Mission Creep? Credit Unions Recognize that Times Have Changed

by: Henry Meier, Associate General Counsel, Credit Union Association of New York

Since their inception  credit unions  have been charged with   the noble goal of helping Americans, including those of modest means,  pool together their resources to, build save and invest towards a better future.  Unfortunately for decades now the industry has been tethered to increasingly outdated laws and regulations to achieve this objective.  Unless Congress is willing to start giving us the tools we need to provide needed services to people in a new century, we will become increasingly unable to provide a useful alternative to conventional banking.

Do you think this is an exaggeration?  Virtually every major legal and political battle we have fought for more than a decade has been to protect the powers we were given rather than to expand the ones we have.  For example, In the UBIT litigation state charters had to go to take the IRS to court and show that the services they provide are  consistent with the Massachusetts Attorney General’s conception of credit union powers in 1917.

Our greatest legislative achievement was the Credit Union Membership Access Act in 1998 but even that was necessitated by a Supreme Court ruling restricting the power of credit unions to include multiple common bonds in their membership. Fearful of lawsuits credit unions are laboring under restrictive regulations making expansion into new areas challenging at best.  And of course we are fighting to get a cap raised where none existed for business loans until 1998 and banks are actually arguing that our efforts represent an example of “mission creep.”

Ah, the mission creep argument.  If by mission creep banks mean that credit unions recognize that times have changed and that we have to change with them, the banks are absolutely correct.  A few statistics summarized in The Atlantic will prove the point.

In 1900, one quarter of American households had running water; families spent 80% of their income on food, clothing and housing; and the core of the country was comprised of farmers.

By 1950, the percentage of Americans dedicated to farming shrunk from 40% to 10%.  Manufacturing was king.  Food was cheaper and factory wages increased seven fold since 1900, meaning that Americans had a lot more money to spend on entertainment.

By 2003, food ate up about 13% of the average American’s budget and housing about 33%.  In addition, the percentage of two income families had skyrocketed, meaning that women had the financial means to be more independent than ever before.  In short, the country is richer and has a much more sophisticated and diverse economy, which has enabled more Americans to own homes, put their kids through college and even start a small business  on a scale inconceivable to those who started the credit union movement.  Bottom Line: America is a richer better educated country than it was when the credit union movement started with a more diverse economy than could have ever been conceived of.  Of course credit unions are going to change to meet these needs and for some credit unions this means growing larger to meet member demand.

Does this mean that there really is no need for credit unions? Of course not.  The grandchildren of immigrants are now fighting harder than ever to stay in the middle class as wages flatten.  For the first time in our nation’s history, it is not a foregone conclusion that our children will be more prosperous than us.  And, by the way, the disparity between rich and poor is growing again.

A bank in Florida is actually offering a luxury car to persons who deposit $1 million in a certificate of deposit.   Yet millions of Americans remain un-banked.  In fact, major banking institutions are actually designing products specifically designed to keep them this way.

Since 1934, banks have successfully argued for the repeal of Glass-Seagull, which put a firewall between commercial and investment banking; deregulated interest rates; and greatly expanded interstate banking.  Many of these changes are worthwhile and they were all debated on the merits.  Can you imagine how foolish any industry would look if it pointed to the National Bank Act of 1864 to argue against any of these reforms?

Times change and so must banks; the same is true for credit unions.  Just as we should remain committed to our core mission, we should also be unabashedly proud of and vocal in support of  the need to change the means that we use to accomplish these goals. Community banks like to argue that credit unions threaten their future.  In fact it is the future of the credit union movement that is at stake every time a congress refuses to give us any more authority than would have been considered appropriate by Congress or a state legislatures in the first decades of the 20th century.

Henry Meier, Associate General Counsel, Credit Union Association of New York
As associate general counsel for the Credit Union Association of New York, Henry is actively involved in all legislative, regulatory and legal issues impacting New York credit unions.  Whether he’s joining in the Association’s advocacy efforts, lending his legal expertise to the Association and its affiliate companies or arguing before the New York State Appellate Division, his voice is unique and influential. Before joining the Association in 2006, Henry served as a counsel to the New York State Assembly Republican Conference for seven years. Henry is a graduate of American University in Washington, D.C., and Hofstra University’s School of Law in New York.  New York’s State of Mind Blog  www.cuany.org