Nine Simple Words, Three of Which Most Folks Still Don't Get

Not for profit, not for charity, but for service.

Chances are you haven't heard that founding principal of credit unionism since the last time you shared marshmallows around the fire late at night with your fellow cooperators at Camp Credit Union. Reportedly first uttered by the treasurer of a Midwest credit union around 1935, the nine words are designed to represent the core character of the credit union business model.

For most of the phrase's life and even today the focus within the credit union community has always really been on just 66% of the words: the "not for profit" and the "but for service." Credit unions turn to the "not for profit" piece when explaining and seeking to justify their tax exemption; they trot out the "but for service" in explaining one of the primary reasons they exist and why bank customers and consumers should make the switch.

Remembering the Orphan

The orphan often treated as if it's only allowed to be there because a stool needs three legs in order to stand remains "not for charity." Yet it is every bit as vital as the other two legs and demands understanding when one credit union makes the kind of decision it had to make in recent weeks.

As Credit Union Journal was first to report, Las-Vegas based Nevada FCU has pulled a reverse-casino, paying certain members to take their money out of the credit union. Any credit union CEO would certainly understand, but as CEO Brad Beal has had to explain to several mass media newspapers about the negative spread plaguing the CU (and others), it's seeing little loan demand, and short-term investments are paying only slightly better than blowing all the money on one of the local buffets. And then there's the NCUA assessment coming later this year that will ding the CU in a very tough market based on its deposits. The obvious resulting strategy? Shrink the balance sheet.

"Never in my life have I seen anything like it," Beal told Credit Union Journal.

The members being offered cash payments - but not ordered - to withdraw funds are single-relationship, deposit-only members. In short, the "charity cases" among America's CU members. Nevada Federal has approximately 1,600 such members representing as much as $100-million in bottom-line-dragging deposits-although if you're doing the math in your head you've likely deduced it's not their own bottom lines that are dragging.

If you need a reminder on the value of constantly explaining your message and the lack of understanding over how credit unions work, click on over to the Las Vegas Review Journal's coverage of this story, and then to the reader comments. In addition to the Conspiracy Theorists lumping Nevada Fed in with the "big banks" and their appetite for profits (key to any conspiracy theory, of course, is disregarding key contradictions to your theory, such as how paying dividends on deposits that your CU in turn can't loan back out or invest at any margin makes you money), there was this statement: "What is wrong with people? Join our credit union and deposit your savings elsewhere? This is a sure sign the credit union will fail. It's the beginning of the end and everyone should get out while they can! They'll spend seven times what their (sic) losing to get customers back when they need them."

Frankly, You're Not Needed

Ah, there's the rub. The credit union doesn't need them. Few credit unions need single-deposit-relationship members unless loan demand is surging in the 90%-plus territory, and members of that club will be attending the Smallest CU Meeting of 2010. Where the real fault lies here is in even saying "the credit union." More appropriately, when explaining such decisions to members, non-members and the media it is far better to phrase it as "other members of the cooperative don't need them." Pull your weight - or suffer the same fate.

Often forgotten is that when Frederick W Raiffeisen was spending two decades during the mid-19th century experimenting with what would eventually become the first credit union, it wasn't until he added the "not for charity" leg that the whole enterprise was able to stand on its own. Seeking to help starving farmers in Germany, Raiffeisen's early business models in distributing food and in making small loans were completely dependent on donations from wealthy benefactors being poured in from the top. As he would eventually come to realize, you can't put the operate in cooperate until funds flow from the bottom up.

Lesson Hasn't Sunk In

That was 150 years ago and yet the lesson still hasn't sunk in. There is, of late, a flurry of calls within the credit union community to leverage dissatisfaction with banks to push total membership in the U.S. to 100 million and beyond. On a number of listservs, including that of CU Development Educators, who ought to know a thing or two about CU history and how we got here, there has been dissatisfaction expressed that these various "Move Your Money" efforts aren't doing more to direct consumers to credit unions.

But why? To hit that goal credit unions need approximately 10 million more members. If the fundamental 80/20 rule continues to hold true, that means 8 million of those new members will be freeloaders co-opting the cooperative. Does it not make a heck of a lot more sense to focus on the 90-million CUs already have, and perhaps pushing the needle toward 70/30 first?

Not for profit, not for charity, but for service. Get those middle three words right, or most assuredly the first three will become a given and the final three will be irrelevant.

Frank J. Diekmann is publisher of Credit Union Journal and can be reached at fdiekmann@cujournal.com.