plato? The entire course of Western philosophical thought would have been radically altered.
• George Washington had been killed by a sniper's bullet in 1777? Washington was the linchpin that held the struggle together, inspiring loyalty throughout the Continental army. The probability of finding another person with Washington’s stature and leadership abilities would have been nearly impossible.
Sometimes history is saved by luck, but usually it is saved by planning. A very important historical figure, Dwight D. Eisenhower said that “plans are nothing; planning is everything.” Operation Overlord, a.k.a. the D-Day invasion took one year to plan. What if the D-Day invasion had failed?
There are many opportunities and threats on the horizon that could have us scratching our heads and saying "what if?"
• What if in spite of heroic legislative advocacy, credit unions finally lose the tax-exempt status for all credit unions with assets of more than $100 million? What if the financial impact to credit unions is 30 to 75 BP?
• What if the Consumer Financial Protection Bureau deems Courtesy Pay Overdraft programs predatory, and regulatory required program changes reduce overdraft income by an average of 25 percent?
Are you prepared for these and/or many other potential “what if” scenarios? Do you have a plan for a variety of potential scenarios, or is your plan to just wait and see? How your credit union plans and responds will strongly influence whether you cease, survive, or thrive.
Are a review of these and other scenarios part of your strategic planning conversations? Or are you pursuing more of a “hope and a prayer” approach, and naively thinking some of the scarier scenarios will just go away?
Preparing for the unthinkable
It’s important that your team envision “alternate extreme futures” (worst/best case) and create strategies that works for all extreme futures. I recommend using CUES Scenarios for Credit Unions 2020 ( http://www.cues.org/professional-development/library/research/view/id/75) for your planning session environmental review. I was honored to contribute to this version of the CUES report, and I find it useful in guiding teams through the planning process.
Scenario-planning can also help innovators and entrepreneurs exploit the unthinkable
Case in point: Charles Darrow, who – finding himself out of work after the market crash of 1929 – spent a few years perfecting a little game that eventually came to be known as Monopoly. Within a year of his patent, Parker Brothers was selling 20,000 units a year, and Darrow became the world's first millionaire game designer.
What future scenarios are possible for your credit union?
Scenario planning facilitates learning and prepares credit unions for the possibility of some level of failure while minimizing future risks. It will also give your team confidence and strategies that optimize the chances of success under all possible scenarios.
|Posted by Scott Butterfield on April 14, 2015 at 8:00 PM||comments (0)|
During a sermon last week at church, I was inspired by my leader's council to “choose your rut wisely; you might be in it for a while.” To illustrate the point, he shared that back in the days of the Model T car, many roads were unpaved and prone to developing ruts. He shared that a sign is posted in Alaska at the beginning of a long dirt road full of ruts warning drivers to pick their rut wisely, because they might be in it for a while.
Of course, this message made me think of the (past, present, and future) ruts in my own life, and as with anything else I do, my thoughts drifted to my work with credit unions.
Are you in a rut?
Ruts are hard to get out of – and very easy to fall into! Once you are in one, you hope that the end of it is somewhere near where you want to go, but usually that's not the case. Regardless of how motivated we are, each of us at some point gets trapped in a rut.
Here are a few signs that you may be slowing down or just plain stuck in a rut:
• You get lost in the “now,” and your “vision” takes a back seat to survival.
• You run out of gas easier, can’t sleep, and get sick a lot.
• You become indecisive and confused. You worry about everything.
• Everything seems harder than it should be, and everything you try to do is a huge effort.
• The more you try, the more things stay the same.
• You lack joy and enthusiasm.
If any of the above describes you, then it’s time to reexamine your life, who you are, and what you want.
Help! I’ve fallen into a rut and I can’t get out!
So how can we break free of the ruts in which we have become stuck? Here are a few suggestions to consider:
• Take responsibility for the rut you have selected. Empower yourself to change course. Seriously, think things through. If you do, you’re likely to find that you have most of the things you need to get back on the right track to pursuing the goals that inspire you. Accomplishing your dreams is more about you and less about the environment around you. Don’t waste time waiting for a lucky break.
• Change the company you keep. There are times in my life when I was stuck in a rut largely because of the negative energy of the people and culture around me. If you are stuck in a rut, look around you. Do you have positive role models that you admire, trust, and respect who can help you see the truth? Choose your friends, colleagues, and coworkers wisely! You spend a lot of time with them, and you look to them for approval and support. They have influenced who are you are today. It has been said that you can judge a person by the company they keep.
• Connect with people. Depending on the depth or length of the rut, it’s easy to withdraw from others at a time when we need them most. Reconnect with positive past influences in your life, including family, professional, and spiritual contacts. They will provide the greatest support, and they may help remind you of what you were once so passionate about. Connect and make new friends through professional networking events, hobbies, community service, etc. Getting out will help you gain firm footing on who you are and who you want to become. It's important to get your dreams, goals, and vision out in the open to increase your commitment to making them a reality, but it's equally important to talk to the right people. Only discuss your future with those who will support and encourage you. Pick your support team wisely.
• Get Excited! What are you passionate about? What would you do if failure wasn’t a possibility? Deep down, what inspires and motivates you? Reconnect with what you believe to be true: your personal “why.” If you do, you will be happier. It will drive you to experiment with new things, take new risk and push the envelope of what you are capable of. Besides living your best life, you will help others and you will attract similar souls who believe what you believe. The greatest strength is found here.
Why it matters
Eventually, we all find ourselves in a rut. Unfortunately, some of us remain in those ruts far too long. Ruts can last years, decades, and even most of one’s adult life. I’ve never met anyone who doesn’t want a better, more productive life. Yet, I have met a lot of people who remain frozen in ruts that are clearly deteriorating their quality of life. It’s not worth it.
I’m not ashamed to admit that, over the years, I have found myself in several deep career ruts. There are ruts I’ve abandoned using the advice I've offered you above, and there was even a rut that I was “guided” out of. The most amazing thing I experienced each time I broke free of a rut was the roaring return of my vision, my hope, and my ambitions. Each time, the personal growth was exponential and there was abundant happiness and sense of accomplishment. My best and most rewarding work has always come after I have moved out of a rut.
It takes courage to make hard decisions and embrace change to follow what you believe. If you are in a rut, do whatever you need to do to get yourself out and on the best path for you. If someone you care about is in a rut – friend, family, or coworker – I hope you will be that person who will provide the support they need, help remind them of what they were once so passionate about, and encourage them to walk out of the rut to a better quality of life.
|Posted by Scott Butterfield on April 4, 2015 at 8:10 PM||comments (0)|
It’s not new; this question has been debated before. I have been called out more than once for defining the credit union space as a movement rather than an industry. I have friends on both sides of the debate and, arguably, both words apply.
With the 2015 CUNA Governmental Affairs Conference knocking at our doors, and thousands of us meeting to discuss the future and descend on Capitol Hill to lobby our elected representatives, I thought it might be a good time to consider which word – movement or industry – most accurately describes what we do. Which word will best elicit the reaction we desire?
A movement is defined as a group of people working together to advance their shared political, social, or artistic ideas. Think Martin Luther King, Jr.
An industry is defined as the production of a good or service within an economy. Think Ford Motor Co.
Both descriptions are technically accurate for credit unions, and both examples positively transformed society’s quality of life. Yet, one is more inspirational and speaks directly to the heart.
The credit union system began as a social movement to create affordable access to credit and to promote thrift. Most of us know this, and I am sure it will be repeated more than once during Hill visits the second week of March. Passionate credit-union pioneers worked to share the credit-union ideal and were responsible for chartering tens of thousands of credit unions. Thanks to credit unions and their social movement, millions of Americans and immigrants gained access to affordable credit, learned how to save, and, as a result, prospered financially and migrated to the middle class. The early credit-union movement was inspiring, and it improved the quality of life for millions.
Using the right word can transform ideas into clear, captivating actions and ideals. Leadership guru Simon Sinek is best known for popularizing the concepts of “The Golden Circle” and to first “start with why”. (If you have not seen this, I highly recommend it: http://www.ted.com/talks/simon_sinek_how_great_leaders_inspire_action). Sinek proposes that people don’t buy what we do or how we do it, but they buy “why” we do what we do. People who believe in a concept or idea will attract people who believe in what they believe. It is the why that resonates and motivates people to listen to what we have to say and take notice of what we believe to be true about the world. This is very important, especially when we are trying to convey our uniqueness to the world and justify our unique not-for-profit chartering system.
What do you believe?
I believe that our “why” is still inspiring, and is still accurately defined as a social movement.
Words matter, but action speaks louder than words. Here are a few examples of why I believe movement more accurately defines the credit union space as a whole. Hint: these might be good examples to share during your capitol hill visits.
Mendo Lake Credit Union – $188-million credit union headquartered in Ukiah, CA.
MLCU serves a diverse, low-income, overlooked rural community that includes low-income, Hispanic and Native American communities. MLCU is the main buffer between local low-income consumers and large, profit-oriented, banks, check-cashers, and predatory lenders. Financial inclusion is the credit union’s mission, and it walks the talk by providing one-on-one financial education, and products and loans that are specifically unique to the credit union’s membership. It actively lends to the underserved groups and demonstrates that credit unions can grow and do well by doing good.
Tuscaloosa Credit Union – $60.1-million credit union headquartered in Tuscaloosa, AL.
At TCU the “people helping people” mantra is alive and well. TCU has a mission of making affordable housing available for its lower-income target market. It does this by partnering with the local housing authority to provide financial, credit, and home buyer counseling, a process that ultimately results in the credit union financing consumer’s first home (loans that traditional financial institutions will not make). It’s an inspiring program and it’s probably why TCU was selected as the 2015 CU Times Trailblazer of the Year for Serving the Underserved.
Mid Oregon Credit Union – $191-million credit union headquartered in Bend, OR.
MOCU’s mission is to serve communities that include lower-income, Hispanics and Native Americans. MOCU serves consumers across a very wide demographic spectrum. When it comes to financial inclusion, this credit union walks the talk. It has developed unique programs to educate and serve each of its communities – regardless of income or credit status. MOCU’s mission has attracted a robust collection of community partnerships that include education, economic development, minority, and social service providers that have gathered to support the credit union’s programs. MOCU is a community leader and, working together, it is improving the quality of life in the communities it serves.
First Kingsport Credit Union – $44.2-million credit union headquartered in Kingsport, TN.
FKCU is a smaller credit union with a big “Can Do” attitude. FKCU thrives in a community that is full of mainstream financial providers because its focus is on serving the “little guys:” hard-working Americans who struggle to get by with wages that haven’t caught up with rising prices, and who have credit that has been challenged during tougher economic times. FKCU is that bridge that helps its members move from savings- and credit-challenged to stronger consumers with savings and improved credit profiles. Many if not most of these consumers would be left to predatory lenders, if not for the credit union’s mission to serve this frequently overlooked class of consumers.
Collectively, these four examples reach tens of thousands of consumers annually who are usually overlooked by the financial “industry.”
If we are a movement, what are we moving toward?
I believe that, for the most part, the credit union space is still moving toward a better quality of life for the consumers and communities we serve. Hence, the credit union space is a movement, rather than an industry. This movement toward a better quality of life is reflected in the thousands of credit unions that still serve a large sector of the overlooked, and it's also reflected in the significant community give-back that is consistently demonstrated by credit unions (and movement leaders) of all sizes and in all types of communities throughout the country.
Moving toward a better quality of life is our best “why,” and if we remain firmly committed, it will continue to resonate with people who seek out and believe what we believe.
|Posted by Scott Butterfield on February 28, 2015 at 6:35 PM||comments (0)|
Even in the best of economic times, mid-sized credit unions struggle to expand. For such credit unions, spurts of high growth occur rarely and unpredictably, and they are difficult to sustain. Therefore, in the worst of times, when loan demand dips, smaller to mid-sized credit unions face an even steeper climb. Meanwhile, their larger counterparts have the scale to significantly leverage resources with strong bargaining power that enable them to pursue growth strategies despite economic downturns.
Breaking out of the middle
The $64 million question is how do mid-sized credit unions break out the pack to gain market share. I don’t believe they will get there with a safe 3-5 percent annual growth when their larger competitors are growing at a 50% faster rate. I don’t have a beef with larger credit unions. I am continually inspired by the great work larger credit unions do for their members, communities and even many smaller credit unions. Some of my clients are large credit unions and many of my friends lead large credit unions. But, the fact is that large community credit unions usually dominate consumer loan and membership growth in their communities. Good for them.
But what about your credit union? Do you have the strategies you need to break out of the middle, positioning the credit union for longer-term growth and viability? Do you have a plan to get to scale so you can more effectively compete and gain market share? Or are you just happy to make it through another year with mediocre loan growth?
I don’t believe that mid-sized credit unions cannot rely on the fact that they are “full-service” financial providers. Without greater scale, that message along with, friendly personal service and great rates is not enough.
Three successful strategies for mid-sized credit unions
First, have an honest assessment – vision, mission, member value, differentiation. Ask yourself and challenge your group on “why” your credit union exists and why anyone should care. Next, consider these unique strategies.
• Culture – Filene’s “Thriving Midsize and Small Credit Union” study identified that there are a significant number of midsized credit unions that are thriving. With assets, loans and membership that are growing at rates faster than their asset peer group. The study compared the top performing 10% (Stars) of the study group to the bottom 10% (laggards) of the group. The study identified nine key characteristics of the Star performers. The number one characteristic was that Stars are highly effective lenders. There are many factors that make star credit union more effective lenders, and key among these is a strong lending culture. These credit unions have aggressive lending attitudes. The board and management strongly believe that the credit unions primary purpose is to meet member-borrowing needs. This culture and passion for lending permeates all levels of the organization.
• Winnable markets – Strong growth and long-term viability depends on your ability to identify markets where you can clearly compete and win. In my experience, mid-sized credit unions are struggling to leverage service and rate differentiation to the “over served” market (i.e. top tier credit, middle-income borrowers who can go wherever they want to for a loan). Today, some of the fastest growing mid-sized credit unions are pursuing the following winnable markets:
o Credit challenged – 56 percent of consumers have sub-prime credit! In 2013, CFED (Corporation for Enterprise Development) reported state-by-state population counts with subprime credit. The numbers are astounding ranging from a low of 43% to a high of 64%. This is important. If your lending pool is limited to prime borrowers, you have eliminated more than half before you have looked at one loan.
o Emerging markets – The Hispanic and immigrant population is growing at an amazing rate. Smart credit unions are creating strategies and even reinventing themselves to effectively serve these markets. They know that for most of these markets, predatory lenders are the only competitor.
o Millennials – I listed this group separately, however I believe a majority of this group can be found in the credit challenged and emerging market group above. Credit unions who find ways to lend to this group (eg, first auto loan) will be embraced.
• Different products – for many of us, our prime loan growth strategy revolves around loan refinances, which means we have frequently become the lender of second resort. It is difficult if not impossible to achieve big growth and or earnings with this strategy. Changing financial use patterns; demographics and credit standing have fueled a robust Alternative Financial Service market. Products like payday loan alternatives, pre-paid cards, micro small business loans, and sub-prime auto lending are in high demand and represent an $80 billion a year market. For many successful credit unions, competing with these products is easier and more profitable. Average loan yields and fee income is higher and the goodwill is great because they can save members a great deal of money. Making this move, they are no longer solely competing directly with mainstream financial institutions.
Why it matters
The competitive challenges for serving prime credit consumers with traditional products and services have never been greater for credit unions. The good news is that more credit unions are shifting and reinventing themselves to meet the rapidly changing demographics and markets. Today, these credit unions are thriving with best practice growth an profitability rates. Further, they are finding greater purpose and relevancy.
|Posted by Scott Butterfield on February 28, 2015 at 6:25 PM||comments (0)|
This article is in response to the Jan. 27, 2015 CU Times article, “CEO worries industry ignoring loss of small credit unions.”
I’m a small-credit-union guy, and I’m proud of it. I spend a good portion of my consulting and volunteer time working with and supporting a very diverse group of smaller credit unions: rural, urban, single-sponsor, community, low-income, etc. It’s the most rewarding work of my credit-union career.
Dennis Fisher’s comments fairly represent a common theme that I frequently hear from smaller credit unions. Small credit unions, the majority of total credit union shops, are frustrated. They feel overlooked and undervalued. They frequently feel like they are “trotted out” to the spotlight whenever the taxation issue rears its ugly head; then, when the fear has passed, they overhear comments from credit union folks that smaller credit unions should just go away.
I agree with Dennis that healthy small credit unions are very important to our movement and deserve greater attention. Fighting the tax threat is important, but I believe their most important role is that they are most frequently the credit union located within a community that is still very actively involved in serving the underserved market. More than a tax argument, the impact these smaller credit unions have on people of modest means in their local areas is the true benefit.
Five things smaller credit unions need
Small credit unions need affordable access to resources, services, and the expertise. As a group, the net margin is very thin at smaller credit unions. Yet, they have the same regulatory requirements as larger credit unions, and they have to keep up, the best they can, with new technology. It's simple: expenses that seem small to a larger credit union are large to a smaller credit union. Technology, compliance, human resources, marketing, planning, you name it. An easy example is the required compliance audits for BSA/OFAC/ACH and the Safe Act. Trying to find an affordable provider for these services can be tough. There is no shortage of quality consultants in our movement, but, unfortunately, many small credit unions can’t afford them.
Small credit unions need to seek out and utilize the resources that are already out there. The NCUA Office of Small Credit Union Initiatives is a huge resource to many small credit unions. The annual capacity-building grants for low-income designated credit unions and the Economic Development Specialist consultants provide valuable and affordable resources. However, access to these resources is limited when considering the large number of smaller credit unions. CUNA and many leagues are focusing more on smaller credit unions with league products like free policy compliance and small credit union councils, both good resources for smaller-member credit unions. The National Federation of Community Development Credit Unions provides access for members to community development tools, expertise, and secondary capital.
Small credit unions need mentors too. Many smaller credit unions aren’t as well connected as their larger counterparts. I have seen many success stories where a larger credit union or an executive from a larger credit union took a smaller credit union under its wing. Their mentorship strengthened the credit union and increased member impact. Two great examples that inspire me are BECU and SECU. I encourage smaller credit unions to seek out mentors at large credit unions, but many are afraid the larger credit union will just want to merge them (this is rarely the case). I have so much respect for the larger credit unions that provide support to smaller credit unions. These leaders humbly serve, and are the best example of credit-union collaboration.
Small credit unions need to do a better job of sharing their stories. It may be surprising to some, but small credit unions can be innovative too. For example, my small credit union clients could teach a thing or two on how to access and leverage secondary capital. There are untapped stories of serving the underserved that need to get to our legislative advocates, nationally and locally. It's inspiring stuff, and it keeps us connected to our roots.
Small credit unions need to profitably grow if they are to survive. In spite of how they feel or the challenges they face, the reality is that small credit unions MUST figure out how to profitably grow, or they will eventually die. The credit union movement will continue to lose a large number of smaller credit unions that cannot figure this out. The good news is there are many small credit union rock stars out there who are among the most innovative, profitable, and fastest-growing. Check out the phenomenal results (FPR) at Pacific Northwest Ironworkers FCU and Greater Abbeville FCU. They are small credit unions today, but will not remain that way forever. Struggling small (and mid-sized) credit unions who want great guidance should check out Filene’s “Thriving Mid-Sized and Small Credit Union” study.
The bottom line
I believe the heart of the matter is relevance. We’re going to eventually run out of small credit unions. There are not enough new charters formed to make up for the successful small credit unions that become mid-sized credit unions, and the small credit unions that don’t make it.
Our primary focus should be on impact, and I believe the greatest impact is made in serving the underserved, overlooked, and lower-income target market. This is what the smaller credit unions do so well, and why they become so important for our collective brand, taxation, and CRA arguments. The more credit unions of all sizes reach out and serve these groups in our local communities, the stronger our collective brand and greater our relevancy as not-for-profit financial cooperatives.