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Should Credit Unions Be Consumers' Primary FI?

A Snarketing post by Ron Shevlin, Director of Research at Cornerstone Advisors

In a speech at the recent GAC conference, CUNA president Bill Cheney said:

“Service excellence will be achieved by providing services that are forward moving and constantly improving. Proof of success will be 50 million Americans that call a credit union their primary financial institution by 2023.”

While there are plenty of proof points of success, this goal sounds pretty reasonable, no?

Maybe not.


A 2012 Filene Research report titled Mind over Money: Measuring Health and Happiness among Credit Union Members reported on a study which found that:

“Credit union members who use their credit union as their main financial provider are in fact significantly (with statistical confidence) less able to make ends meet than those who use it alongside another financial provider (i.e., a bank).”

This isn’t great news for credit unions, and puts Mr. Cheney’s goal in a tough place.

If credit unions are truly concerned for the financial well-being of their members — and I do believe the concern to be sincere — then becoming primary FI might not be in all members’ best interest.

Furthermore, it might require that CUs find ways to collaborate — not so much with each other, but with banks. With all the bank-bashing coming out of credit union professionals (oh, I can find links if you really want me to).


What credit unions really need to do is re-think the concept of “primary FI” and reconsider why they would want to fill this role.

For many consumers, their primary FI is the bank (or credit union) where they have their checking account.

But with the growing Debanked segment, and the growing popularity of prepaid cards, and Neochecking accounts like those from Moven, Simple, and GoBank, the checking account might not be the primary account for many Americans in a few years.

Furthermore, with caps on overdraft fees, reductions in debit interchange, and a desire to cling to free checking, the traditional checking account might not be particularly profitable for an increasing number of consumers over the next few years.

In that case, being the “primary” provider sounds nice, but isn’t necessarily profitable.


Personally, I’d like to see another alternative emerge.

A scenario where a consumer’s primary financial provider is one who provides advice and guidance on managing ones’ financial life — regardless of whose FI’s products the consumer owns. Oh, and in this scenario, the “primary” FI monetizes this advice and guidance.

If credit unions can create this scenario, then they will certainly be living up to Mr. Cheney’s are call for services that are “forward moving and constantly improving.”

Ron ShevlinRon Shevlin is Director of Research at Cornerstone Advisors. Get a copy of his best-selling book, Smarter Bank: Why Money Management is More Important Than Money Movement. And don't forget to follow him on Twitter at @rshevlin.

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  1. I think your Interpretation of the Filene report is flawed, in that you have the causality reversed. It’s not that using a credit union as a primary FI undermines the financial well-being of members, but that members with more modest means tend to use credit unions as a primary FI (you only have multiple FIs if you have enough money in the first place to make it worth it). When that misinterpretation is corrected, the argument against pushing CUs as primary FI disintegrates.

    As such, I’m super encouraged to hear CUNA starting to let their claws show a bit; if this trend continues we might see some *real* militancy in the next few years. If the TBTF banking sector had not used their political clout to blackmail Congress into the bailout, credit unions would have picked up the pieces and have become the dominant financial services model by default. Instead, the for-profit banks were preserved by one of the largest state economic interventions in human history, and the American people were cheated out of a cooperative system that would have worked for everyone because it was owned by everyone.

    This was an injustice of the highest order, and the only legitimate response is to bash the banks into dust. We should work to make maintaining a relationship with a bank that received a bailout socially shameful in our communities, and do intensive outreach to undermine their customer bases as much as is humanly possible. Our strength is in our people, theirs is in wealth; it’ll be a long war, but I believe we can, and should, win it. Credit Union Power!

    Obligatory Filene quote:

    “May each of us Credit Unionists remember, then, that he is not merely one of a little local group, which has discovered a convenient way of meeting certain little credit problems. We are enlisted units, rather, in a great and growing army of liberation, destined not to destroy the money power or even quarrel with it, but to discover how this power which necessarily controls the lives of people in this machine age may be used most effectively by the people for the people’s interests.”

  2. I may very well be misinterpreting the Filene report, but not in the way you suggest. The piece of the report I’m referencing is:

    “Credit union members who use their credit union as their main financial provider are in fact significantly (with statistical confidence) less able to make ends meet than those who use it alongside another financial provider (i.e., a bank).”

    “THAN THOSE WHO USE IT ALONGSIDE ANOTHER FINANCIAL PROVIDER.” The implication here is that some percentage of CU members (I don’t think the report states what % of CU members consider theior CU their primary FI) are best served by a variety of providers including banks and a CU (or multiple CUs).

    I never said, nor was I implying, that CUs CAUSE the members’ problems, nor did I say that CUs “undermine” their members financial well-being.

    What the Filene report doesn’t elaborate on — and what may very well be the underlying explanation here — is whether or not there are economic and demographic differences between CU members who consider their CU their primary FI and other CU members.

    If CU members who consider their CU their primary FI are — a priori — worse off than other CU members, than that would explain the study’s findings.

    But it wouldn’t address the question of why those CU members who DON’T consider their CU to be their primary FI don’t do so. Is it because they believe the CU isn’t capable of providing the full range of needs? Or maybe it’s because they’re satisfied with the bank they consider to be their primary FI.

    To your point about credit unions “picking up the pieces”, I’d like to introduce you to Cam Fine (not that I actually know Cam myself). Cam is CEO of the Independent Community Bankers of America association. He could tell you about the thousands of non-TBTF banks who were ready and able to “pick up the pieces.” I love credit unions (CU people, actually), but there is absolutely no evidence that CUs would become the “dominant financial services model by default.”

    One other thing: Not sure if you’ve been following this or not, but the paybacks that the government has received from TARP banks has turned out to be a great investment for the government. A helluva lot better investment than the $800 billion thrown away on not-so-shovel ready stimulus initiatives.

  3. Hey Ron,

    (1) On the picking up the pieces element, the “community” bank model (and I question the legitimacy of a FI claiming the word “community” without being owned by one like a CU) has been unsustainable and slowly dying since the Penn Square fiasco in the early 1980s established the TBTF precedent (and thus subsidy, which was estimated to be $87 billion last year). As long as that subsidy is in place, for-profit bank shareholders have a strong incentive to grow their institutions over the threshold so they can receive the subsidy, and already TBTF banks recycle their subsidy windfall into further acquisitions that have driven the banking sector’s dangerous consolidation over the past 30 years.

    *If* TBTF were ended, the for-profit community bank model *might* have a chance to reemerge (as long as other government interventions in the marketplace such as deposit insurance were kept in place; in a marketplace without Gov. deposit insurance, cooperative financial institutions dominate), but as long as it is the status quo, community banks will continue to be a vestigial model, dying a death of a thousand mergers.

    Because of their ownership structure, credit unions cannot be as easily bought by the TBTF behemoths; that requires demutualization, and the recent badass organizing at Tech CU has hopefully put the fear of god into any board that might have been considering that path. As such, the battle lines of the future will be between cooperatively-owned, democratic credit unions and giant for-profit subsidy hogs, with community banks as a non-factor.

    (2) The profitability or non-profitability vis-a-vis the Feds is not the major issue with TARP; the problem is that it was picking economic winners and losers on a truly collosal scale. The capital that saved the for-profit banking sector was NOT AVAILABLE at the time and, as a result, a whole boatload of major for-profit FIs (BOA, Citi, RBS, etc.) should have been liquidated on the spot, with depositors with more that the FDIC guarantee being paid pennies on the dollar and shareholders eating it entirely. That would have broken the TBTF subsidy, and institutional investors would have been forced to seek institutional safety rather than Gov’t guarantees for their large deposits. Again, in an unregulated market, cooperatives tend to be safer FIs because the incentives of the institution and depositor are aligned, so much of the capital that was living in the TBTF banks would have, by necessity, flooded into the co-op sector.

    (3) Key, and I would be interested in seeing that data: “What the Filene report doesn’t elaborate on — and what may very well be the underlying explanation here — is whether or not there are economic and demographic differences between CU members who consider their CU their primary FI and other CU members. “

  4. 1.1) By your definition, a credit union isn’t a “community” organization either. It’s owned by members (who typically pay in for that share of ownership), not the community.

    1.2) The Penn Square situation was not the TBTF precedent. The precedent was set in other industries. See, for example, the Chrysler bailout of 1979.

    1.3) TBTF does not need to end for smaller entities to emerge. IBM didn’t have to be broken up for Microsoft to emerge. Microsoft didn’t need to be broken up for Google to emerge.

    2) “… much of the capital that was living in the TBTF banks would have, by necessity, flooded into the co-op sector.” You may very well be right there. But I’m not convinced that the capital would necessarily have performed better. This is thing that I think CUs deceive themselves about. They want a lifting of the member business lending cap (for example), but do a lot of CUs have the underwriting capability, the detailed industry knowledge, etc. to make profitable loans to all these small businesses? I’m not so sure.

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