Credit Union Geek

Marketing, Strategy, and The Force by Joe Winn

Tag: lobbying (page 1 of 2)

It’s About The Members, Remember? (Payday Lending)

Update 8/31/18: A reader graciously made me aware of an NCUA program empowering credit unions to provide payday lending alternatives. It is used by a bit over 500 credit unions and discussion is invited from institutions on how to evolve it in the future. See more direct from NCUA. Looks like a great opportunity to keep your members out of the payday lending debt cycle.

Originally published on CUInsight.com

This post is a continuation of “Your Mission Demands It“.  We’re focusing on payday lending and how its very existence should sadden all credit union supporters.

Your credit union members are everything to the institution.  Literally.  Without them, you’re not a credit union.  You’re a credit.  With no credit.  So I think it is important to bring to light the topics which are affecting members that others might have missed.  And then, how you can help fulfill your mission…you know, serving your members (even those who may not yet have a credit union relationship)!

Today, let’s have a little talk about payday lenders.  For many people in this country, they’re the closest thing they have to a bank.  Of course, you know the cost of such an arrangement. Or maybe not.  Spoiler: It’s substantial.  Some users understand this, unfortunately, they don’t have much of a choice, or they prefer the instant exchange of check for cash. It’s a big industry, with $38.5 billion in volume in 2009 (yeah, I know, I couldn’t find a newer figure…assistance?). As of 2017, the industry collects $9 Billion (that’s billion with a B) in fees each year.  What does your credit union charge for depositing a check? And for cashing it? Not a gazillion dollars?  That’s what I thought.

Needless to say, payday lenders are commonplace for people without financial security. You read studies which mention them as living paycheck-to-paycheck. This means all their necessities are paid in the moment, and they hardly ever get ahead of debts. Remember how I’ve said it’s expensive to be poor? Payday lenders provide the service of speed. When rent, electric, water, and car payments are all due, while the refrigerator and pantry are both empty, money from one check buys another week/month of security. Getting that money as quickly as possible is essential. At that point, giving up some in the form of interest rates or fees is a small price to pay to keep the water running. Not surprisingly, usage of payday lenders is rare for those with more financial security. If you have disposable income and savings, and a place your money can reside, why pay someone else massive interest rates to get only some of it in cash?

A person who goes to payday lenders is likely to use them repeatedly. The average is 8-10 transactions per year, where 80% of them are re-borrowed within a month, with 25% building fees greater than what they received in credit. These can be at over 900% APR. What’s your ceiling unsecured loan rate? Anyway, this isn’t illegal. Well, it is for members of the military, as Congress banned them (for being too financially dangerous) during the George W. Bush years. But for everyone else, all’s good here. And these companies aren’t considered predatory lenders. But not for the reasons you may think.

Remember the CFPB? While under the leadership of Richard Cordray (pre-2017), they looked at payday lenders to better understand if this rapidly growing industry was harming its customers. In October of 2017, they released a rule to help people avoid falling into payday lender debt traps. It required lenders to determine upfront whether people could afford to repay their loans. Along with a number of other consumer-safety focused policies, it took 5 years to develop, using insights from more than 1 million public comments.

For the unbanked, it was good policy. In the case of consumers who truly needed this service, it presented an enormous opportunity for credit unions to step in and offer fair services for these people. But 2017 came around and Cordray was out and Mick Mulvaney was in. This rule was immediately scrapped. Entirely unrelated, Mulvaney took over $60,000 in campaign contributions from payday lenders. He also dropped an investigation into one of the largest payday lenders that had been ongoing within CFPB for years before his entry. They also were Mulvaney campaign contributors.

Insulated from investigation or regulation, the payday lending industry is booming. Which means more people who can’t afford to pay are now paying outrageous fees to access their money. They’re just like the credit union movement, except without all of the core principles.

So, in pursuit of their missions, credit unions have been quick to speak out in support of the unbanked and the prior efforts of the CFPB, right?

Oh, you don’t hear anything, either?

I have heard a lot of grumbling over CFPB regulatory compliance challenges. And you’re right, most credit unions should not be subjected to the same regulatory burden as JP Morgan Chase. But where is the speaking out for people whose lives are dictated by the debt they accumulate with these payday lenders?

Credit unions can be an enormous voice for “the little guy”. Besides it being the right thing, people who use payday lending are probably enormously profitable potential members of your credit union. And you’ll never hit them with 900% APR.

Your Mission Demands It

Originally published on CUInsight.com

Why does your credit union exist?

Go ahead and think about it for a moment. I’ll wait.

Is it to provide safe storage and management of your members’ money? To help those in troubled financial situations? Maybe it’s to create a community of similarly-employed citizens.

Whatever your reason, it should matter. If your purpose for existence is just another version of Wells Fargo’s mission, then why even bother? (For reference, this is their vision statement: We want to satisfy our customers’ financial needs and help them succeed financially.)

So what makes your credit union different? This seems to get lost in the day-to-day of marketing pushes, car sales, core conversions, and more. It’s a question only you can answer.

Here’s an idea:
We exist to provide top-of-class financial services, education, while offering a unified voice in support of our members’ best interests. 

You probably aim to achieve the first two parts today. Ask yourself: How are your financial services? Would you bank there? Even better, would you encourage friends and family to do so? (Then why aren’t you referring them?!) Financial education is crucial to every member, yet few have the knowledge needed to maximize their savings potential. I’m sure you do what you can to help educate them, right?

And then there’s the last part: “Offering a unified voice in support of our members’ best interests”. This is where it gets fun.

Ask a credit union or industry trade group to support the tax exemption and you get cheers all around. They’ll “hike the hill” 5000 strong to demand “common-sense regulation” that reduces the time and financial burdens on credit unions large and small (but primarily the latter). If you are fighting for survival, then you’re automatically fighting for your members, right?

Not. Even. Close.

I support the tax exemption for credit unions. I also agree treating the vast majority legislatively the same as a national bank is unnecessary. Theresa in compliance cannot possibly provide the same level of, well, anything, that the 200-person team at Bank of America can (and should) offer. Of course, we’re getting sidetracked. I said, “members’ best interests”, not credit unions’. And it’s where we are doing a disservice to 1/3 of Americans.

The next few posts will dive into, issue by issue, areas where credit unions have a responsibility to speak out in support of their members. You’ve already seen my take on Net Neutrality (and my interview in CUtoday; many thanks to them for the focus!). Next up: The allure of Free. Then payday lending. And taxes. With a dash of de-regulation for extra flavor. Because what you don’t have to do can still hurt your members.

Credit unions and their lobbyists love to talk about how they are representing a large portion of America. It’s about time they use their voice to improve peoples’ lives.

Why Credit Unions Must Stand Up Against “Alternative Facts”

Originally published on CUInsight.com

Facts are facts. If you hear any qualifier in front of that word, they’re trying to mislead you in some way. “Alternative facts” is just the latest effort. Just because the “legitimized lying” you see now does not yet affect you doesn’t mean it won’t.

Politics and daily life intersect often, moreso within a highly-regulated industry. Any of you who attended the GAC have firsthand understanding. How you are perceived is often more important than the actual realities of a situation. If nothing else, dealing with a perception problem slows down the addressing of real issues. Imagine if one or more big banks decided, “you know, we should wipe credit unions off the map” and put together a PR/lobbying campaign with the below “alternative facts”. Think about who has the largest lobbying budget. Is it your credit union?

  • Credit unions are havens for money-laundering. Plenty of people have said it.
  • Did you know: Credit unions pay their board members the money they claim goes back to you in dividends. #notforYOURprofit
  • Some studies claim that credit unions charge lower and fewer fees. But the research is not settled. It appears to be an NCUA hoax. Many credit unions collude to perpetuate the lie. In fact, banks are always the better price option. Take a look at our “study”.

How would you as an industry respond? Or individually? Could you ignore it? No. But it’s so outlandish that some people will raise questions. Even the suggestion of such activities in the media taints all credit unions. And now you’re responding on their (made-up) topic, instead of pursuing your own mission. If it were a boxing match, you’d be the one against the ropes, even though you’re just in town for the comedy shows. How did you even end up there?

I’m sure none of you reading this would consider the other possible angle, but, what if the credit union was the instigator? Poor members. Imagine this:

You close a loan on your dream ride for 3.49%. When you receive the first statement, it declares at 5.49%. When you present the contract, they ignore you, hang up, or ask you to leave. Knowing it’s illegal, you try to speak to a consumer protection agency. Your credit union threatens to report you to collection agencies and flag you at the credit bureaus. You know you’d eventually win, but are years of credit challenges worth it?

Or another situation:

You see an unauthorized charge on your account, so you call to dispute. They claim their fraud-detection finds every occurrence, and it didn’t trigger on that one. Therefore, it is obviously not fraud. After not getting anywhere, you decide to complain on social media. They issue a gag order against you, then sue you for slander.

The latter examples are far less likely. But think about how you’ve felt when you know you’re being railroaded by a company. Powerless? Questioning if you’re actually right? Yeah, you’d never suggest becoming a credit union member ever again.

For the more likely of these scenarios, credit unions are the underdogs, and thus are vulnerable to well-funded smear campaigns. But, this all seems too extreme. No way it could happen. Right? Right?

Legitimized lying hurts everyone. We need to stand up against it in all forms.

Image credit: Pinocchio, Disney

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