Archive for the ‘7 Cooperative Principals’ Category

Pie in the Sky: The Self Sustained Credit Union

Principle #4 does point to the use of agreements with other organizations and external funding as options available to credit unions, but that doesn’t mean they are necessarily required.

What if , instead of relying on external agreements, your credit union always looked first to members to fill its needs. In this age of large memberships, don’t many of your members have the skills to do the things you are outsourcing? Even if you had to bring together many members to work towards a common design/development/marketing/community goals, isn’t that what a co-op is all about?

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Principle #4: Autonomy and Independence (Part 2)

This article is part of the 7 Principle Series. The other articles in the series are located here

Now that everyone has had time to soak in the first half of Principle #4: Autonomy and Independence, it’s time to look at the second half:

If the cooperative enters into agreements with other organizations or raises capital from external sources, it is done so based on terms that ensure democratic control by the member and maintains the cooperative autonomy.

External Funding and Agreements

Back in Principle #3 we highlighted the fact that Members of a credit union contribute to the capital of a credit union. Principle #4 gives another way to infuse capital into a credit union, through external funding. It also outlines the power to enter into agreements with other organizations.

It’s hard to imagine a 100% self sustained CU and thanks to Principle #4 we don’t have to.

I know that “agreements with other organizations” and “capital from external sources” are pretty broad terms. It easily covers everything from core provider agreements, to CUSOs, to yes, even accepting government funds.

There’s a Catch

While “agreements” and “external sources” are very broad brushes they do not come without limits. The litmus test by which these agreements and external funding sources must be judged is two pronged. They must maintain member control AND maintain the autonomy of the credit union. (Many times these two go hand in hand.)

We’ve previously established that the way member control plays out in modern day CUs is through boards and it’s evident here as well. Boards approve agreements entered into by a credit union, thereby maintaining member control. While board approval is one level of member control, it’s important that these agreements don’t lock down a CU in such a way that even the board’s influence is limited. (I’m thinking about things like very long term deals with core processors and other vendors.)

What’s Your Take?

  • How have external funding sources or agreements helped your membership?
  • Have any of them ever limited member control?
  • What kind of checks and balance do you use to ensure these things don’t end up limiting member control?

Pie in the Sky: Financial Self Improvement at Your Local Credit Union

In regards to my thoughts on Principle #4 and Credit Unions as self-help organizations:

With Americans apparent obsessed with all things self-help, how is this not a focal point of American CUs?

If there is a National Brand that could weave CUs together, I’d make a strong case for this as “the one”.

Principle #4: Autonomy and Independence (Part 1)

It’s time to jump back into our ongoing discussion about the 7 cooperative principles. If you need a refresh, the other articles in the series are located here.

Autonomy and Independence
Cooperatives are autonomous, self-help organizations controlled by their members. If the cooperative enters into agreements with other organizations or raises capital from external sources, it is done so based on terms that ensure democratic control by the member and maintains the cooperative autonomy.

There’s so much jammed into Principle #4 that it looks to be a 2 parter for me. Let’s start by looking at “Cooperatives are autonomous, self-help organizations controlled by their members”

Credit Unions are autonomous.

Each Credit Union is self-governing. Each has it’s own set of rules. Your CU can’t tell my CU what to do. (I do what I want!) But not really.

CUs do have levels of governance above them. No CU is an island. They are subject to local and federal laws and in most cases some kind of regulatory body. (I would say all cases but don’t really have the time to research the credit union practices of every country.)

This isn’t necessarily a bad thing. We certainly can’t have credit unions making up rules that supersede federal law. But, have you seen the 428 page beast of a document that is the NCUA Regulations? That’s a lot of regulating for entities that are supposed to be self governed.

In addition, the recent incident with TDECU and the FDIC clearly shows that Credit Unions can and are influenced by forces beyond their member controller.

Credit Unions are self-help organizations.*

For me this could be one of the most powerful and differentiating ways to look at Credit Unions. Instead of seeing CUs as Financial Institutions that are member controlled, it very much within the CU DNA to be seen as places for financial self improvement.

This means more than just good auto loan rates. (Though it’s probably under the self improvement umbrella.) This means helping members with things like budgeting and retirement planning and making that feel like the norm instead of the exception. It means educating members of their financial options in ways that are engaging, maybe even fun.

Credit Unions are member controlled.

This is the 3rd principle that mentions member control. It’s kind of big deal. (See Principle #2 and #3 for more thoughts on that.)

What’s your take?

My big questions for members of the Credit Union community in regards to part 1 of Principle #4 are:

  1. Do you feel like your CU is really autonomous? Is there too much regulation? Is there not enough regulation? What are the areas where you feel free to self-govern and write your own rules?
  2. Do you view your CU as a self-help organization? Do your members view it that way? What would you need to do internally and externally to act more like a self-help organization

* I’m not 100% sure about the original intentions of “self-help organization.” Self-Help could be an adjective to describe the organization or part of the noun. It could make a difference in one’s interpretation of a credit union as a self-help organization. Is a credit union an organization that provides for itself and solves its own problems (an organization that is “self-help”) or is it a place where people go to help better themselves? I prefer the later.

Pie in the Sky: Hey Boss!

In talking about Members’ Economic Participation, it’s clear that “owner” is a term that can be used to describe CU members. I wonder what would happen if your CU started calling everyone that came through the door “Boss.” It would be like the affectionate nickname you have for your members. “Hey Boss, what can I do for you today?” 🙂

If you don’t think calling everyone “Boss” is a great idea, you could change your “Thanks for coming in/calling today. Have a nice day” to “Thanks for exercising your ownership. Have a nice day.

Don’t think these things matter? Every time I walk into Chick-fil-a, receive my order, and say “thank you” I am met with the best reply in fast food today. “My pleasure.” I notice. I’m not the only one.

If reinforcing ownership is on your radar, the subtle things you say can make a world of difference.

Principle #3: Members’ Economic Participation

Members are the owners. As such they contribute to, and democratically control, the capital of the cooperative. This benefits members in proportion to the transactions with the cooperative rather than on the capital invested.

For credit unions, which typically offer better rates, fees and service than for-profit financial institutions, members recognize benefits in proportion to the extent of their financial transactions and general usage.

Finally! Let’s start talking about money. (Cleverly disguised here as “economic participation.”) This principle is loaded with info, so let’s take it apart and look at the pieces.

Members are the owners.

While there is much debate over what an individual credit union should call those that participate (member, owner, customer), it’s very clear that “owner” is a term that is appropriate. (Though I believe thinking of participates as “customers” is the more effective, there are those much more experience than I that would choose the word “owner”)

The word “owner” implies both authority and responsibility but unfortunately these seem to be lost on the CU member of today.

They contribute to the capital of the cooperative. (And democratically control that capital.)

Members fund the CU and through democratic process control those funds. (In modern times democratic control = voting on a Board who controls the funds.) Yes, your $50 deposit is funding the credit union. This principle really doesn’t address other forms of funding (profits from CUSOs, external funding).

They recognize benefits in proportion to the extent of their financial transactions and general usage.

I like this part. Members get benefits! And low and behold, it’s based proportionally on participation. So the more you put into the CU (through financial transactions and general usage) the more you get out of it. All seems rather sound and fair.

This currently plays out in dividends paid out to members and contributes to the ability to set rates, but this principle alone doesn’t limit these benefits to these two use cases.

The unnecessary editorial

For credit unions, which typically offer better rates, fees and service than for-profit financial institutions,…

I have a hard time understanding this as part of the principle. My first thought is that it probably isn’t part of the original, but some how has been inserted in over time and just been duplicated and copied so many times that you rarely find a list that doesn’t include it. Maybe it’s just an example of how members can benefit from their financial funding.

I hope that some part of the above is true, because if it IS part of this underlying principle, if CUs were built on the principle of providing better rates, better fees, and better service, well then it could be the biggest disconnect from credit union philosophy and credit union practice that we’ve looked at so far. (What the heck is a ‘better’ fee anyways?)

I’d be very interested in hearing from anyone that has any insight into this part of the principle.

Back to You

What do you think about the different pieces of Members’ Economic Participation? How do they play out in your credit union? If you could start from scratch, would you want this principle manifested in it’s current practices?

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Just getting into my look at the 7 cooperative principles? You can check out the other articles in the series here.

Pie in the Sky: One member. One vote.

It’s already been alluded to in the comments on my post on Democratic Membership, but wouldn’t it be ground breaking to actually give each member a vote…..on everything.

Given the current state of technology, there is no reason why any presentation or information available to the Board, couldn’t be readily available to each member in a timely fashion and the same goes for any vote. Votes could be taken electronically and results posted very quickly. I’d even suggest making terms of membership reflect a certain “attendance rate” for votes as a requirement.

Would it work for every CU? Heck no. (Areas where internet access isn’t the standard would surely be wrong for it.) Would it work for some CU? I’d like to think so.

Principle #2: Democratic Member Control

I’m finally getting back to talking about the 7 cooperative principles. You can check out my other posts in the series here.

Let’s talk about Democratic Member Control

Cooperatives are democratic organizations owned and controlled by their members, one member one vote, with equal opportunity for participation in setting policies and making decisions.

This principle gets us a better understanding of how this “volunatary, cooperative, not-for-profit organization” is setup. It’s a democracy. (Yahoo for democracy!)

What strikes me about this principle is it’s simplicity. Doesn’t it sound so nice, simple, and peaceful?

Once again, the modern day credit union is far from looking like this simplistic cooperative principle. (Now that I think about it, just about the only place you hear about “one member one vote” actually playing out is in conversion votes.) We elect a Board and they do most of the “participation in setting policies and making decisions.”

I’m not against this kind of representative system, however, in the credit union cooperatvie (as it does in other representative democracies) representation does create a disconnect between “regular members” and “board members.”

In most cases, this disconnect is fair price to pay for each member in return for not having to deal to many of the policies and decisions that have to be made in a fully functioning credit union. However, as evident by stories of board/member clashes and even board members suing members, this disconnect is one that if left unchecked can get really ugly.

Back to You…

What are you thoughts on the current state of credit union democracy? I’d love to hear your thoughts!

Pie in the Sky: What kind of services does a credit union offer?

I brushed by this in my post on Principle #1. It’s a stupid question, right? A credit union offers financial services.

What if your credit union didn’t put itself in that box? What if your CU saw itself as offering community services, some of which were financial?

Could this kind of credit union work? Would its diversity of services help or hurt it’s members?

What would it look physically look like? (I’ve never mistaken a community center for a bank. I’m just sayin…)

Principle #1: Voluntary Membership

Here we go with Voluntary Membership:

Credit unions are voluntary, cooperative organizations, offering services to people willing to accept the responsibilities and benefits of membership, without gender, social, racial, political or religious discrimination.

Many cooperatives, such as credit unions, operate as not-for-profit institutions with volunteer board of directors. In the case of credit unions, members are drawn from defined fields of membership.

We can learn a lot of the credit union basics from just these few sentences.

  • What is a credit union? A volunatary, cooperative, not-for-profit organization
  • What does it do? Offer services
  • To whom does it offer services? Anyone willing to accept the responsibilities and benefits of membership that fits within the credit union’s defined field of membership
  • What can the credit union base it’s field of membership on? Definitely not on the basis of gender, social (status), race, politics or religion
  • Who oversees the credit union? A volunteer board of directors

This credit union sounds like a pretty decent place. Volunteerism, responsibility, benefits, and limited discrimination. It sounds nice, but I still have some unanswered questions from the text of principle #1:

  • What kind of services does a credit union offer?
  • What are the “responsibilities” of membership?
  • What are the “benefits” of membership?
  • On what basis can a credit union define it’s field of membership?

I hope to tackle each of these questions with a kind of “wide eyed” naivety in later posts. But first, let’s answer based on where we’re at.

Credit unions offer financial services. Responsibility of membership is usually limited to small financial obligation upon joining. Benefits of membership vary greatly from credit union to credit union. Probably the most consistent is lower rates on loans. Fields of membership are defined by geographical areas in which a person lives, works, or worships.

Does that sound about right? Does this description match the mental image you get when reading principle #1? Not so much for me. The biggest disparities I see between philosophy and practice are in member responsibility and fields of membership.

Member Responsibility

A $20 requirement for deposit is hardly what I have in mind when I read principle #1. I think of an ongoing commitment. I almost think of chores. Would I join a financial institution that had a list of chores for me to do? I don’t know if I would. I do know that if I did, I’d make sure I did them, and I’d make sure the others in my cooperative were doing them as well. (That’s the way momma raised me!)

What would cooperative chores even look like? Maybe general meeting attendance. Maybe community involvement. Maybe completed training sessions. Would I consider the benefits of membership worth taking on these responsibilities? If I didn’t, would you really want me in your coop?

Fields of Membership

Now I can’t say geography is a bad place start with field of membership. It makes sense. It’s easier to coop with people you are geographically close to. But I believe this is rapidly changing. Our world is getting smaller and geography is becoming less and less relevant.

If fields aren’t based solely on geography, what could we base them on? It’s no secret that I am a fan of Tim McAlpine’s affinity model. I think this a great direction and I would love to coop with a group of like minded pseudonyms.

“But we’ve got laws and regulations!” Ok. I get that. Here’s some thoughts.

  • Create an “affinity charter” process. That’s right. CU Skeptic is talking about NCUA and Washington. This would give some oversight to the process, to ensure it does not infringe on discrimination, all while making a huge stride towards making credit unions more relevant.
  • Incorporate affinity into your community charter. Try satisfying NCUA’s “local community” requirement and then go the extra mile by throwing in some affinity. Which is a more community based institution: a cu that serves all of Los Angeles or one that serves the bloggers of that same area?

I have no idea if the above are feasible, but why shouldn’t they be?

Wrapping Up

So there you have it. My not so brief take on Voluntary Membership. What do you think? Feel free to comment, or if you respond on your own blog, leave a link in the comments so we can all keep up.