By Dr. James L. This
As of Dec. 31, 2017, there were 5,573 federally insured credit unions in the United States. The table at right shows the breakdown by asset groups, n
otably, credit unions under $100 million in assets (NCUA’s definition of a small credit union assets.
The reduction in the number of credit unions in the United States should not come as a surprise to anyone – the trend has been going on for forty years. The table at right (courtesy of NCUA) shows a net decreaseof 981 federally insured credit unions (15%) from 2013 - 2017.
A closer look at the numbers shows that the decrease has hit smaller credit unions the hardest.
This trend is exacerbated by the fact that chartering new credit unions is almost a thing of the past. In fact, from 2013 to 2017, only 12 credit unions were added to the roles of federally insured credit unions.
Now the Question: Should We Care?
Should we care? The answer is a resounding -YES! Let’s explore five primary reasons that it is critical for small credit unions to survive and thrive.
Small Credit Unions Clearly Justify the Tax Exemption
In 1998, as part of the findings of the Credit Union Membership Access Act (P.L. 105-219), Congress found that:
"Credit unions, unlike many other participants in the financial services market, are exempt from Federal and most State taxes because they are member owned, democratically operated, not for profit organizations, generally managed by a volunteer Board of Directors, and because they have the specified mission of meeting the credit and savings needs of consumers, especially persons of modest means."
Banker groups have increasingly challenged the movement’s adherence to these principles citing expansion into all three areas of lending (consumer, mortgage and business), enlarging fields of membership, payment of directors, lack of contested elections, outsourcing of the audit function, buying the naming rights to stadiums – and the list goes on.
Smaller credit unions demonstrate the values of voluntarism, targeted member focus and connection to community that are critical to preserving the tax exemption. Additionally, they provide a large, active group of advocates that can be motivated to fight for continuation of the exemption.
Small Credit Unions Provide Exceptional Service to the Members
Smaller credit unions are centered on service to their members. This translates into loans targeted on the consumer needs of their members. It is a direct connection to the principle of loans for “provident and productive reasons.” This often extends into loans for under-served people within their communities.
Small Credit Unions Mean Member Choice
In an era where choice is constantly being reduced by Amazon, Walmart, and mega banks, smaller credit unions provide options for members. Not everyone is motivated by two-day shipping, electronic wizardry, or call waiting. Many members choose to do business where they feel like the staff knows them, where individual circumstances are considered and their money stays in the community.
In smaller or rural communities, a local financial institution gives members access to savings and loans without relying on travel or internet.
Small Credit Unions Preserve Credit Union Charters
Credit union members are rightfully proud of the legacy provided to them by their founders. It represents a lot of devotion and caring by those who have preceded them. Keeping that history alive honors the founders, links the credit union to the original sponsors and recognizes the hours of volunteer time given over the years.
It also preserves the charter. Since very few new credit unions are chartered, keeping viable entities alive ensures that the number of credit unions does not continue to shrink. Once merged – a charter number is lost.
Cooperation Among Cooperatives is a Fundamental Principle
Among the seven cooperative principles is the concept that cooperatives help each other. Support from larger credit unions clearly demonstrates this principle. Credit unions are much more likely to share resources and knowledge than banks. This sharing is critical to the survival of small credit unions.
The credit union movement does not need to be driven by the survival of the biggest. Unlike commercial banking, it is our diversity that gives us character; gives us strength. It is democracy, not homogeneity that make us worthy of tax-exemption.
Small credit unions are beacons of the cooperative spirit – they need to be nurtured, not consumed.
Dr. James L. This is president/CEO of James L. This and Associates, which is helping to co-sponsor the CU Tomorrow Conference.