The Jim Blaine Marathon: On mergers, banks, and member owners

Have credit unions moved from being shepherds to being wolves?  Is there any point to merging two healthy credit unions? Do credit unions really differ from banks? Is member ownership a hoax?

Buckle up because Jim Blaine, in a wide ranging marathon interview, took on those topics and plenty more.  He talked freely, passionately about an industry he loves and now it is an industry he worries about.

Who better to have such thoughts?  Blaine has to be poster child for credit union leadership excellence in the post war era. At 30 he took over as CEO of the $300 million State Employees’ Credit Union in North Carolina.  That was 1979. Come 2016 and he retired. SECU had grown to $33 billion – and it had 256 branches and 5800 employees. It could – and it did – thumb its nose at neighboring Bank of America and those who have followed Blaine’s career know he has not backed off from rumbles with NCUA, CUNA and others.

Blaine starts out by questioning the wave of mergers that is now rocking the world of credit unions. Why not just liquidate the institution and give every member $1000?

Blaine says very plainly that there is no good purpose served by these mergers.

He added that in his many years at SECU, never once did a member come in and ask, what’s your assets today?  Members do not care. They do care about car loan rates, NSF fees, how long it takes to approve a mortgage app. But they do not care about assets.

Blaine, by the way, is not exactly for credit unions liquidating.   In fact he denounces the loss of a few hundred credit union charters yearly where a couple hundred charters evaporate every year. “It’s very, very hard to charter a new credit union,” said Blaine.

So why not let a visionary group that wants to open a new credit union buy that charter and fast track the opening process? An endurance race that typically takes many years could be shortened to a matter of months. And the credit union industry would get stronger.

What Blaine also is doing in his denouncing of mergers of healthy institutions is highlighting a reality that, typically, those mergers accomplish just about nothing. The resulting institution, a bit bigger, is in fact no more competitive. And there typically are no new efficiencies.

Blaine also worries about the loss of local institutions, where in many credit unions nowadays all decisions – including the trivial – get made at corporate HQ.

Credit unions, he adds, are in many cases no longer serving local interests – they are serving the institution’s self interest and they also are increasingly given their orders by distant masters as control shifts from local branch managers to corporate policies. In some cases, Blaine insists, a branch manager does not even have the authority to reverse an NSF fee.  

That’s sad.

It’s also a bleak comment on the vitality of local credit unions.  “Standardization kill creativity,” Blaine pronounces.

He also noted, with considerable discontent, that the major credit union trade associations appear to have forgotten the credit union mission to help the working man and working woman prosper in a world populated with financial sharks. In that regard he pointed, for example, at the trades urging CFPB to pull back protections against payday lenders.

“That’s the wrong message for credit unions to be sending. It may become life threatening. They do look like banks,” said Blaine.

Is there in fact a future for credit unions?

Maybe. Maybe not.  Blaine highlights a strategy for keeping credit unions relevant. But he frets that many may not heed the message.

As shepherds, Blaine says, credit unions have an obligation to tell members what they need, not what they want – and also not what the institution wants to sell. Maybe what’s best for the member is spending $500 on car repairs rather than $30,000 on a new car. “You have an obligation to a member owner that isn’t their to a bank’s client,” said Blaine.

But how many credit unions still see that counsel as their role?

“Credit unions are a social movement,” said Blaine.

But much of this, said Blaine, is getting lost and he sees that as terrible.

Listen up to the full Blaine podcast here. It runs around an hour.