And how they hurt small credit unions

Denise Wymore, Chair of the Board, CU De Novo Collective

A group of fifty CEOs from small credit unions met last fall in an open forum, non-league sponsored, one-of-a-kind event to discuss ways they could collaborate to avoid mergers.

Initially, the group was asked what some of their challenges were. Let’s face it: there are 99 problems running a small credit union today. But three items on their long list I would have never guessed. Here are some of what we would call “victories” or “innovations” in the movement that have become obstacles to success for small credit unions:

HR 1151 - Signed in 1998, HR 1151 was intended to protect the credit union field of membership by legalizing the right of credit unions to welcome members from multiple groups instead of a single group. That sounds like a good thing. So what happened? The leaders in attendance referred to it as the great “land grab” for the big credit unions to get bigger. The community charter definition of ‘lives, works, worships or attends school in’ created an overlap with single-sponsor credit unions and, for the first time, directly competed with them. Most credit unions in the room chose to stick with single sponsors or a single county. I think that can be a good strategy. Bigger is not necessarily better. However, bigger marketing budgets and more branches created some tough competition.

Credit union market share has not increased substantially since HR 1151

Shared branching - Wait, what? How can that hurt small credit unions? I loved shared branching and, in the early days, thought, ‘Wow, if we could get all the credit unions in the US to participate, we could finally compete against the big banks on convenience.’ Sadly, we never even got close to that, but for the small credit union, joining the network in many markets meant access to hundreds of branches for a minimal cost. However, many large credit unions have pulled out of the network, and then COVID had a significant impact. When they shut off shared branching, the small credit unions had to explain to their members why their “branch closed” essentially.  

Indirect lending - Giving members a “pre-approval” letter to hand to the dealer on the weekend was not working well. Indirect lending was born to fix that. This essential service was originally designed to provide after-hours and weekend loan availability for current members of a participating credit union. Over the years, indirect auto lending evolved into a new member acquisition tool. For anyone who has purchased a new car at a dealership, you know that getting the best rate (lowest payment) is the goal. For the dealer, it’s how they can make the most money on the deal. Therein lies the rub. If a larger credit union can give a slightly lower rate or marginally higher dealer incentive, it can completely shut out the small credit unions.

I had to ask myself, why did all of this happen? The only thing these three have in common is wanting more.

Credit Union Size Matters

I am simultaneously listening to the Bible in a Year podcast and watching the show Yellowstone (not on purpose). I’m learning about the stories of the Old Testament and the history of the Dutton family and how much they have in common. The characters, the conflict, the fallout and ultimately, the redemption can all be tied to wanting more. More land, more power, more money, more fame, more respect.

It’s never been harder to run a small credit union. Increased competition, the high cost of technology, the inability to recruit board members, and a lack of succession planning for management—the list goes on.

And yet…the bulwark to taxation continues to be the credit union difference that is often defined as the stories these small credit unions tell about serving the underserved, not their asset size. The Independent Community Bankers of America has a list of talking points regarding the credit union movement that seems very focused on the big getting bigger. 

Bigger is not better. If we keep our purpose constant, we will continue to do work that matters—together.  

To quote NCUA Vice Chair Kyle Hauptman at this year’s Inclusiv Conference, "They say the big banks are too big to fail... Well, no institution should be too small to succeed."