Time to Get Our Houses in Order and Define Ourselves

Recently I came across the following excerpt from an article I had read years ago when a friend had emailed it to me. The article starts with the following point, “Many people do not believe that serious recession will ever come again. Feeling secure in their expectations of continuing employment and a steady flow of wages and salaries, they obligate their future income without thought of what they would do if they should lose their jobs or if their incomes were stopped for some other reason. But the best authorities have repeatedly said that we are not yet smart enough to control our economy without downward adjustments. Sooner or later these adjustments will come.”

In the light of 2010 this article seems boring as if it was only stating the obvious, but the writer of the article wrote this piece back in 1987. The soundness of this counsel is something that all of us in financial services have seen firsthand as we continue to push past one of the sharpest downturns in many of our careers.

The aftermath of the 2008 recession is that there are fewer banks and fewer credit unions in the industry. Lending has changed for many of us. No longer can we supply an unlimited supply of 500 dollar unsecured loans to our members at acceptable rates.  We all share a new reality in which credit has tightened as delinquencies have climbed in both consumer and commercial lending portfolios.

Small credit union collections shops have been hard pressed to keep up with the volume. Good members have become hard pressed as overtime has been eliminated or spouses have been laid off.  Sadly one of the most common job postings I have seen on the credit union job boards over the last year have been for newly created positions of “Collections Manager” or “Part Time Collector”.

Not surprisingly given these challenging times the reaction of most banks and credit unions has been to bunker down and to try and grow their loan portfolios with top tier credit members. This strategy has been adopted by Big Banks, Community Banks, and Credit Unions.  In today’s market everyone seems to be following this same type of strategy. So who is meeting the needs of our credit bruised members who are looking for someone to meet their lending needs?

Sadly, we have created a void in the market that is now being filled by payday lenders who are now starting to sound and act like credit unions in that they are meeting the needs of the under-served. This morning as I was reading the paper one headline that caught my attention was Pay Day Lenders Go Hunting.  

Emboldened by their competitive advantages and the banking industry's retrenchment, payday lenders are aggressively pitching debit cards and online bill payment. Some companies are opening payday-loan branches next door to banks and designed to look like them, even hiring former bank-branch managers

This problem that was on my morning paper had been brought to my attention earlier in the year when I attended a conference in which session moderator Lois Kitsch, REAL Solutions Program Director, asked us, “How many people in the audience have credit union members that use payday lenders?" Now many of us smiled because we figured Lois was experiencing jet lag and simply did not realize what state she was in. If she had she would have realized that our state had outlawed payday lenders and basically pushed them out of the state. Lois she added, “Oh, I know it is not legal here but do any of you have members in another state or members who would drive across the state line?”

Suddenly I realized that the fine people I had lived, worked, and worshiped with would not even think twice about driving across the state line to get a payday loan. For decades people had done work office pools and had someone drive to the state border to buy a lotto ticket. If they would drive for one then they would drive for the other.

Lois then continued and confirmed what I had already been thinking and then added a new twist, “An estimated 7% to 15% of credit union members use payday loan products.” Kitsch paused then added, “So do some credit union employees. Providing alternatives to payday loans is a good business decision, a good social decision, and a good advocacy decision.”

So what are the alternatives that are still prudent and not just “charitable social lending” to save the world? Some in the industry are working to help identify what those options are. In my opinion they have a difficult road as both ends of the credit union spectrum have to be satisfied.

You have to be able to offer solutions that pay for the service.Unsecured debt in low amounts to troubled borrowers is not an easy sell to any lender. The immediate reaction to such a proposal is to charge a rate that compensates for the risk involved which upsets credit union purists. 

Those that would have us give members loans regardless of risk and cost simply do not live in the real world.  There are scores of well intentioned purists who at times simply choose to ignore the balance sheet and do not try to consider the risk involved with their good intentions.  While their passion is commendable they have to help bottom line focused credit union leaders see past the charity element and help build a real business case for meeting these member and employee needs.

I realize that for many of you reading this blog the concept of payday lending is an old and tired topic. While there might be “gold in the mines” the cost of business and the public relations nightmare make it an easy issue to put on the back burner. However, there is still a need to be meet and most credit unions will see noninterest income from interchange shrink by some estimates by as much as 70 percent with newly proposed Fed limits.

So we have an unmet member need with the potential to move back into a space we should have never left to payday lenders. How do we take some prudent steps back? That is the billion dollar question isn’t? While I do not have the answers I do know we as an industry need to tackle these questions below:

• What are appropriate products to add to our menu of services
•  How do we determine if our members are caught in the short term loan cycle trap
• We all know our members want a low cost short term loan option
• What is a product we can offer to help them move up a wealth path
• How do we price our products as low as possible to generate revenue the programs will need to make to see a return to all member owners
• How do you encourage your members to save and to become savvy borrowers

As we look at a new year I am suggesting that the time has come for us as an industry to get our houses in order and define ourselves to our members. While we are at it we need to help our members do the same. 

If we are in the business of improving our members’ financial well being then surely we have to help them with self-reliance. Self reliance simply cannot be obtained when there is serious debt hanging over a members’ household. One has neither independence nor freedom from bondage when he is obligated to others. If we as an industry can’t figure it out then we have left our members in the hands of payday lenders to define the solution.

Many of you reading this blog are industry thought leaders at your credit unions who understand the issues in much greater depth. Leave a comment and share your insight. Help educate those of us in the industry that want to make a difference but are not sure where to start. As always thanks for reading. 

What Are Your Success Rituals: Are You Wasting the Moment ??

One of my all time favorite movies is The Expendables. Really, I am thinking “Movie of the Year”! The movie follows the typical action packed movie plot of “shoot, strut, and sneer” at the camera.  In the midst of all the one line jokes and shoot outs one element that could be easily overlooked in the movie is when the leader of the group has a huddle to talk about the upcoming assignment, challenges, and goals for the task. This was not just a funny scene in the movie it was something that this group did before they went to work. For them this was a vital part of their routine in making sure everyone was on the same page. It allowed for them to get on the same page and to understand how they would each contribute to the success of the mission. For them it was a vital ritual to enable success.

Most of us have daily or weekly rituals we attend to. I listen to “Good to Great” by Jim Collins every morning on my commute to work. All jokes aside of me not having a decent music collection. I have probably listened to the audio book a hundred times over the last three years and still I find that it is a perfect catalyst for a new thought. As I listen to Jim Collins talk about some core concept I find that my mind travels to what I need to accomplish for the day. It is not long before his voice and my own thoughts merge on some new thought.  This morning ritual is a way for me to consider my day in an abstract manner and not just go through a mental checklist of fires I need to put out.

This concept of rituals is something that was recently addressed by Peter Bregman in his blog article The Value of Ritual in Your Workday in which he described the following, “Rituals are about paying attention. They're about stopping for a moment and noticing what you're about to do, what you've just done, or both. They're about making the most of a particular moment. And that's something we could use a lot more of in the business world.”

Consider the possibilities of every branch manager in your branch network pulling their staff together every morning for ten minutes prior to the branch opening.  They started each morning with recognition of prior top contributors for the branch goals.  In these huddles they were able to connect your staff’s collective attention on collaborating and to dedicate themselves, without distraction, to achieving the goals of that the group has to meet. What possibilities could happen if that branch manager acted more like a branch leader that acknowledges that each person's views, goals, and priorities are important and need to be heard in order for the group to be successful?  Only you can look at your own organization and consider what the possibilities might be if your front line community leaders developed these types of rituals or activities.

Make no mistake- everyone comes up with some type of morning ritual. It might be you have team members who read a dozen emails and drink their morning coffee. Other people like to be quite and gather their thoughts while others are social butterflies that go from one person to another to see what is new with them for the morning. The question you have to address,  “are these defaults rituals helping you or your team tackle the day as a group?”  Are they focused on the right things and do they know what your thoughts are on what you need the group to accomplish? 

As fans we watch our favorite sports teams huddle before big plays. As parents we have seen our sons and daughters in huddles as they work with their teams. We watch pro fighters huddle in their corners between every round getting advice and encouragement. Yet, in business the concept of a huddle seems silly to some. Somehow in business we are supposed to be able to convey our thoughts without sharing them, excite people without talking to them, and recognize people without interacting with them. It simply doesn't make sense. 

One step in changing this mindset would be to simply start with just yourself and your team.

• Write down who were your top contributors for yesterday
• Write down what the group needs to accomplish for the day
• Write down the pace they need to set to reach the groups goals

Now put it all together and send it out to your group. Congratulations, you have just had a virtual huddle!

The next step is to ask them later if the email was helpful and what they would like added. Then change it and repeat. Once you have your structure you can play with the setting by having the huddle in person. Then you can have others lead the huddle and have each person make their own behavioral commitments on how they will contribute. 

As leaders we know our people look where we look. Each time we pause, notice, and offer respect for their efforts, it reminds you and them to appreciate and focus on what each of us has committed to do. By elevating each activity and the contribution it makes to the team success each person on the team takes it more seriously. Each person gets more satisfaction from it. Our teams with whom we work will feel more respected and as leaders we'll feel more self-respect.

The Masks Big Banks Hide Behind: Debating Credit Union Versus Big Banks

In two years one of my favorite TV specials will come back to TV screens across the nation as people tune into televised political debates. The mindless rhetoric, the endless spin, the back and forth as statistics are used like right crosses and left hooks throwing the unprepared participant back onto the ropes. During this time the participants paint themselves one way then turn around and put on another mask and paint themselves another way. 

It would be interesting if we could finally talk through the issues that both credit unions and Big Banks face and take off the masks that Big Banks where as they testify in front of Congress or take to the airwaves downplaying another corporate scandal. 

Picture in the left hand side of the stage the Big Banker who represents the Giants of finance, the largest bank (Citigroup) has more assets, 2.2 trillion, than all US credit unions combined, with a blue suit, coordinated tie, flag lapel pin, and perfect hair standing at his podium. His is the perfect face is but a mask to represent the perfectly masked industry. In the other side of the stage looking much smaller is the credit union member looking like… well most of us.

Big Banker : “The nation’s credit unions get to have their tax-exempt status even as Federal regulators gave billions to the credit union industry due to risky bets on subprime mortgages. “ Then turning to his mask so that the profile side is to the TV camera he continues, “Regulators will supervise $50 billion in troubled assets and issue approximately $35 billion in taxpayer-issued bonds!”

Then pausing for dramatic silence he then adds, “To put it bluntly the credit union industry that has never paid a one red cent in federal taxes is swimming in a butter keg of a taxpayer-funded rescue because of their shoddy lending practices. Now is the time to raise taxes by taxing every one of them.”

Credit Union Member: “By bailout you must be referring to the five corporate credit unions. I want to make sure we are not talking about the 196 banks and all five Wall Street investment houses that have failed during the same time. I know it is hard to remember with all the banks that lined up for government money with open hands. 

We also should set the perspective on market share with total credit union market share in 2007 being around 6%, while total bank market share was around 81%.

On the issue of criticism it is fair that the credit union industry take a hard look at itself. We certainly need to do a better job of understand risk with member business lending with participation loans in sand states. In hindsight we could have been more conservative in some of our investment choices. Like the rest of the nation we believed Wall Street when they were peddling poison to their investors. Yet, during this recession we have continued to lend to small businesses and our local members while you have sat idle and starved the communities in which you operate of the credit they need."

Big Banker: “So you admit it? You did mess up. You are to blame… at last a credit union advocate who sees clearly!

Credit Union Member: "Well, actually I do appreciate your comment because I do think I have a pretty clear picture of the landscape. You mentioned that a taxpayer bailout that should cause everyone to reconsider the tax status of my credit union. This is where we might have to agree to disagree as the last time I looked at the paper it was filled with headlines about the various 190 banks that have failed…of course this doesn’t count the TARP money …170 billion give or take.

My understanding is that credit unions are taking care of their own as each natural person credit union is funding the corporate through share assessments. Credit unions are paying for credit unions. The billion dollar credit union, with hundreds of employees, and small credit unions, with only 3 employees, are all pitching in. As economic cooperatives each is helping to fund and replenish the corporate credit unions.

I am sure you would do the same thing right? I mean you are probably willing to write a check to the Megabanks to help them out. Right?"

Big Banker: “Don’t be idiotic of course we are not wasting stockholder capital giving it to another company. That would be ludicrous!”

Credit Union Member: “No, it would be cooperative. You probably are not aware of the model.”

Big Banker: “We give by paying taxes which is more than you can say.”

Credit Union Member: “Glad you brought that back up. I appreciate that about you. You are very good at bringing this issue up…almost like clockwork. So let’s talk about taxes. The purpose of taxes is to provide value to the citizens of the communities in which we live, work, and worship.

As we all know tax dollars help fund public services and to generate a safety net over which the financial marketplace performs its magical mystery act in which one dollar comes in and hundreds of dollars come out, all the while balancing consumer needs and of course stockholder returns. So let’s talk about value to the citizens of the communities in which we live, work, and worship.

As community based cooperatives credit unions provide value to the communities they serve through the provision of low cost loans, higher dividends on savings, and a cooperative economic profit sharing model that works without the government as middleman. This is a model that both political parties should love- people helping to bootstrap other people.”

As you are probably aware all members of credit unions benefit when a credit union prospers. Now on the issue of taxes some things to consider:

• Our members are taxed on the employment income they deposit into their credit union. 
• Our members are taxed on the dividends they earn on those deposits 
• Our members pay sales taxes on the items they buy with money from their credit union share draft account. 
• Our members pay property taxes on the vehicles and homes that they purchase with proceeds from loans granted by their credit unions. 
• The funds that are pooled by the member-owners of credit unions are taxed. 

The communities in which credit unions operate are beneficiaries of the increased spending power and financial well-being of credit union members."

Big Banker: “Those are your customers not you."

Credit Union Member: “That is not correct…see we don’t have customers we only have members. The members are the credit union. However, I do have some good news for both you and your fellow bankers.”

Big Banker: “This nation does not need good news it needs for credit unions to stop using an unfair advantage by going after our customers and driving down our loan rates. It needs for you to stop paying higher rates on deposits. It needs you to give back by paying your share!”

Credit Union Member: As I was saying the good news is that you are always welcome to join a credit union and feel what we are talking about.

Now on the issue of our tax-exempt status if you feel that is such a game changer for community banks you are welcome to convert to a credit union. That would require a few changes which I am sure you would not mind. First you would need to limit your commercial lending and do more lending in under served communities. Be aware this could impact the number of “business lunches” on the golf course. Then there is the stock. You would not have private stock option deals in which you under price your stock so that it is lower for you than what your stockholders can get it. Oh, those cushy board jobs with all the perks and nice salary would probably disappear as well. Lastly, you would need to retain more capital. Four to five percent for bank may fly but as a credit union you need to think about doubling that. Safety and soundness you know. Like you mentioned earlier we don’t want any taxpayer bailouts.

Big Banker: “Silence..." Fade to black as the Big Bank mask continues to smile at the camera.