Credit Union Times - Centennial Edition - (Page I18) CeLeBrAtiNg 100 YeArS , SPeCiAL CeNteNNiAL editioN oPiNioN in a Crisis, CUs Can offer 100 Years of Solutions Credit unions are beginning their centennial celebration in the midst of gloomy economic times. Many Americans are apprehensive about their economic prospects, and credit unions are stepping in to help whenever possible. Now is an important reminder that credit unions themselves were founded from adversity such as this, and of their proud history of putting people before profits and providing access to affordable financial services for all their members. The first U.S. credit union was created in 1908 by immigrant textile workers in Manchester, N.H. Those textile workers labored 10 hours a day, seven days a week without benefits or job security. They did not even have access to credit, as workers of modest means were widely believed to be untrustworthy. For them, economic tension was a way of life. This is certainly not the kind of environment one would expect to give birth to the credit union ideal. But the credit union ethic that stresses service rather than profit–a radical concept back then–proved to be as practical as it was moral. Eventually, any cause is defined by its response to crisis. For the fledgling U.S. credit union movement, the Great Depression was a brutal test of resiliency. Industrial stagnation was spiraling. Unemployment and bank failures had reached record levels, and the competitive system itself came under attack. Critics hammered business for its selfishness and lack of public concern. At the same time, other commentators praised the cooperative business concept. And during the worst days of the crisis, the number of credit unions rose. Congress was impressed. In 1934 it enacted the Federal Credit Union Act to permit credit unions to incorporate under either state or federal law and to charter anywhere in the United States. The sweeping statute replaced a patchwork system that was archaic and inefficient. That same year, the Credit Union National Association was created, giving us a national organization to promote political goals and business efficiency. CUNA’s emergence was an example of the maturity of our credit union community. It acknowledged that we had reached the point where an advocate was needed in the councils of government and that a structured system was needed to improve business efficiencies. And throughout the years, credit unions have remained a safe haven in time of national emergencies and an important source of stability in the financial sector. We helped serve the financial needs of military and civilian members during World War II and the aftermath. We were not affected by the Dan Mica is president savings and loan crisis in CEO of the Credit the 1980s. We avoided the Union National subprime market mess Association. that is causing so much pain today. And the credit union system has been there when nonfinancial disasters hit. We raised $3 million for Katrina hurricane victims soon after its trail of wreckage and hardship. In some cases, the credit union grants were the only help available for those people during the early days of that disaster. But because our system worked for 100 years does not necessarily mean it will work for another 100 years. In order to survive and prosper, credit unions must meet the challenges of a new century. Member recruitment will be crucial. We must adapt to a new demographic profile that includes a burgeoning Latino population and other new ethnic Americans. We also must improve our technology to woo more youthful customers who conduct much of their financial business online and by telephone. Another challenge will be to convince Congress and regulators to approve compatible laws and regulations to smoothly transition into this new era–and to avoid onerous regulatory burdens that weigh down our system. This means making a case not only before Congress but also the states. Of course, we can expect continuing encouragement from Congress to make our services available to the underserved market. That is a task we embrace, especially since we are accomplishing so much already. When credit unions pass up the opportunity to spread the gospel among potential members, then we are all in trouble. However, we will stress to both Congress and regulators that credit unions also must continue serving a broad sector of the consumer public. And that the experience gleaned from doing so helps us do a better job of helping that more defined band of underserved citizens. We should have no illusions: Bankers will likely resume their assault on our tax status after the current tensions calm down. Most bankers have accepted–or at least are resigned to–our presence by now. But there is a loud, hard core within the industry whose preoccupation with this is of near obsessive intensity. With the help of our friends in Congress, we have blocked the self-serving moves by our critics in the banking industry. Even so, we absolutely cannot afford ever to be complacent on this issue. Our tax status reflects our cooperative, not-for-profit structure–the heart and soul of our system. It has helped us provide low-cost services for millions of consumers–services that they otherwise could not afford. In closing, every dynamic organization must evolve to remain relevant. This is especially crucial in financial services, where innovation every few years seems to rewrite the manuals. We must constantly reexamine our systems and our goals. And, of course, all of this must be done while preserving the credit union philosophy. We have, after all, a long history of being part of the solution, rather than the problem. We are in the midst of one of our worst economic crises in 80 years. Credit unions can help in the recovery by doing what we have been doing the past 100 years–by remaining strong and committed. That is how we help our citizens retrieve the economic power lost during the crisis and recover their homes lost because of the mortgage market upheaval. We keep the dream alive by remaining true to the cooperative ideal and by keeping the trust of our members. That is also how we celebrate the gift that was bequeathed by pioneers like Edward Filene, Roy Bergengren, Dora Maxwell, Louise Herring and by that small band of immigrants in New Hampshire 100 years ago. experience Prepares CUs for Challenges Ahead One hundred years and counting is a significant milestone to which few industries can lay claim. Ours is a movement bore out of the unmet basic financial needs of working class American households. We have grown and prospered by continuously evolving to meet the needs of our members and attract new members with our message of thrift, mutual self help and consumer value. As an economist, I like to look back at asset and member growth trends. We began with nothing and now are approaching $1 trillion in assets with more than 90 million members. It is an amazing statistical trend story, but the real story is the sacrifices and foresight of the movement’s pioneers. While the names Filene, Bergengren and Dora Maxwell are some of the most recognized, the real heroes are those original field organizers and volunteers at the local level who took an idea, a philosophy, and created a place where working-class households could save and access fairly priced credit when they needed it most. One hundred years is a time to celebrate and a time to reflect, as we enter our second century, study our history and, more importantly, gain inspiration from the deeds of those who created an industry in which most of this publication’s readers work and volunteer. Looking at the credit union movement today we see a healthy industry, primarily because we continuously adhered to the timetested fundamentals of good underwriting for both the borrower’s ability to repay and the likely future value of the collateral. We are strong and growing but not unscathed. During this convergence of a down economic cycle (yes, a recession) and a crisis in credit and credibility, Dave Colby is chief credit union members and economist of CUNA credit unions have felt the Mutual Group. pain of reckless lending policies, primarily from those outside the industry. Credit union leadership has navigated well thus far, but a vast sea of uncharted waters lies ahead. For almost all, this will be the most difficult period we have or ever will manage through. We will be strained by credit quality challenges, rising costs and narrowing spreads. Not all will survive. But when we emerge from this down cycle, we will be stronger and viewed as a critical and very necessary consumer financial services alternative. That said, this will also be the biggest opportunity credit union leadership will ever manage through. As the consumer financial services market overcorrects from its previous excesses, a great many households will be denied access to fairly priced credit. What credit unions do now for members, when times are difficult, will clearly define us going forward–not only in members’ eyes, but in the eyes of those who would be tempted to change the underlying value of the credit union charter. Make no mistake: given the credit crisis and ensuing bailouts in the financial markets, a new regulatory landscape is a distinct possibility. Each successive generation has added value to our charter, be it through new product and service innovations, convenience or cooperative efficiencies. Each successive generation of credit union leadership has also been tested by tough economic times. It is now our turn to pass an extremely difficult test and continue the tra(continued on page 19) www.cutimes.com Credit Union Times, December 2008 http://www.cutimes.com
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