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Link undervalues Michigan's credit unions' local cooperative mission
I am writing to take issue with the content of columnist Terry Link's two recent columns, in which he unfairly criticized Michigan credit unions for failing to meet his "triple-bottom-line" test and mischaracterizes several points concerning credit unions.
In his most recent column, Link again criticized Michigan credit unions for failing to meet standards for sustainable purity — a standard that no credit union or bank is obliged to meet. While this is obviously of some considerable interest to Link, it doesn't follow that credit unions — cooperative financial institutions formed and organized to provide their members with high quality, low-cost financial services as an alternative to the traditional banking model — are interested in meeting the triple-bottom-line or any other sustainability test. Instead, they are focused on meeting their members’ needs, as determined by their member-elected board of directors.
Link is free to make his case on the need for triple-bottom-line focus to the senior management and volunteer board of directors at his credit union. If he can convince them of the wisdom of his approach, they can incorporate these principles into their planning and annual objectives. At a local bank, with their profit-driven mission, his words would likely fall on deaf ears.
More important, Link seriously mischaracterizes the history of the credit union movement's development and purpose, while confusing the structural differences between the ownership and governance models of banks versus credit unions.
To understand the purpose of credit unions, you need look no farther than the Michigan Credit Union Act, originally passed in 1925 and rewritten in 2003, which defines a credit union as "a cooperative, nonprofit entity organized … for the purposes of encouraging thrift among its members, providing a variety of financial services to its members, and providing an opportunity for its members to use and control their own money on a democratic basis in order to improve their economic and social condition."
Meeting or exceeding triple-bottomline and sustainability standards may well be worthwhile for credit unions and every other for-profit and non-profit entity. However, we need to correct any misperception that may have been created by Mr. Link that credit unions are required by law, regulation or otherwise to meet these aspirational standards.
Likewise, Link’s columns exhibit a confusion regarding the differences between banks and credit unions. Credit unions are managed by financial professionals and governed by volunteer boards of directors elected on a one-member, one-vote basis. In contrast, bank boards are elected by shareholders, not customers, and are provided compensation in cash and stocks. Credit unions have no stock and raise capital through retained earnings (what's left at the end of the year after reserves are funded and expenses are paid). Importantly, credit union size has nothing to do with governance structure. Link’s assertion that the line between banks and credit unions is increasingly blurry is consistently disproven by the good works done by credit unions in communities across Michigan.
Michigan has one of the most robust credit union communities in the nation, and two thirds of these are state-chartered, voluntarily subjecting themselves to Michigan law and regulation. Michigan policymakers have consistently recognized the important role that community-based, not-for-profit financial service institutions play in communities across our state. Credit unions don't offer members handouts — they offer them a helping hand in meeting their financial goals.
In 2015, Michigan credit unions’ better rates and lower fees resulted in financial benefits at the average rate of $61 per member (or $117 per household). With 101 low-income-designated credit unions in the state, $6.9 billion in loans were provided. Michigan credit unions experienced a 2.5 percent increase in memberships and 11.6 percent increase in loans. Member business lending, specifically, saw a 15.8 percent increase statewide.
Between July 2014 and June 2015, Michigan credit unions made nearly 2,000 youth financial education presentations to approximately 50,000 students, while the state’s schools are home to more than 300 student-run credit union branches, developing financial planning skills and saving habits in K-12 students.
Further, our state’s credit unions have brought the national mean of overdraft costs down substantially, offsetting the higher price of banks. Their overdraft rates average 9 percent lower than banks and are often waived to members. And, per the Credit Union National Association, between June 2007 and March 2014 the dollar amount of small business loans outstanding at credit unions increased by 115 percent (10.4 percent per year). In contrast, small business loans at the nation’s banks declined by 12.1% (-1.7 percent per year).
This is only a high-level summary, as the list of community-based initiatives that Michigan credit unions voluntarily undertake is too long to include here. And importantly, these community activities all have the common theme of improving the financial stability and resiliency of members and local communities in which credit unions operate.
Are credit unions perfect? Of course not. But the criticisms Link levels are unfair, and we worry your readers have come away with a distorted view of our cooperative movement as a result of his negative drumbeating based solely on his own personal opinions regarding sustainability standards that neither credit unions nor banks are obliged to meet.
Rather than maligning the credit union industry in City Pulse, we would recommend that Link exercise his right as a credit union member to approach his institution and propose his ideas. Surely, by making his case to the decision makers with an ability to evaluate the merits of his approach, he would fare better at affecting real change than his current course, which appears to be focused on using the pages of City Pulse to hector important community institutions and misinform readers.
(Dave Adams is the president CEO of the Michigan Credit Union League & Affiliates.)
Dave Adams President/CEO Michigan Credit Union League & Affiliates 1-800-262-6285 Ext 231 Dave.Adams@mcul.org