Collective action is a powerful means for people to solve problems that they cannot solve on their own. When credit unions were first formed, ordinary people and small businesses could not access reasonably priced credit so they solved the problem by forming the financial services co-ops we call credit unions. The idea was innovative, simple and effective. There was enthusiasm for the cause. It was an “us against the world” spirit. It was a movement. It was great collaborative mojo. It was the same spirit that created other co-ops such as the farm co-ops that efficiently and effectively connected small farmers to consumers.
The world has changed. Credit unions are no longer needed for ordinary folks to access reasonably priced credit. There are many financial service options for consumers and small businesses, some of which are more convenient and less expensive than credit unions. While the cooperative business model is still important for credit unions to remain member focused, the typical member views their credit union as a small bank. People just want convenience and a better deal. Many members still love their credit unions for the services provided but there is little appreciation or passion for the “people helping people” aspect of credit unions.
However, in the CUSO world, the passion for the cooperative model is alive and kicking. Credit unions need to use CUSOs for their very survival. A CUSO is held accountable by the credit union owners because the CUSO’s performance is critical to them. Through lowering operating costs and generating non-interest income for credit unions, CUSOs contribute much needed net income to the bottom lines of credit unions. There is an “us against the world” spirit and urgency that drives the need to innovate through CUSOs. Credit unions are recapturing the passion, power and mojo of collaboration through CUSOs. It is a challenging but exciting time to be working in credit unions. The upside potential of an innovative and interconnected credit union industry is extraordinary.
At the core of co-ops is the freedom to organize and innovate; to create solutions that no other type of service provider can offer. No other service provider model so perfectly aligns the user and owner. Yes, safety and soundness concerns have to provide a regulatory framework around particular services but excessive regulation kills the spirit and cripples the benefits of co-ops.
Innovation works best in an environment that tolerates some failure as a part of the innovation process. Edison failed many times before he found the right material for the filament in light bulbs. Regulation discourages new ideas and risk taking. We should give thanks that we have a small regulation free zone (just 22 basis points of industry assets) to experiment with new solutions to old problems. This regulation free zone breathes much needed vitality and energy into credit unions. The direct regulation of CUSOs would be a terrible mistake.
The influence of regulators cannot be underestimated. If credit union regulators embrace and encourage the collaborative efforts of credit unions to respond to today’s economic challenges, credit unions will enjoy a renaissance. Credit unions are different from banks and need to be regulated differently than banks to preserve the collaborative power of credit unions.
Credit unions have the potential to re-invent the credit union model for success in the 21st Century with the same tools that gave birth to the movement. Let us not forsake our heritage and the spirit that created credit unions. It is the same spirit that will save credit unions, if we have the courage to trust it.