Sentimentality, and nothing more, made me a member of the
Upper Valley Community Credit Union (UVCCU). Sorrow, and nothing less, will cause me to vote against the plan to sell our credit union to another such institution in faraway
Berlin, New Hampshire.
Credit unions are
cooperatives, and I like cooperatives. I like them because they are the very embodiment of socially responsible business enterprise -- owned by their customers (or sometimes their employees), devoid of investors, run democratically on a one-person-one-vote basis, open to all, and committed (quoting here, from the
Cooperative Principles of the International Cooperative Alliance) to education, training, and information. As the home mortgage bubble, the resulting near-collapse of the American economy, the depredations of the financial industry, the taxpayer-funded bailout of financial institutions deemed "too big to fail," and the obscene bonuses paid by these institutions to their employees amply demonstrate, the investor-owned banking sector is the very opposite of these cooperative principles.
One would think that, especially in these circumstances, credit unions would be eager not just to act like cooperative but to brag that they are, in fact, cooperatives. Not so, at least as to the UVCCU. The word "cooperative" does not appear on the UVCCU web site. (In contrast, both the
Service Credit Union and the
Members Advantage Community Credit Union, bigger organizations with local offices, use the “C” word on their web sites.)
This co-op invisibility comes from a credit union that owes its very existence to another cooperative, the
Hanover Consumer Cooperative Society, which founded the financial institution precisely 60 years ago as the Hanover Credit Union. The original idea was to provide a source of affordable credit to Co-op employees.
Soon, this will no longer matter. What was once the Hanover Credit Union will cease to exist at some point in 2011, when the plan to sell the Upper Valley Community Credit Union to the Woodlands Credit Union in Berlin is slated for consummation. The deal is styled as a merger, but the surviving enterprise will be called Woodlands and not Upper Valley, and only one seat on the Woodlands board of directors is being reserved for Upper Valley’s board. Do the math: Woodlands has over $90 million in assets; Upper Valley just $18 million (as of the end of 2009). Woodlands’ current CEO will remain in charge; Upper Valley’s CEO, Steve Bentley, gets demoted to “chief information officer.”
The Upper Valley Credit Union quietly mailed a
notice of all this to its 3,500 members just before Christmas. The explanation contained therein, and the elaboration of it on the Upper Valley Community Credit Union web site, is notable for two things: first, its low-key approach, presumably reflecting a desire not to generate too much interest in a transaction that the 3,500 members could veto, and, second, the same kind of bland happy talk that accompanies takeovers in the investor-owned business sectors.
“Both Credit Unions are committed to strengthening members' financial lives,” according to the
merger FAQ page on the Upper Valley web site. “A key part of that commitment is maintaining the strength and stability of your Credit Union while striving to deliver more value to you.” The same web page assures members that their new credit union will be financially sound, characterizing both Woodlands and Upper Valley as “healthy and growing, with a strong balance sheet, a full-service product offering and a loyal member base.”
These are true statements, but a different story would surely emerge from an institution with a conscious awareness of its identity as a cooperative. “Education, training and information” is the fifth of the seven Cooperative Principles that trace their roots to the first modern cooperative, founded 167 years ago in Rochdale, England. A big part of what this means, in concrete terms, is that while investor-owned businesses keep their customers in the dark about the enterprises they are patronizing, cooperatives strive (or at least should strive) to keep their member-owners abreast of the business realities they confront.
In that spirit, the noted cooperative scholar and thinker Brett Fairbairn of the University of Saskatchewan has
warned against the “black box” cooperative – a co-op that “stands between [its members] and the market, obscuring the signals, threats and opportunities that it offers.” According to Fairbairn (whose dateline might seem obscure to people in New Hampshire, unaware of cooperatives’ prominence in Canada), coops succeed by practicing transparency, an approach that builds trust – something that is not just inherently virtuous but a source of business advantage.
The Upper Valley Community Credit Union, like so many of its counterparts in the world of credit unions, is a black box cooperative.
Transparently and trust-building would have involved reaching into the community over the past few years with the news that the UVCCU was in a struggle to remain viable. In fairness, the news was essentially there in the annual report issued by the UVCCU a year ago containing its 2009 financial results. which included a $32,000 loss on income of slightly more than $1.2 million. The credit union’s treasurer, Stan Pelli, blamed the financial crisis and also described “higher than normal loan losses, lack of rental income, and increased expenses from planned growth strategies” which, he reported, “all combined to create the ‘perfect storm.’” The credit union’s net worth fell from 7.46 percent at the end of 2008 to 6.43 percent.
Disclosures in a legally required annual report are one thing; sounding the alarm, and making a persuasive case for the credit union’s ongoing relevance to the Upper Valley, are quite another.
Though the above-quoted treasurer’s report might suggest some poor strategic decisions around real estate and other capital expenditures, the credit union blames its woes on the overall crisis in the financial industry and, in particular, on bailouts and backlashes that have affected credit unions through little fault of their own. They have a point – sort of.
Where banks have the Federal Deposit Insurance Corporation to back them up when finances go south, credit unions have the NCUA – the
National Credit Union Administration. Nearly two years ago, the NCUA used its insurance funds had to pump $5.9 billion into the nation’s two biggest “corporate” credit unions,
U.S. Central Federal Credit Union and
Western Corporate Federal Credit Union, both of which were failing as the result of having invested in mortgage-backed securities – the same dubious financial instruments that caused so much trouble elsewhere. This, in turn, led the NCUA to pass along additional insurance charges to credit unions everywhere. According to the soon-to-be former CEO Steve Bentley, this cost the Upper Valley Community Credit Union $64,000 in 2009 and another $45,000 in 2010, with an additional $35,000 to $40,000 in NCUA insurance premiums per year for the next 11 years. That is a pile of money to a small financial institution that, in a good year, can expect net income of about $70,000.
All of which might prompt concerned UVCCU members to ask: What the heck is a corporate credit union and why are we paying for their mistakes? The answer is that corporate credit unions serve as wholesale financial institutions, their members being so-called “natural person” credit unions like the UVCCU.
Notably, the UVCCU’s annual report offers somewhat contrasting accounts of whether the UVCCU is connected to any of these corporate credit union failures. “It is unfortunate that the investment decisions of these Corporates, combined with a lack of regulatory oversight on the part of our regulators, has made it increasingly difficult to help members through these troubled times,” stated Bentley in his annual report letter, a stance that would suggest no relationship. Across the page is the letter from Treasurer Stan Pelli, who referred to “the corporate credit unions of which we are a member” having become “caught up in the financial problems of 2008.” (Emphasis added.) Additionally, Pelli referred to a third corporate credit union, the
Tricorp Federal Credit Union in Maine, which he described as the UVCCU’s “primary corporate credit union used for settlement and investment services.” According to Pelli’s letter, the UVCCU had to write off nearly $42,000 in 2009 to reflect the “impairment” of the capital invested with Tricorp. It turns out that Tricorp is a member of the bailed-out U.S. Central Credit Union – the latter serving, in effect, as a wholesale credit union to other wholesale credit unions – and, in 2008, Tricorp wrote off $38 million on its investment in U.S. Central.
The point here is not to suggest any wrongdoing or even any shame associated with the “corporate” credit unions or the Upper Valley Community Credit Union’s membership in them. Rather, the point is that the UVCCU is not as disassociated with the 2008 financial disaster, and the now-burst mortgage-related financial bubble, as it would have members believe. A credit union can either be forthright with its members about their institution’s ties to the financial industry and its profligacy – or it can keep those inconvenient truths stuffed in the black box.
Ditto for the UVCCU’s ties to the credit card industry. According to Bentley, the UVCCU is staring another $45,000 a year in lost revenue as the result of the so-called
Durbin Amendment to the financial reform bill Congress adopted in 2010. The big credit card companies –which in this context means Visa and MasterCard – and the financial institutions that issue credit cards through those companies, make their money by charging outrageously high “swipe fees” to retailers which, in turn, pass these charges along to customers. The Durbin Amendment affects only the swipe fees associated with debit cards and merely requires that these fees be “reasonable,” which in this context means reasonably related to the actual costs incurred in processing these transactions.
Should UVCCU’s members care about this? Well, it might interest those who also belong to the Hanover Consumer Cooperative Society that the Co-op paid more than $900,000 in interchange fees to the credit card industry last year, a sum that vastly exceeds the surplus earned by the organization over the same period. The National Cooperative Grocers Association, of which the Hanover Co-op is a member, lobbied actively in favor of the Durbin Amendment while credit unions actively sought to derail it.
When waged between investor-owned supermarket chains and investor-owned mega-banks, the fight over interchange fees is truly an occasion for consumer cynicism because, one way or another, too much money will be extracted from the pockets of customers and remitted to investors. But when waged, in effect, between two cooperatives (and by extension two cooperative sectors), one having given birth to the other, and each owned by essentially the same consumers, the very existence of this fight suggests that something is wrong. Another inconvenient truth stuffed into the black box.
On the bright side, there is reason to expect that once Upper Valley has given way to Woodlands, members will get a better financial deal. In general, Woodlands offers better interest rates on deposits and lower loan rates for borrowers . Unlike Upper Valley, Woodlands has a program that rewards members with better terms if they use more of the credit union’s services. Woodlands offers its own credit cards; Upper Valley offers only credit cards that have its name but are actually issued by a big conventional bank based in Minnesota. Woodlands offers more mortgage services.
However, it must be said that Woodlands is not obliged pursuant to its agreement with Upper Valley to offer these products and services. Many of them, according to Bentley, are possible simply because Woodlands is a much bigger credit union. This, of course, begs the question of why Upper Valley didn’t end up as a bigger credit union, instead of yielding market share to institutions like Service and Members Advantage, to say nothing of banks like Mascoma and Ledyard. The
Vermont VA Federal Credit Union has only $1 million fewer assets than Upper Valley does, despite having a field of membership that is limited to people with employment-related connections to the VA Hospital in White River Junction. Berlin is a wonderful town but, with the implosion of the paper industry in northern New England, it is also a distressed community, especially in relation to the prosperous, Dartmouth-dominated Upper Valley. One might reasonably wonder why their credit union is buying out ours instead of the reverse.
In my view, the lesson to be drawn from the end of the Upper Valley Community Credit Union is that such member-owned financial institutions cannot thrive by acting and looking like investor-owned banks. The banks simply cannot be beaten at their own game. Credit unions will succeed over the long term only by reaching into their communities, educating them about the financial industry and its depredations, and making a persuasive and fact-based case that credit unions are different because they are agents of their member-owners and no one else. In the era of Whole Foods, Trader Joe’s, and even Wal-Mart as a seller of natural and organic foods, food co-ops face precisely the same challenge – making their value proposition the transparency, accountability and democratic control that cooperatives uniquely offer.
Some of us – dyed-in-the-wool cooperators who thrill to spurn wealth-extracting investor-owned businesses in favor of enterprises that are owned by their customers and plow their wealth back into the field in which they grow – join their local credit union without really thinking about it, for sentimental reasons. That’s why I joined the Upper Valley Community Credit Union. Though I will vote against the sale, I don’t urge others to follow me – the cause is a lost one. To those UVCCU members who will stick with Woodlands, I offer this consolation. A mill town – Rochdale, England – gave rise to the first modern cooperative in 1844. Another mill town – nearby Manchester, New Hampshire, as it happens – gave birth to the nation’s first credit union, in 1908. Berlin, home of the Woodlands Credit Union, is also a historic mill town that savors its working class roots and, perhaps, viscerally understands the value of cooperation.
Both that first cooperative in Rochdale and that first credit union in Manchester survive today, the latter under the incongruous name of
St. Mary’s Bank. When founded more than a century ago, it was known as
St. Mary’s Cooperative Credit Assocation. Those folks were on to something.
Dear Reader,
