The Credit Union World: Theory, Process, Practice--Cases & Application

By Wendell V. Fountain

After a quarter century of serving in the credit union movement-industry by this author, this book is more comprehensive than his first book on credit unions in 1994THE CREDIT UNION DIRECTOR: Roles, Duties, and Responsibilities. This work examines the milieu of the credit union world as related to current theory, process, and practice. In addition, fictional, composite cases provide the reader with the opportunity, through the application process,to analyze the performance and behavior of fictional credit unions and that of the readers credit union by using the caseanalysis approach.

• Language: English
• Publisher: AuthorHouse
• Release date: Dec 4, 2006
• ISBN: 9781467817011

Wendell V. Fountain

Dr. Fountain is an old hand at writing full-length novels, poetry, short stories, nonfiction, and even movie scripts. In addition to his writing, he has been an entrepreneur and CEO of his own business and management consulting firm and since 1984. He currently teaches graduate business courses as an adjunct professor in the Coangelo College of Business of Grand Canyon University in Phoenix, Arizona. He’s been active in the higher education community for decades, teaching for many different colleges and universities. Dr. Fountain holds a B.A. degree in psychology from the University of North Florida, a Master’s degree in human resources management from Pepperdine University, and an earned doctorate in business administration (D.B.A.) from Nova Southeastern University. In addition, he has completed many post-graduate executive courses at Harvard Business School, as well as post-graduate courses at The University of Chicago Graduate School of Business and The Wharton School of the University of Pennsylvania. He’s been an avid supporter of the Academy of Management since 1982.

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© 2007 Wendell V. Fountain, D.B.A. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

First published by AuthorHouse 11/29/2006

ISBN: 978-1-4259-7006-2 (sc)

ISBN: 978-1-4259-7007-9 (hc)

ISBN: 978-1-4678-1701-1 (e)

Library of Congress Control Number: 2006909841

Printed in the United States of America

Bloomington, Indiana

Contents

About the Book

Foreword

Preface

Acknowledgements

Chapter One

Chapter Two

Chapter Three

Chapter Four

Chapter Five

Chapter Six

Chapter Seven

Chapter Eight

Chapter Nine

Chapter Ten

Chapter Eleven

Chapter Twelve

Chapter Thirteen

Chapter Fourteen

Chapter Fifteen

Epilogue

About the Book

This book addresses a plethora of issues and challenges with which credit union employees, management at all levels, and volunteers are faced. It is an examination of the credit union world from the perspective, experiences, and analysis of a business & management consultant, graduate professor, and volunteer credit union director of 25 years. This book is more comprehensive than his first book on credit unions in 1994—THE CREDIT UNION DIRECTOR: Roles, Duties, and Responsibilities. This work examines the milieu of the credit union world as related to theory, process, and practice. In addition, fictional, composite cases provide the reader with the opportunity to analyze the performance and behavior of fictional credit unions and as well as that of the reader’s credit union through the application process.

Foreword

Credit unions are truly a remarkable story in the business world. They represent one of the great stories of an industry which has survived the competitive threat of banks and other financial service providers, while remaining true to their original mission of serving the everyday consumer. In contrast, many other financial service providers have turned their backs on these same consumers. In addition, credit unions operate as not-for-profit entities and focus on providing their members with competitive rates and low or no service fees. In the past, credit union members typically have been loyal to their particular credit union; however, consumers now shop around more frequently at other financial service companies for better deals. This means credit unions will have to continue focusing on member retention and how to more effectively compete against these other financial service providers.

Credit unions will not only have to concentrate on member retention but be prepared for tough competition from many other financial institutions. There are many other issues facing credit unions, such as finding the right leaders, human resource development, maintaining an edge in the technology arena as well as providing effective products and services. Therefore, credit unions will need to utilize an effective strategic planning approach to ensure their success. This will require that credit union officials and senior managers work together and carefully develop a strategic plan, which encompasses such key areas as credit union leadership and management, human resources, technology, products and services, marketing, and financial aspects. For those credit unions which are successful, they will grow and perform well financially in a competitive environment. For those credit unions which do not succeed, it will generally be the result of poor strategic planning or a lack of commitment to this critical component of operating a credit union.

THE CREDIT UNION WORLD: Theory, Process, Practice—Cases & Application is a book for credit union leaders as well as business leaders in the for-profit sector who are trying to bring their organizations to the next level. This book provides real-life, fictionalized and composite examples of issues facing credit union leaders, such as strategic planning concepts, leadership development, human resource management, technology considerations, developing innovative products and services, financial performance aspects, and other credit union operating areas. The various case studies included in the book provide pertinent and tangible scenarios which face credit unions and their leaders on a daily basis. These different cases, which cover both short-term and long-term issues, provide guidance through various questions and also emphasize other considerations which credit union leaders need to address to be successful. Many of these issues deal with how to lead a credit union in a competitive marketplace and how to plan properly for the future.

Dr. Wendell Fountain is an excellent teacher and progressive thinker on many levels. I have known him for more than 15 years and consider him to be innovative and entirely devoted to the credit union world. He has been my friend and mentor during my 14 years as a senior manager of VyStar Credit Union of north Florida where I served as Chief Financial Officer and President of the VyStar Financial Group (a credit union service organization). He has challenged and inspired me personally to accomplish more than I could have imagined. I admired his strategic focus and dedication to his role and to the credit union. At VyStar Credit Union he stressed strategic planning and leadership development. Under his guidance, he helped VyStar Credit Union experience tremendous growth and success over the years. He also helped us focus on developing measurable and reasonable goals as key aspects of our long-range strategic plans. These were all necessary ingredients of being able to effectively implement those plans and accomplish our key business goals.

Dr. Fountain has extensive knowledge about strategic planning and leadership development. He was always looking to the future. His academic teaching background, business consulting expertise, and many years of experience as a credit union volunteer (as a member of the board of directors) provides him with significant knowledge on how to lead a credit union in a competitive and ever-changing environment. His forward thinking approach and focus on strategic planning are key components to the success of any credit union as well as any organization. From his book, credit union leaders will gain invaluable knowledge of how to lead their respective organizations into the future, which will help their institutions to grow properly and perform well financially during competitive times. The book also provides a significant amount of valuable information on the history of credit unions and the many challenges encountered in the past as well as those facing credit unions in the future. The reader will also find some of the people described in the case studies to be interesting characters, and they also may remind you of individuals with whom you work on a daily basis.

Scott R. Mainwaring, CPA

Chief Financial Officer Southeast

First American Title Insurance Company

Tallahassee, Florida

September 10, 2006

Preface

This book is about credit unions within the United States relative to theory, process, and practice. The origin, roots, and philosophical foundation of this cooperative movement are also explored. My experiences as a credit union volunteer director, business consultant for credit unions, and consultant to the private and public sectors over the past quarter century has led to the formulation and development of this work. This is an examination of theoretical constructs and practices which have resulted in the modern financial, not-for-profit credit union movement-industry of today.

The world of credit unions has experienced enormous transformation since the birth of these cooperatives in England and Europe, respectively, in the mid-1800s. This is especially true of the growth and development of the credit union cooperative movement of the United States since 1901. Over the past century, economic, technological, political-legal, and cultural changes have caused profound alternations in the evolution of cooperative, credit union thought, process, and practice.

What this book is about is philosophy, credit union pioneers and leaders, influencers of process and practice, technological innovation, strategic thinking and business strategy, corporate governance, member relationship management, credit union operations, fiscal and financial soundness, past and best practices, and about where credit unions have been and how and where credit unions are at this point in time. What’s more important is where credit unions want to be in the future, because the future of the future is the present. What credit unions do today will determine what credit unions will look and operate like tomorrow.

I have been fortunate to be a member of VyStar Credit Union (formerly Jax Navy Federal Credit Union) since 1966. In addition, I have been a member of First Coast Federal Credit Union and Florida Telco Credit Union—both of Jacksonville, Florida—for more than 20 years. From 1982 until 2007, I have been privileged to be a member of the Board of Directors of VyStar Credit Union, holding various positions of the board. For many of those years, until recently, I served as the Chairman of the Strategic Planning Committee, helping craft our strategic direction. I served as Chairman of the VyStar Financial Group (VFG), our credit union service organization (CUSO), the profit-making arm of the credit union, during 2005 and 2006. Over the years as a director, I have been a part of and witnessed incredible transformational changes. We have seen successful CEOs come and go, as well as seasoned, dedicated, and capable volunteers. As a board we addressed and dealt with many issues, along with management, which have ensured the long-term survival of the organization. For example, a few short years ago we decided that two things needed to strategically occur if we were going to be able to flourish in the future—a new name and charter for the organization—both of which brought many challenges and successes.

When I became a board member in 1982 we were then Jax Navy Federal Credit Union and held a federal charter boasting of 76,000 members with assets of $155 million and had operations in two counties in the state. Today, VyStar Credit Union is a state chartered organization, and by the time I retire from the board in March of 2007, we will have more than 355,000 members with assets exceeding $3.2 billion, and can now operate in 15 counties in the State of Florida, so we obviously have made some good decisions along the way. For us, it took incredible teamwork by employees, management, and the board to achieve the aggressive goals and objectives (board and management) set for the organization. What made it all happen was a dedicated and committed workforce without whom all would have just been another academic exercise. I am confident that VyStar will continue to shine and achieve many successes in the future, as I watch from the sidelines and cheer with great pride.

Sand Key, Florida

October 2006

Acknowledgements

There are so many people to whom I am grateful and appreciative that it would not be possible for me to try to create a listing of them for fear I would leave someone out; however, there is a special person who helped me in my early learning and development as a director that I would be remiss if I did not publicly acknowledge his contribution—Mr. Cecil Acree. The night I was elected to the board of directors in March of 1982, he was the first person of the existing board to make his way through the crowd and congratulate me—and he meant it. Over the following five years, Cecil became my friend and mentor. I was 37 then and he was 30 years my senior.

Obviously, I would also be remiss if I didn’t offer a heartfelt and sincere thank you to those who cast a critical eye upon the raw manuscript of this work in an effort to make it a better product. I am very appreciative to Scott Mainwaring for his writing of the foreword. He is a man for whom I have great respect who possesses tremendous business knowledge and quiet but effective leadership skills. On a lighter note, he is the golfer I only wish I could be, but I must be content with my writing. Then, there is Larry Myers, Chairman of the Strategic Planning Committee of VyStar Credit Union and Legislative Assistant to State Legislator Aaron Bean of Florida, who has provided invaluable guidance in the final preparation of this book. I am also pleased to say the same about Bill Carroll who is currently Chairman of the Board of Bossier Federal Credit union of Bossier City, Louisiana. Bill’s intellect, wit, and magnificent photography have been an inspiration. John A. Vardallas, CEO/Founder of The AmericanboomeR Group of Madison, Wisconsin also is due very special thanks. John, too, is an inspiration and one of the most dedicated credit union movement-industry professionals I’ve ever had the pleasure of knowing. I also extend my sincere thanks to James Hartman, President/CEO, Cardinal Community Credit Union of Mentor, Ohio, who is a can do credit union professional and leader that offered me great words of encouragement, as well as Jim Park, President & CEO—Credit Union 24, Inc—who is a dedicated and committed credit union professional that captured the intent of this book so very well—despite cataract surgery! These are the things that should never go unnoticed.

I have learned so much more than I can express from other credit union leaders, directors, managers, employees, regulators (state & federal), accountants, and auditors—not only in the United States—but from abroad as well. These people of distinguished character were dedicated to the people helping people philosophy, serving as the linchpins of the credit union movement-industry.

In my role as a management and business consultant, I was able to assist a number of wonderful credit unions, both small and large, in addition to a wide array of other for-profit businesses and enterprises. I recall my first credit union conference. It was a National Association of Federal Credit Unions (NAFCU) conference. It was held in Chicago in July of 1982, when Ed Callahan (now of Callahan & Associates) was a member of the National Credit Union Administration (NCUA) Board. On the morning of July 6, 1982, just before I was to leave for the NAFCU conference, I received a personal telephone call from the general manager of the credit union informing me that we had just lost more than a $1,000,000 in a bad investment when federal regulators declared the Penn Square Bank of Oklahoma City, Oklahoma insolvent because of that bank’s poor lending habits. I sat at my desk thinking what in the world have I gotten myself into? Well, despite the disconcerting news, I did learn a lot at the conference, and we did survive the loss. That was my first hard lesson as a board member. Since then, I’ve learned hundreds of valuable and sometimes hard lessons about the credit union world at VyStar and other credit unions with which I consulted.

Without question I owe a huge debt of gratitude to the membership of VyStar Credit Union, because it was they who elected me time and again over the years. I am also grateful to all of the members of the Vystar Credit Union Board of Directors (both present and past) with whom I have served, as well as all current and past employees of VyStar with whom I have had the privilege and pleasure of working. God bless them all! Last, and definitely not least, I offer my special thanks, love, and gratitude to my most devoted and fervent fan, my wife, Dr. Grace Marie Mandicott Fountain, who has poured over these pages with a discerning eye to improve what I have diligently and dutifully attempted to write. Finally, any errors of omission or commission are my responsibility and mine alone.

This book is dedicated to all around the world who toil to keep the credit union philosophy of people helping people alive and well and to VyStar Credit Union’s volunteers, management,

employees, and membership

It is better to know some of the questions than all of the answers.

~James Thurber

Chapter One

Introduction and Historical Perspectives

Credit unions of today are barely distinguishable from the credit unions of only three or four decades ago. These organizations are now modern and sophisticated, competing with community and even mega banks quite effectively. Philosophically, there was a time when credit unions taught thrift, i.e., how to save and why people should save, but that practice and thinking has long since disappeared. Today, there is little motivation to build up deposits in savings accounts in credit unions, but tens of millions of credit union members do anyway. The reason most often given is that the money is safe in the credit union, and that is true up to $100,000, per deposit, but after that, just like the Federal Deposit Insurance Corporation (FDIC) of the banking industry, those funds, too, are at risk. Many credit unions of decades past, and a few still, offered special savings opportunities in the form of a Vacation Club or Christmas Club among others. These types of programs encouraged saving more than borrowing.

Some believe that it’s unseemly that financial institutions like credit unions and banks offer a one percent savings rate or less—this is especially true of credit unions—while borrowing rates to members average six to eight percent across all loan categories. Now, it’s all about the spread. Anything close to a three percent spread allows boards and managements of credit unions to expand services and facilities to current members and other consumers who are eligible to become members. This is not an indictment of credit unions, banks, and other financial organizations, because financial institutions of today are merely responding to the wants and demands (without regard for needs—those are a given) of a very fickle member/customer base. Consumers of the 21st century have little or no loyalty to their financial providers. If the credit union or other financial services provider won’t satisfy a want or demand, the member or customer immediately looks elsewhere.

This has become a debtor society, which practically disregards thrift and the concept of becoming debt free. Even the United States government stays in debt. All financial institutions, including credit unions, do not sufficiently discourage debt. There are literally thousands of financial organizations offering credit cards, and many of those credit cards are offered at confiscatory interest rates on unpaid balances. Then, those in the financial and credit union world become perplexed and are filled with consternation when delinquency rates and bankruptcies rise. Credit union leaders and managers should not want to be thought of as enablers. When credit unions are told that a 70-90% or greater loan to share ratio is good, why should CEOs and board members be surprised when members get into financial trouble? No wonder this has become a problem. Boards, managements, regulators, and members are all complicit in maintaining this debtor society.

The significance of debt is that an individual is no longer free—independence, individuality, and self-worth are compromised. Debt makes it imperative that a person work for someone, some company, business, or organization. According to the Federal Reserve in an article which appeared in USA TODAY April 28, 2006, Americans were in debt to the tune of $2.2 trillion with a negative savings rate of minus 0.4%. Debt minimizes the ability to go into a business of one’s own. It’s all about control. When a person is 30 years old, has a responsible job, a couple of hefty credit card balances, owes for the new car and house, he or she must do the bidding of others without regard for personal choice.

As this earth spins on its axis at just over 1,000 miles per hour, unprecedented change is occurring at every level of human existence. Though the earth was turning on its axis at the same speed 150 years ago, the rate of change economically, technologically, politically-legally, and culturally changed at a snail’s pace as compared to today. Yet, to understand where credit union thought is in the 21st century, we must revisit the past and trace the winding path of the credit union movement to where it is now—the credit union movement-industry. The thread which has held cooperative credit union financial institutions in tact is people helping people—not-for-profit, not for charity, but for service. The early cooperative movement sought to improve the human condition. The movement was founded in the need for