The New Emerging Credit Union World: Theory, Process, Practice--Cases & Application Second Edition

By AuthorHouse

This is the Second Edition of THE CREDIT UNION WORLD: Theory, Process, Practice--Cases & Applicaton. The First Edition was released just prior to the financial melt-down and the skyrocketing debt of the United States. As a result of the political and financial upheaval, both in the U.S. and abroad, it was imperative that a second edition be published at this time. Fannie Mae and Freddie Mac, federal government backed mortgages, have been a disaster in the mortgage and housing market, leaving home owners all over America in foreclosure, underwater, or in serious distress. Since the federal government has become so intrusive into the corporate world by taking over entire industries such as automobile factories and meddling directly into the banking industry and Wallstreet in general, these issues do effect the credit union world.

• Language: English
• Publisher: AuthorHouse
• Release date: Apr 10, 2012
• ISBN: 9781468560145

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© 2012 Wendell V. Fountain, D.B.A. All rights reserved.

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to: AuthorHouse, 1663 Liberty Drive, Suite 200, Bloomington, Indiana 47403.

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.

Published by AuthorHouse 4/5/2012

ISBN: 978-1-4685-6016-9 (sc)

ISBN: 978-1-4685-6015-2 (hc)

Library of Congress Control Number: 2012904462

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Contents

ABOUT THE BOOK

PREFACE

ACKNOWLEDGEMENTS

CHAPTER ONE

OVERVIEW AND HISTORICAL PERSPECTIVES

CHAPTER TWO

PROCESS AND PRACTICE INFLUENCERS

CHAPTER THREE

BANKING AND CREDIT UNION MOVEMENT INDUSTRIES

CHAPTER FOUR

CREDIT UNION LEADERSHIP AND MANAGEMENT

CHAPTER FIVE

STRATEGIC THINKING AND PLANNING

CHAPTER SIX

CREDIT UNION GOVERNANCE

CHAPTER SEVEN

MEMBER RELATIONSHIP MANAGEMENT (MRM)

CHAPTER EIGHT

CREDIT UNION TRAINING AND DEVELOPMENT

CHAPTER NINE

MARKETING OF CREDIT UNION PRODUCTS AND SERVICES

CHAPTER TEN

PRODUCTS AND SERVICES

CHAPTER ELEVEN

FINANCIAL POSITION, RATIOS, AND ANALYSES

CHAPTER TWELVE

HUMAN RESOURCES MANAGEMENT (HRM)

CHAPTER THIRTEEN

CREDIT UNION OPERATIONS

CHAPTER FOURTEEN

CREDIT UNION SERVICE ORGANIZATIONS (CUSOS)

CHAPTER FIFTEEN

COOPERATIVE CAPITALISM

CHAPTER SIXTEEN

THE FUTURE OF CREDIT UNIONS

EPILOGUE

The real job of a credit union is to prove,

in modest measure, the practicality of the

brotherhood of man.

~Roy F. Bergengren

_____

A Credit union is not an ordinary financial

concern, seeking to enrich its members at the

expense of the general public. Neither is it a

loan company, seeking to make a profit at the

expense of the unfortunates. . . . The credit union

is nothing of the kind; it is the expression in the

field of economics of a high social ideal.

~Alphonse Desjardins

_____

Progress is not the mere correction of evils.

Progress is the constant replacing of the best

there is with something still better.

Edward Filene

_____

About the Book

The First Edition of THE CREDIT UNION WORLD: Theory, Process, Practice: Cases & Application of 2007 was current and up to date, but American and world financial systems have come under inordinate stress at this point in time. Now, this Second Edition has primarily been written, developed, and updated as a result of the financial meltdown of the United States in 2008 and the concomitant rise of debt levels beyond imagination, which continues unchecked. America has begun to emulate Europe, while the European Union is teetering disastrously close to the cliff of insolvency. This all occurred soon after the release of the First Edition in 2007, wherein the dangers of personal and national debt were intuitively discussed, and readers were warned of the dangers of debt. Daniel Hannon, a British subject and Member of the European Parliament (MEP), has sounded a clarion call to America regarding our misguided legislative initiatives in his book The New Road to Serfdom: A Letter of Warning to America which was published in 2010.

When this current book went to press, the United States of America was racing toward a $16 TRILLION debt, a level which is unsustainable by this country or any reasonable people. Foolish thinking and lack of leadership at the federal government level has buried the American people under a mountain of debt. Despite this, now, many of the citizenry at large have opted to do business with credit unions and small to medium size banks as an alternative to large mega banks. So The new credit union world is emerging and has been thrust into the national spotlight out of necessity, because large banks have nearly stopped lending money. Millions of Americans have lost faith and trust in the banking system and have turned to sources in which they have a degree of confidence, such as those of the credit union world.

This book also scrutinizes a plethora of issues and challenges with which credit union employees, management at all levels, and volunteers are faced. It is a teaching and learning tool. It is also 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 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. Hopefully, Chapter 15 on Cooperative Capitalism will help enlighten the leaderships of credit unions throughout the nation. As was the case with the First Edition, the Second Edition is more comprehensive than the author’s first book on credit unions in 1994—THE CREDIT UNION DIRECTOR: Roles, Duties, and Responsibilities.

Preface

This Second Edition is about the new emerging credit union world 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 30 years 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 changes in the evolution of 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, cooperative capitalism, 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 have been 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 was privileged to be a member of the Board of Directors of VyStar Credit Union, holding various positions on the board. For many of those years, 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 was a part of and witnessed incredible transformational changes. We saw 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, back in the late 1990s 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 consisting of 76,000 members with assets of $155 million and had operations in two counties in the state. Today, VyStar Credit Union a state chartered organization, which by the time I retired from the board in March of 2007, had more than 355,000 members with assets exceeding $3.2 billion and operated in 15 counties in the State of Florida, so we obviously made some good decisions along the way. For us, it took incredible teamwork by employees, management, board, and audit committee 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. With great pride I can say as of March 2012, VyStar now has more than 400,000 members and over $4.3 billion in assets. To date, my time and work with VyStar Credit Union has been vindicated, as I continue to watch that complex credit union grow and prosper well into the future. It is both comforting and exciting to see such a wonderful institution reach out to potential members who need, want, desire, and deserve quality financial products and services.

Wendell V. Fountain

Laughlin, Nevada

March 2012

Acknowledgements

There are so many people to whom I am grateful and appreciative that it would be impossible 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 of Jax Navy Federal Credit Union, 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. Ironically, I am now the same age as he was then.

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 of the First Edition. 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. Although, he has promised me that when he joins the Senior Tour of Professional Golfers Association, he will let me caddie for him at least once. Then, there is Larry Myers, Chairman of the Strategic Planning Committee of VyStar Credit Union and former Legislative Assistant to State Legislator Aaron Bean of Florida, who has provided invaluable guidance in the final preparation of the First Edition. I am also pleased to say the same about Bill Carroll who is past 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, who is currently a consultant at Next Step International, Inc., of Akron, Ohio. He is also former President/CEO, Cardinal Community Credit Union of Mentor, Ohio. Jim is a can do credit union professional and leader that offered me great words of encouragement during the writing of the First Edition of this book, 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 the First Edition so very well—despite cataract surgery! These are the things which should never go unnoticed. Then, there is Tim O’Hara, Publisher of Credit Union BUSINESS, who along with his knowledgeable publishing team, are superb at providing us with current credit union information, which is a great source for credit union leaders, and I might add, continues to keep me abreast of the latest issues which face the credit union world. I certainly can’t forget Robert (Bob) W. Bream, his beautiful wife Susan and their beautiful children Julie and Leslie. We at Jax Navy FCU hired a 33 year old Bob Bream as our President and turnaround strategist in 1986, and the job he did was incredible! It was his first job as a CEO. Now, Bob and Susan’s children are grown and more beautiful than ever. Today, Bob is the President of North America Card and Payment Solutions and has been for quite some time.

Additionally, over the years I have been privileged to meet and become friends with such great credit union professionals as Mike Clinton who continues to serve his credit union’s board, Affinity Federal Credit Union, as Director Emeritus. I met Mike back in the late 1990s in Las Vegas, Nevada at a Credit Union Executives Society (CUES) education forum which I was conducting, and since then our association and relationship has only grown and strengthened. Now, he is a successful speaker and educator on the credit union world in his own right. Tom Glatt and his wife, Diane, are other terrific credit union professionals who continue to make a positive difference in the credit union world despite suffering through a significant number of personal and professional challenges.

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 keystones of the credit union movement-industry.

In my role as a management and business consultant, credit union strategist, and speaker at many credit union trade association events, I have been 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 deceased of Callahan & Associates) was a member of the National Credit Union Administration (NCUA) Board. On the morning of the July 6, 1982, just before I was to leave for the NAFCU conference, I received a personal telephone call from the General Manager, Don Athearn, of Jax Navy Federal 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.

It is unquestionable that I owe a huge debt of gratitude to the membership of VyStar Credit Union, because they 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 past and present) with whom I have served, as well as all past and current employees of VyStar with whom I have had the privilege and pleasure of working. Last, and definitely not least, I offer my special thanks, love, and gratitude to my most loyal and fervent fan, my wife, Dr. Grace Marie Mandicott Fountain, who spent hours and days perusing these pages to improve my efforts to write the Second Edition of THE NEW EMERGING CREDIT UNION WORLD: Theory, Process, Practice--Cases & Application, which will benefit credit unions far into the future. Lastly, any errors of omission or commission are my responsibility and mine alone.

This book is dedicated to all around the world who toil in

the financial trenches to keep the credit union philosophy

of people helping people alive and well and to VyStar Credit

Union’s volunteers, management, employees (both past &

present), and its diverse membership

Education is the progressive realization of our ignorance

~Albert Einstein

You know everybody is ignorant, only on different subjects

~Will Rogers

The future depends on what we do in the present

~Mahatma Gandhi

Chapter One

OVERVIEW AND HISTORICAL PERSPECTIVES

MODERN CREDIT UNIONS OF TODAY HAVE LITTLE RESEMBLANCE TO THOSE OF YESTERYEAR, SO THE CREDIT UNION WORLD IS EMERGING AS A FINANCIAL FORCE. Out of necessity, these financial organizations have become sophisticated and complex so that these institutions can practice a robust cooperative capitalism, which is a form of economic activity which helps neuter some of the criticisms of pure capitalism. In this form of capitalism profit is a secondary or even tertiary goal but nevertheless necessary. The credit union world now can compete with community and even mega banks quite effectively. In the early stages of the evolution of credit unions, those cooperatives emphasized the concepts of thrift and savings. Debt was discouraged; however, over time, the memberships of credit unions have philosophically changed, because of the financial milieu in which Americans found themselves, where debt and borrowing has been encouraged. In the past the credit union world did its best to counsel its membership about living within ones means.

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, because of the National Credit Union Share Insurance Fund (NCUSIF) and that is true up to $250,000, per individual deposit, accounts and for retirement accounts, and Keoghs. Joint accounts are insured up to the amount of $500,000, 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, offer 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 (currently pushing $16 trillion). 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 and stinging fees if the payment is late. 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%. It is far worse in 2012 and will continue to be that way for some time to come. Bankruptcies are up and home foreclosure rates are up with no end in sight. Debt minimizes the ability to go into a business of one’s own. It’s all about control. When a person is in their 20s or 30s, has a responsible job (which at the time of this writing, the jobless rate is about 9%, which doesn’t include the structurally unemployed or those whom have simple given up, because the real number is somewhere around 18%), 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, if they are fortunate enough to even have a job.

Unprecedented change is occurring at every level of human existence, as this earth spins on its axis at just over 1,000 miles per hour,. 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