29 December 2009

What Should Keep You Up at Night in 2010

A guy named Steve has been a member of your credit union for 15 years. He was an upholsterer employed by one of your original SEGs until four months ago, when he (along with 200 of his co-workers) was laid off. While he never earned much while he was working, never maintained much more than a $400 balance in his checking account, and often cashed his check upon receipt, Steve opened (and paid as agreed on) no fewer than eight different loan accounts at your credit union over the years.

Although it's been a little rough, Steve's family has been able to scrape by on federal unemployment benefits and a thrifty lifestyle. Their savings and checking accounts have been completely depleted, but they are able to afford food, their $700/month mortgage, and necessary utilities.

Yesterday, Steve's widowed mother passed away. This wasn't really a surprise. She'd been very sick for years. Still, the loss couldn't have come at a worse time emotionally or financially. She had no assets to speak of and now Steve's family is left with trying to figure out how to pay for the funeral, travel expenses to her hometown 350 miles away, and not end up starving or out on the street.

They would sell their house, but they owe $150,000 on the mortgage and similar houses in the neighborhood have been selling for $115,000.

What should be keeping you up at night in 2010 isn't interchange legislation, corporate meltdowns, the Credit CARD Act, Reg Z, or a national credit union branding campaign. Instead, as a leader in the credit union movement what should be keeping you up in the coming year is how you can help Steve and his family get through this painful time. Maybe you do it with traditional services. Maybe you do it with new innovations. But you need to address this problem.

I worry about middle America. I worry about decades of over-spending, under-saving, and apathy concerning financial literacy. I worry about the lack of personal responsibility in our society. I worry about business models that are built on deceit. These are significant concerns that require significant resources if we have any hope of changing their courses for the better.

What I worry about most, however, is that these concerns will take precedence over Steve's. If you can help Steve, there are at least 15.4 million additional Americans that have been looking for a financial institution, and a conscience, like yours.

Is "character" still an important "C" of credit at your credit union? What will the reaction be as Steve sits across from your loan officer and asks for a $3,000 loan to make ends meet? Is the capital your credit union has grown over the years for your rainy days or your members' rainy days?


cammie morrow said...

Wow-what a great scenario to post-it really makes you think...

James Robert Lay said...

I just shared this at the office with an email and title "Why we do what we do...". Even though we don't work at a credit union, we so strongly believe in the same ideas that through working with credit unions we have as much of a responsibility to help credit unions connect and build relationships with their members. Thx for the great post Matt!

Denise Wymore said...

My husband is a CU CFO and what is keeping him up at night is the forecasted budget for next year - barely projecting any ROA and another Corporate assessment combined with rising health insurance costs, and yes, members getting laid off, so an increase in loan losses is a given.

You are so right. It's easy then to wrap your arms around what money the credit union has and get stingy with it. But it's not the CFO's money - it's the member's money. It's Steve's money.

The purpose of the credit union is simple:

Those that can save have an honest, interest bearing, safe place to put their money - sooo -
when those that have a real need to borrow, can - at a decent rate.

It's like borrowing from your friends and co-workers and family - only less awkward.

Character HAS to come into play if we are to survive - not just as a credit union - but as a nation.

Kelley Parks said...

Thank you, Matt. This should be required reading for anyone that works at a credit union.

Bryan said...

These stories are being told all over the US. And while we are seeing some US economic rebound on paper, it will not hit the consumer for some time to come. Bottom-line is that we need to be prepared for a prolonged period of uncertainty and many sleepless nights.

Talking advocacy is one thing, being an advocate is another. Agree with Kelley that this should be required reading. This is the time for credit unions to shine.

Paul D said...

I agree that character should come into play for financial institutions. Unfortunately, I believe your post contradicts itself. What about the "lack of personal responsibility" that you wrote of?

Denise seems to have hit the nail on the head with her comment. Are we really supposed to lend Steve, obviously living above his means, other members money?

Although it sounds well and good to assume Steve will payback his loans, it is not reasonable given his circumstance.

I hope readers take your post with a grain of salt. The last thing we need is reckless spending like the big banks have exhibited so eloquently over the last few decades.

Matt, the Credit Union Warrior said...

@Paul Steve's a member too. That capital the credit union has built up was made possible, in part, by him. You can't have it both ways. If it's members' money, it's members' money.

Your hostility towards Steve (and my post), warranted or not, overshadows the core question here: what is a credit union's role in this situation? Turn Steve away? Give him a loan? Innovate another way of serving this member?

I'd encourage you to read "The Poor Man's Prayer" by George Boyle about the life of Alphonse Desjardins. If you can't find it, I'll let you borrow my copy. By the end of the book I think you'll understand why I think the credit union's role is to do something, anything, to help Steve.

Elliott Kashner said...

@Paul and @Matt: The conflict here seems to be of how one views a credit union's responsibility to its members. Paul is coming from a holistic / institutional view, where the decision mechanisms that protect the institution best serve the membership in the long run. Matt is looking at the situation from an individualistic perspective, along the lines of "If a credit union cannot or does not meet the unique needs of its individual members, then what is the credit union difference?"

Definitely a conflict that gets at the root of what it means to be a credit union.

PSCU_Amy said...

No one can predict the future, we all want to think that our jobs are secure and that, like our grandparents and parents, we'll be able to keep a job over multiple decades before hitting a comfortable retirement. But times are not the same, and no one knows whether any of us will have a job next year, or even next week. "Steve" bears some of the responsiblity, yes, but he's only living the way he was taught to live. Our responsiblity isn't just to continue to loan money to the Steve's of the world, without regard to his future; but to help educate future Steves, and when we meet a Steve that has already hit a brick wall to work with him to get out of the hole he fell into. THAT is what MAKES us different. We are, after all, simply people helping people.
So Steve if you're out there and you're a member of our credit union...come on in, we've got your back.

gigi said...

Wow. What food for thought. I really didn't mind budgeting to break even next year because we are offering some cool new services....but I hope we do not forget Steve in the process. I'm sharing this post with our management team; we all need to be reminded who we are sometimes.

Thanks, Matt

Anonymous said...

Let's not dismiss Paul's comments out of hand. We can all empathize with Steve and we know darned well that, "but for the grace of God, there go I." Credit unions do give people like Steve a hand up every day. That's their purpose.

However, to say that the CU's capital is "Steve's money" may be doing a disservice to the other members. When we say, "It's the members' money," we mean ALL of the members. Not an individual member.

If it truly belonged to individual members to use any way they liked, we wouldn't have loan officers. We'd just put a box of money in the lobby labeled, "Take What You Need & Leave The Rest For Others." How long would that work?

We need to keep our compassion for Steve while managing the credit union for the good of all members.

Many of you won't like this, but where CUs are overly compassionate is with their employees. They keep unqualified, inefficient people on the payroll because it would be inconsiderate to fire anyone. It is this inefficiency that is the elephant in the room. Letting go of non-productive employees (or downsizing facilities, etc.) would provide more funds to take care of members like Steve.

After all, it is their money. Let's use it wisely. (Pardon me while I duck...)

gigi said...

This post reminds me of something Rudy Dill, past president of the Mississippi League told me about lending with compassion. When he was a loan officer for his credit union he made a loan for $100 (was a long time ago) to an expecting mother with no job. He said he knew he was going to charge it off when he made it, and of course the loan did get charged off. The rest of the story is that when this young woman got on her feet, she came back to the credit union, thanked Rudy for his kindness, and paid the loan back.

I love what we do.

Matt, the Credit Union Warrior said...

@Mark Thanks for your comment! You are exactly right. And THAT is what should keep us up at night. How do we help Steve, while being responsible stewards of the credit union's assets?

Responsibility in this regard goes well beyond a lending decision (which, I hope everyone will agree that I never once suggested that a loan to Steve should or should not be granted). Operational efficiency and wise business decisions are the hard work that needs to be put in to be able to afford to help people like Steve.

Make no mistake, though, we do have a duty to do something for Steve. If you want to talk about innovation in the credit union space...that's where your attention should be.

Carla said...

While I love what you are saying Matt and think it is a great reminder for credit unions, helping Steve really is a very complex issue. And, doing so would be counter to credit union principles too.

For conversation sake, I want to look at it from a different perspective. While it is heartbreaking when a family member dies, is it in Steve's best interest for the credit union to give him the $3,000? He is already stressed to keep his house, feed his family on his unemployment. Why compound his financial problems by putting him further in debt?

From a credit union standpoint, I have to agree with Elliott. It is a very complicated issue for credit unions to balance what they want to do for members and what they can actually do while protecting their membership in its entirety.

Definitely an interesting discussion!

Denise Wymore said...

This is awesome! I shared this post with my CFO husband who is seriously finalizing his credit union's 2010 budget today and he basically said "We have budgeted for the Steve's."

BUT - and there's always a but - or a big elephant in the room....

Credit Unions were chartered to promote thrift and make loans for provident and productive purposes only. 100 years ago that was declared. Our purpose clearly defined. Our differentiator if you will.

We failed miserably in our mission. If we had stayed true to those values, our economy wouldn't be in the shape it's in. Because most of us began to promote debt instead of thrift. Courtesy pay, payday lending, c'mon! And when I hear CU CEOs say "Well, people are going to get those bad loans anyway - we might was well give them one that doesn't suck as much." Not promoting thrift.

PSCU Amy is spot on. We enabled the Steves to some degree.

As Kelley Parks so eloquently said in her Roast & Toasts radio broadcast on Monday (www.cuwatercooler.com) "Thrift is the new black." Suddenly it's vogue again.

You can't become a virgin again after you've been a slut. But you can repent, beg for forgiveness and live a better life.

Credit unions don't have values - people do. How you manage your members' money in 2010 will speak volumes about what you value.

Anonymous said...

And in managing your member's money in 2010, maybe you should not loan Steve anything because it might not be the right thing to do with your member's money...

I once heard a saying that God answers all prays...and sometimes the answer is NO.

As much as we want to help, and as much as it is our mission to help, we may not be ABLE to help Steve.

The thing is...did we think of EVERY possible way to help Steve before we have to say NO.
That is our duty to Steve and to all our members, and to the CU as a whole. And that is what should set us apart from other financial insitutions.

And if you did try EVERYTHING, and did YOUR BEST to help...then I think you should be able to sleep at night.

Dan Emery said...

This story has so many "what ifs" in it that it could be argued all day.

What if Steve had set himself up better financially instead of over extending himself with a mortgage he couldn't afford?

If it was obvious that his mother was going to pass away, why didn't he find insurance or start saving for these expenses?

Is he currently looking to find work at one or more jobs and doing all he can do make sure this doesn't happen again?

If he can't find a job, can he use the skills he has to become temorarily self-employed. (As is the case with a lacking economy)

Can he sell other belongings to pay for these expenses?

While the situation is unfortunate, he made the choices that put him in this position. We can't give money to every sad story out there... there are just WAY TOO MANY.

On the other hand... I think we, as a culture, put too much emphasis on money instead of value.

Money is not the end all, be all goal of life. It is a tool we've made up to even the playing field of our abilities, wants and needs.

What truly matters is the character of the person. We all make poor choices... we all have bad things happen to us. It's what we decide to do once we take responsibility for our actions and do all we can not to repeat that same mistake twice.

Is Steve the kind of person who will bend over backwards to make good on this loan?

Or, will he take this money and go right back to his old habits?

Clay Yearsley said...

What would our NCUA or State Examiners think of the loan we made Steve? Make too many of those that go bad and NCUA takes up permanent residence in your CU.

If the examiners believed what's in your post, and acted accordingly, then it would be easy to get CUs to buy in.

Frank Evans said...

I must have missed the part in the story that indicated to Paul that Steve was "obviously living above his means". I read that Steve was paying his mortgage, paying his bills, and was disciplined enough to stay afloat on unemployment since the layoff. He's laid off and may need $3,000 to bury his mother, and that translates to "obviously living above his means"? Wow. Senator Bunning called... he wants his talking points back.