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Public Confused, Angry Over Credit Union ‘Bailout’

In less than a day, Google News listed no less than 300 different stories about the failure of three corporate credit unions. Many reports inaccurately characterized the conservatorship of these institutions and the NCUIF payback plan as a “bailout.” Regardless of the truth and how it all works, a significant portion of the public isn’t happy about it.

The Wall Street Journal’s article, “Credit Unions Bailed Out,” was besieged with over 374 comments. The Huffington Post’s article generated 287 comments Yahoo! had 188. Fox over 100.

In a 24 hour period, around 500 people mentioned “credit unions” on Twitter, 95% of them spreading the word about the “bailout.” Scanning recent tweets reveals a range of dour reactions:

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Are Credit Unions a Safe Choice? Most troubling to credit unions are the ripples of fear consumers now feel when they hear someone mention “credit unions.” How deep and widespread are these feelings? [Actual comments from the public on news articles are italicized.]

  • “Ruh -ROh I thought credit unions were safe.”
  • “Should we worry about our money in credit unions? It’s insured by the FDIC, but this makes me wonder.”
  • “I thought the political liars had told us that credit unions were safe.”

Credit Unions Are No Better Than Banks. Read some people’s comments and you’ll realize how many folks now see zero difference between banks and credit unions. This event has pushed plenty of people from merely “jaded-and-skeptical” to full-tilt pathological cynicism. “See! Anyone involved in banking is a no-good crook. Credit unions are just as culpable for the mess we’re in as anyone else.” To these people, there are no “good guys” wearing white capes. “Thieves, every last one of them…”

  • “Any uninformed people STILL think Credit Unions are soooo much better than banks when in fact they are just as bad and in just as much trouble.”
  • “So, where are all the people who constantly fill up the comments when a bank is shutdown telling folks to only deal with credit unions?”
  • “I am so pleased to see that the Government started intervening with all the corruption at these credit unions.”
  • “Same old theme: bail out the bankster crooks, now the credit unions.”
  • “Wow, we are bailing out private credit unions who are paying outrageous salaries to employees and making loans.”
  • “Where are the ‘perp walks’ for the regulators, directors and officers of the corporate credit unions who failed their fiduciary responsibilities and legal limits? Seize their assets and bonuses to recover some of what they lost. Let they and their families feel some of the pain!”
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Great, Another Kick to the Balls… To plenty of Americans, the news of credit unions failing is just one more sour reminder of how bad things really are. Economists may say the recession is over, but tell that to the 10% who are still unemployed. And now, credit unions, who were supposedly one of America’s safest institutions, need a bailout too? It leaves many people with a sense of helplessness, depression and resignation. “Great…What next?” Consumers feel shell shocked, ambushed and betrayed.

  • “OMG, credit unions too… Now I am worried…”

My Tax Dollars?!? Some people leaving comments are savvy and sensitive to credit unions’ tax exemptions:

  • “Credit Unions are EXEMPT from Federal Taxes, and they get a bailout?”
  • “So now my tax dollars are being used to bailout Credit Unions which pay no taxes. At least GM and CitiBank pay taxes.”

It’s a Democratic Conspiracy. Many Republicans hear the word “union” and immediately suspect a Democratic plot to curry votes. Those on the far right rush to connect Obama, socialism, bailouts and anything containing the word “union.” This serves as another sore reminder to America’s financial cooperatives that the term “credit union” is a hindrance.

  • “Now the government takeover of the Credit Unions begins!!”
  • “The White House and Democrats must really be scrambling for votes if they want to bail out the credit unions.”
  • “When will he consider financial & regulatory policies which are based on creating jobs in the private sector and not paying back unions?”

Reality Check: Read the comments on any news story and you’ll see how uniformed, angry, illogical and uneducated people are. They will believe what they want.

Conclusion. Credit unions need to take a close look at what people are saying around the internet and on Twitter, then think about how they should respond. What can be done to prepare staff with answers? How can credit unions help clarify consumers’ confusion? What can the credit union industry do to combat press inaccuracies and distortions? Will credit unions manage a PR response? Or will they flounder, stunned and unable to coordinate resources?

Most importantly, what affect will this have on consumers’ perceptions of- and trust in America’s credit unions?

Meanwhile, consumers may be wondering what impact this will have on their bottom line:

  • “You think the retail credit unions aren’t going to pass these extra fees of paying off bad loans to the membership members of those credit unions…? Yeah right.”

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Comments

  1. Some media stories were well balanced, the AP story for one. But no matter what, this is a huge blow.

    We issued a statement in Texas, and provided talking points, yet I find myself wishing there was a place people would trust to go for the facts instead of relying on some stories that gave just enough information to confuse people.

    Won’t we all be glad when 2010 is over.

  2. Indeed, people will believe what they want. That is apparent whenever people comment on news stories. The level of misinterpretation and misunderstanding in the general public is staggering.

    That’s why credit unions need to explain who we are and what we’re all about. This should be done on a national scale – a true advocacy campaign. The time has come. When this recession is truly over and all the dust settles, if the credit union industry holds at having 6% of the market share, we certainly won’t want to look back and have regrets about what we did not do to capture more while the banks were reeling.

  3. Can someone please explain how the issuance of government-backed bonds doesn’t count as a bail-out? Granted, it’s not exactly a technical term — and I’m not a finance guy — but I fail to see the distinction. I understand that this should (in theory) be done with no cost to taxpayers, but weren’t some of the large bank bailouts done under similar terms?

    Let’s go back to where the term comes from… You’re on a boat, you start taking on water, and your bilge pump is broken. You hop on your VHF set, make a call for assistance, and the Coast Guard comes to the rescue. They stabilize the situation, and your boat is saved. It’s a literal bailout.

    Did it cost taxpayers additional money? No, but the federal government just saved your bacon, when you yourself couldn’t.

    Without federal assistance, what would the implications of a corporate collapse be? Smells like a bail-out to me.

  4. Good review of what is being said “out there”. Jeffry you and I exchanged thoughts this weekend. We discussed a “national campaign” but until credit unions can truly come together as one I don’t see that happening.

    I have been involved in conversations on a local city levels as well as state levels and there is too much “what’s in it for me” and “they are paying enough” comments going on. To do this on a national scale we must look past this.

    Instead of thinking selfishly, it must be about the common good for the entire industry. Hey… if milk farmers can do it, shouldn’t credit unions be able to as well?

  5. Nick, I think the question about what constitutes a “bailout” is a good one. To me, a bailout has to do with writing a check — some sort of hard allocation of cash or resources. Warrants to cover potential future shortfalls aren’t the same thing as paying cash money today. The US gov’t has only made promises at this time.

    Using your analogy Nick, I think it’s more akin to calling the Coast Guard to tell them you’re taking on water but you think you can bail yourself out and make it to safety. It doesn’t feel like the Coast Guard has had to do much of anything at this time except say “Okay, sound good. We’ll come rescue you if you need us.”

  6. Editor, that’s a good point. I think the lesson here is that focusing on the “bail-out” — countering the WSJ article and other coverage — is probably not an effective strategy for communicating. It’s not informative due to the nebulous nature of the term, and might even be counterproductive. If people are angry and misinformed, does it even make sense to put “bail-out” and “credit union” in the same sentence? (Google News is already suggesting “credit union bailout” when you type in “credit union”…)

    This is a tough issue to communicate. Educating about the nature of corporates, the effect of assessments, &c is complex. However, I think it’s essential to do so. CUs can’t fall back on tried-and-true cause-oriented advocacy for this one, considering the unprecedented corporate conservatorships. I’d rather explain a turd than polish it.

    Felix Salmon hits the nail on the head [1]:
    “So when the chair of the NCUA, Debbie Matz, says that all of this is being done at no cost to taxpayers, that’s only partially true — there are millions of taxpayers who belong to credit unions, and all of them will be affected in some way, because collectively they own the institutions which are going to end up losing billions of dollars.”

    [1] http://blogs.reuters.com/felix-salmon/2010/09/24/when-credit-unions-fail/

  7. NCUA, CUNA and NAFCU should have been better prepared to deal with this PR disaster. Many/most of their leaders knew this was coming. Trying to clean up the mess days after the fact isn’t going to be very effective. Necessary? Perhaps. But the damage has been done.

  8. The Financial Brand has pointed out why the trades and even the NCUA will not be winning any PRSA Awards this year. They don’t have a plan.

    Risk is important to all financial institutions, reputational risk may be the biggest threat to them, but the very trade groups and the federal regulators who represent the CU industry seem to have forgotten this.

    Everyone knew this was coming. Even a PR student could have predicted this would be viewed as a “bailout”. On Friday afternoon, everyone knew it was coming, believe me…everyone. Where were the proactive calls to the media from NAFCU, CUNA and the NCUA making their top people available to react to the story? Our best folks should have been lined up like the spin cycle at a presidential debate. If these steps were taken, and I have no idea if they were or were not, the outcome may have been different. My guess is that nothing was done until after the fact. I would welcome hearing differently, because it would restore my faith in a highly professional industry.

    On the good side I was pleased to see them all hurrying to tell the industry that they were working hard on “damage control”. Too bad they didn’t work harder on a plan. Another good point is for the NCUA. At least they waited until late Friday to announce, placing the story in the weekend news cycle. Fewer people pay attention to the weekend news.

    Good and bad, it is my opinion that this could have gone much better.

  9. Paul, you raise some excellent points. Where was the proactive PR? Did industry leaders hope a Friday announcement would give them the weekend to plot a response? Or did someone hope this would disappear come Monday morning?

    It’s really hard to do the backstroke once the damage has already been done.

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