at the

CUNA Governmental Affairs Conference

February 23, 1998

"The Future of Credit Unionism"

Good morning. It is always a pleasure and an honor to appear before so many dedicated credit union movement representatives. I thank Chairman Buck Levins and President Dan Mica and all of you for the opportunity to do so.

It is also a pleasure to report that once again credit unions had an outstanding year and their financial performance continues to be magnificent.

Both the NCUA and credit unions were closely examined by the U.S. Treasury Department last year and both emerged with their colors flying high. You can all be very proud of the success, strength, and safety of credit unions across the country.

Although all of the statistical measurements are very positive and highly encouraging, we do face some serious challenges. For instance, you have heard much importuning from NCUA and others about the critical need to become Year 2000 compliant. It is difficult to overstate the importance of this issue and it requires our maximum attention. It is also difficult to overstate the importance of successfully responding to the bankers' attacks on our field of membership policies. You have heard, and will continue to hear, extensive discussions of these problems from me and others.

But today, I want to talk about what I think is a more serious problem facing credit unions. It is more serious because it affects your ability to maintain the essential character of credit unionism in the United States of America. In my view, credit unionism in the U.S. seems to be drifting toward becoming a not-for-profit banking sector. We have seen this happen in other countries where credit unions have become little more than member-controlled financial institutions. Institutions that are virtually indistinguishable from mutual banks.

Some in the credit union movement have advised me that this drift toward a bank-like structure has already gone too far to be stopped. I don't believe that. It is not too late to stop this drift, but it will not be easy to do so. Changing course will require an honest acknowledgment of the problem. Stubborn denial serves no productive purpose. A thoughtful decision is needed.

I believe credit unions of all sizes and of differing memberships need to decide whether they wish to remain involved in the historical, philosophical and statutory mission of reaching out to people of small means. Whatever their own size, structure or membership characteristics, credit unions need to decide whether they wish to remain involved in the cooperative effort to reach out to empower the economically underserved. Indeed, whether they wish to continue operating in a cooperative atmosphere.

It does not appear that these questions are being sufficiently acknowledged, debated, or discussed in the grassroots credit union movement. And in my view, it is unlikely that will happen until credit union volunteers reclaim their historic responsibilities and unambiguously reassert their role as full participants in the setting of credit union policy. Unpaid volunteers must demand a stronger voice in setting the direction of the credit union movement. This is necessary because in some instances professionals have taken a command of the movement that has effectively usurped the role that was intended for volunteers.

Volunteers Must Reassert Their Authority

The founders of this movement thought it absolutely essential that unpaid volunteers should set the tone. Friedrich Raiffeisen believed that volunteerism constituted "... one of the most important principles observed by Credit Unions."

Alphonse Desjardins agreed that the principle of volunteer participation was critical to credit unionism. He worked to spread credit unionism and served his credit union as president without taking any remuneration from the time he organized the credit union with a handful of dime and dollar deposits until he died in 1920, at which time its assets exceeded $1million. Edward Filene and Roy Bergengren shared these views of volunteers.

Certainly, no one is suggesting that competent and professional managers are not vital to credit union operations. They surely are. The point is that credit union founders understood the system needed a decision-making function as untainted as possible by self-interest and the drive for profit or personal enrichment. They knew that the course of economic decision-making will necessarily be different if the decision-makers have a financial stake in the outcome, be it profit or pay.

It is surprising to observe how far we've strayed from this principle. While credit union directors are still volunteers who act unselfishly and take their responsibilities to heart, and we thank God for them, it is not uncommon to find professionals in control of policy. This is especially true in the big decision-making processes that affect the overall direction of the national credit union movement. These processes tend to be controlled by some trade group and other professionals with not nearly enough meaningful input from true volunteers.

Let me be clear. I do not intend in any way to demean the importance and value of professionals to credit unions. I know that professionals both in trade groups and in credit unions are crucial to the economic success of credit unions and the movement. I know that thousands of them are as deeply imbued with the wonderful spirit of credit unionism as are volunteers. I've personally met many of them and admired their operations in both large and small credit unions.

But professionals in the credit union world should not dominate policymaking to the virtual exclusion of volunteers. Credit unions deserve a system that includes strong and focused volunteer participation at the national and state decision-making levels. Such participation is needed to help set the system's objectives and help keep it on track. Unfortunately, that is not the way it seems to be working today. Instead, it appears that national or statewide decision-making in the movement today is almost totally professionalized. Just consider that there is not a single true volunteer serving on the CUNA Board, whereas a quota has been reserved to guarantee trade group professionals 25 percent of the membership on that board. When one considers that the credit union movement is overwhelmingly populated by volunteers, one must be amazed not only at this obvious lack of volunteer participation, but also at the failure of the democratic processes that should protect against such representational distortions.

Ruth Witzeling, a long time correspondent for CUNA's Center for Professional Development, said it well a few years ago: "Volunteers are one of our greatest strengths, one of the greatest and most visible manifestations of how credit unions are different." She is right, and the credit union founders were right. And that means it is the responsibility of the volunteers working closely with professionals to bring back into balance the structure of the credit union movement.

More volunteer involvement could mean a greater emphasis on the social mission of credit unions. It is amazing how much subtle and not so subtle resistance can be provoked in certain quarters simply by pointing out the social mission to which credit unions were dedicated by their founders, their history, and by federal statute. There should be no resistance to this defining principle!

Indeed, the fact is that credit unions are successfully doing exactly that sort of work today. Although for some reason they are not bragging about it nearly as much as they should.

Alphonse Desjardins warned his contemporaries against "the error of thinking and doing only dry business, forgetting the most important ... social and educational aspect of credit unions." Edward Filene and Roy Bergengren also stressed the importance of the social mission of credit unions. Clearly these founders had something in mind beyond providing the best high tech financial system available and earning good salaries for themselves. And it was this core belief that found expression in the Federal Credit Union Act's reference to serving "people of small means."

I know from experience that a credit union regulator who speaks out about this social mission of credit unions will be criticized by some in the movement for going beyond the narrow concern of the safety and soundness of credit unions. Of course, such criticisms conveniently overlook the fact that credit unions, by statutory directive, have a specific social mandate to serve people of small means. To go beyond what Desjardins called "dry business."

And isn't it strange that while such attitudes exist within the credit union system, we hear the Comptroller of the Currency, leaders at the Federal Reserve System, and others in the banking world urging their constituents to become more active in serving inner cities and the underserved? Yet I am not aware that the banking sector has criticized their regulators for such importuning comments. And remember those regulators do not have the statutory social mandate that Congress has imposed upon the NCUA.

It is regrettable that credit unions and their trade groups are frequently not perceived as being in the leadership of modern efforts to empower those who are financially underserved. Isn't that the function of credit unions? Why do some credit union people seem unwilling to warmly embrace this social element of credit union philosophy?

I know that most of you are accomplishing that social mission. You are and you should be very proud of that. But there is much more that could be done by the credit union movement to reach out to the people who are financially underserved in order to help them bring themselves into the financial mainstream. It is not enough to demonize and attack bankers for their fees or for a lack of commitment to the underserved. It is what credit unions are doing that should be stressed, not what others are not doing.

If credit unions lose sight of their social mission they will become indistinguishable from the not-for-profit banking sector. And that will cause credit unions to lose the support they now receive from consumer groups, from the U.S. Congress, and from the American public. That will, in time, bring about taxation and bank-like regulation which will further accelerate their transmutation into not-for-profit banks.

If the credit union movement wishes to intentionally become more bank-like, more free market competitive, and down play its social mission, that is a course it has a right to take. A not-for-profit member owned banking system has a value that is well worth defending. But that decision should be a consciously deliberated one. It should not be the product of drift. In a truly democratic movement, those who disagree with such a course should have an opportunity to say "no" even if they are a minority. Those who disagree should have an opportunity to express their opposition to becoming a not-for-profit banking sector.

Nor should anyone hesitate to raise these questions. Over the history of credit unionism, many prominent leaders have worried and spoken out about losing sight of purpose. Alphonse Desjardins, as we have seen, warned about falling into the error of doing only "dry business."

Ralph Swoboda, a recent CUNA President who helped launch the renewal process, said that the real threat he saw to the credit union movement "...despite all the rosy numbers and the good growth, [is] the deterioration of commitment to credit union ideals and philosophy."

Al Williams, who was a good friend of mine and a former beloved chairman of CUNA and whom this conference is honoring, said in a speech only ten years ago that "Perhaps we've lost sight of our purpose....it's time for us to rededicate ourselves to the ideas that created the credit union movement in the first place. We can grow and pile asset upon asset, but if we forget who we are and why we're here, we will have failed."

One year later in 1989, a 45 year credit union organizer and leader named Donald J. McKinnon said he thought credit unions were headed toward their "last phase" because: "They have not kept purpose constant".

Some credit union leaders have complained to me that by quoting from our founders and early leaders, as I often do, I tend to freeze us in a horse and buggy financial world. Well the quotes I've just used really aren't ancient history. But I could have gone back nearly 2000 years to the New Testament. In Mark 8:36, it is said "What shall it profit a man if he gains the whole world yet lose his own soul." You simply must not allow credit unionism to lose its soul.

If credit unions do not preserve their social mission of empowerment, what financial sector will be fully committed to giving all of America's citizens a fair chance to meaningfully participate in the American economic system? What financial system will dedicate itself to providing all Americans with a fair chance at becoming the masters of their own economic destinies? What financial institutions will reach out to liberate people of small means from the depressing burdens of unmanageable debt?

And we have another problem today that goes to the soul of credit unionism, our field of membership policies.

Field of membership policies present yet another area where critical choices must be made.

Few would disagree that one of the most vexing problems confronting credit unions today is the rapid expansion of community chartering and the overlapping of occupational and associational credit unions.

The bankers' early success in the AT&T Family case and the resulting court injunction have driven this issue to a preeminence that has caused a division both on the NCUA Board and among credit unions. Some would like this question avoided in order to dodge the resulting controversy. That would be a mistake. If this question of overlaps is not thoughtfully resolved, we run a risk of causing serious damage to the basic cooperative nature of credit unionism and accelerating its metamorphosis into a not-for-profit banking system.

I understand and respect that there are some who sincerely believe that competition among credit unions is good for the credit union member and therefore should not be restrained. While there is certainly some validity to that argument, it tends to downplay the fact that credit unions are quintessentially cooperatives. They are cooperatives both in their internal structures and in their inter-credit union operations. Unrestrained competition is by definition the antithesis of cooperation. After all, the legitimate objective of free market competition is to destroy competitors and steal their customers.

Certainly a mild level of competition is not harmful, but unrestrained free market competition among credit unions is destructive and might encourage predatory practices. That would make it very difficult if not impossible for credit unions large or small to maintain the trust needed to effectively pool their assets, liquidity, operational skills and expertise. The breakdown of this inter-credit union trust and cooperation and the opening of unrestrained free market competition could especially hurt small and mid-sized credit unions. It could result in the cherry-picking of their more affluent members and a loss of mentoring and other benefits. An important effect of this could be the drying up of the liquidity pools smaller credit unions need access to in order to meet the needs of their members of small means.

And there is yet another vexing question lurking in the background with regard to this issue of overlaps and unrestrained free market competition. If community expansions will permit the capturing of overlapped occupational or associational credit union members on the basis of a member's right to the best level of services available, then why should not charter applications by new or existing occupational or associational credit unions be allowed to identify the exact same membership field as an existing credit union, so long as their purpose is to provide better or more services to the members of the existing credit union? Is that where you want to go? This possibility is not a frivolous one. It is supported by the exact same logic that has recently caused a change in our approach to overlaps. And the NCUA Board has recently been denying exclusionary clauses even when the involved credit unions mutually and voluntarily agree to the exclusionary clause.

If credit union field of membership overlap and exclusionary policies are going to be driven by the single goal of improving the quality and quantity of member services, then we must prepare for a bank-like survival of the fittest culture.

Volunteers Must Act

In my view, the key ingredient needed for a proper resolution of these and other issues is a greater involvement by volunteers. The credit union movement has become much too thoroughly professionalized. Much too driven by economic interests and the profit of individuals. Volunteers need to reassert their proper roles and authority.

How can this be done? Clearly, one possible means to that end is through volunteer organization. The object could be to give volunteers an equal voice by creating active, well funded organizations of credit union volunteers at the state and/or national levels. Professionals who believe in the social mission of credit unions and who are willing to work in full partnership with volunteers would be recruited and retained.

Or perhaps true volunteers should insist on having a strong voice on the boards of all credit union trade groups. Any groups or associations of professionals that might exist independently might be required to interface with boards on which volunteers have a strong voice.

Moreover, volunteers should insist on significantly increasing the amount of education and training they have access to. Volunteer education and training has not been given the overall attention it deserves. That maybe the result of volunteers not being sufficiently involved in the decision-making of trade groups that should be better focused on this issue.

Those of you volunteers and professionals who can see over the horizon and who wish to avoid the bank-like destiny that has befallen credit union movements in other countries need to ponder these issues. I raise them today only to stir discussion and collegial cooperative action, not hostility. If the credit union system needs to correct its course, someone must act. These are decisions that should be made thoughtfully and deliberately. Whatever the ultimate fate of credit unions will be, it should be the product of a conscious choice not aimless drift. And volunteers must have an important voice in making that choice.

Your conference theme this year makes clear your belief that the credit union movement has the ability to mold its own future. It is not too late to make the choices that will allow you to keep purpose constant. But the hour of decision is at hand. The right course, I believe, can only be charted with the collective wisdom and a proper partnership of both volunteers and professionals working together.

To do nothing means a continued drift away from your founding principles. How will you choose?