Difficult Times at Our Credit Union
blog.archive.org
blog.archive.org
What's stopping credit unions from being competitive against traditional banks are the regulatory hurdles. For instance, all credit unions' members must have some common affiliation, such as a small geographic area, or a common employer or alma mater. So you can't just create a credit union that competes with the likes of Capital One 360 or other online banks, even though it would be beneficial for that to happen, because the law says it can't be open to just anyone.
Although credit unions are perhaps the most successful and widespread example of cooperative businesses in the U.S., we Americans have not really embraced cooperatives, and that's a shame. Look at the U.K., where one of the most popular grocery chains is a co-op, or at Mondragon in Spain. Wouldn't it be awesome to have something like Walmart, but entirely member-owned? Instead of all those profits going to a relatively few wealthy shareholders, they'd go back to the members in the form of lower prices.
Technology has made it easier to gather like-minded people to start cooperatives. I would love to see a Kickstarter-like service take it to the next level.
That said, it's hard for a cooperatively structured to be nimble and the bureaucracy and internal politics are legendary.
Their parent groups also runs a bank, electrical retailer, funeral directors, travel agents and solicitors.
The archive.org is an important project. This dude seems like a genuinely nice guy who's trying to go out of his way to help the little guy. In fact, I try to bank exclusively with the little guy (check my posting history re: that schpeal). "Mr. Modell and Mr. Kahle said the red flags raised by the N.C.U.A. examiners had been over small discrepancies and record-keeping issues — and often turned out to be factually wrong." I'm going to guess their risk analysis procedure just flagged his institution with 'red flags' as such: "new financial institution, potential violations here, here, and there." Those small discrepancies are important. You're a monetary institition in charge of what's often the only safety net someone has. Even if the 'small discrepancies' were minor, the risk analysis software seemed to do a good job because they caught the oversight. Small or not, I'd be upset if my interest bearing account wasn't paid to the cent, because it would shatter my trust. Their job is to move money around on time and with a very high degree of regulated precision. (In this hypothetical case, of course) the institution failed to comply with are admittedly sometimes onorous minutia.
On a more positive note, you Silicon Valley buds should all group together and open a credit union. I wasn't joking when I said the initial expense is around 100k followed by a few ten k each year. Here[1] you can do it for 50k if you're effectively online only. Credit is so cheap right now, assuming you can issue out mortgages in the fractional method banks can do (e.g., hold a dollar for every ~10 (or around abouts) you lend out in traditionally safe paper like mortgages), it wouldn't take much for you guys to save a _ton_ of money by charging 0% overhead minus the opex of the CU itself.
Also, re: the 'commonality' it can be anything really. Most famously you have any former member of the US armed forces, their spouses, and their ROOMMATES (if they're active duty IIRC) can join. Its been a long time since I looked at the specifics but the 'common ground' you share can be very vague like "yeah we all hold HAM radio licenses" would be a genuine justification.
[1] http://www.ncua.gov/Resources/Documents/CUDev/AcrobatDocumen..., page 7.
Banks don't charge outrageous surcharges and fees to be evil. They do it because providing banking services, especially to small accounts is expensive. In 2011 an average checking account cost $349 for a bank to maintain [0]. Anytime there is an attempt at more transparent pricing or discouraging small customers there is a huge backlash for the public and regulatory bodies like financial protection bureau. Bank of America tried charging a $5 monthly debit fee for accounts less than $5k, 2011 only to drop it shortly after hundreds of thousands of petitions came in opposing the idea. Thr consumer protection agencies would have probably shut that down anyway by fiat.
I understand why a credit union is appealing to some but I personally don't care whether my services are provided by a for profit company. I give my business to the organization that can provide me the best value. Walmart shareholders can keep their 5% pretax margin.
[0] http://www.americanbanker.com/issues/176_238/checking-accoun...
Edit: I get it, it appears as though I'm defending the big banks. I just think an explanation as to the high fees is better than blind populist response of claiming the banks are somehow evil. Or the response that any organization that earns a profit is evil.
From the article:
"The single biggest cost, Israel says, is the cost of bank branches and ATMs. Another 20% is spent on back-office functions, including maintaining call centers and payment operations."
It seems like this is all about bad workflows and customer service... which are technical issues, not inherent business needs. There are probably technical solutions to these problems that would drive the cost per customer down dramatically. Perhaps going forward, there will be more incentive to innovate on this front.
...or maybe there's enough regulation out there that it doesn't really matter.
Banks charge fees because they seek to maximise profits. Those fees don't have to relate closely to costs. I'm not saying this is good or bad, just that it is so.
I guess you can call those fixed costs. No mention of executive salaries, maybe product development? If they were just fixed costs, and banks were making money off small accounts, why are they discouraging them so much with minimum balances and fees? I cancelled a small account recently and the bank seemed happy to let me go. Not even a question of why I was leaving.
From the article you linked: "Overhead costs, including executive salaries along with security and compliance expenses, also account for about 20% of the costs."
I'm not saying that the marginal cost of maintaining an additional account is zero. I'm just saying it's closer to zero than it is to $349/year.
Yes they do. It's very common for commercial banks to intentionally order transactions which cause an overage such that they result in the highest amount of fees possible, and then charge an extra fee because you couldn't cover the overage fee.
If this were simply banks trying to be profitable, why wouldn't they simply raise overage fees and charge them predictably? Is there a regulation which disallows this?
Sorry, I'll stick with keeping my money with an institution that's not legally bound to engage in an adversarial relationship with me.
The fact is, as long as the financial system controls the political system, regulation will favor the banks. The only way for this system to be fixed starts at the ballot box.
The Finance minister basically rubber stamped it.
http://www.dutchnews.nl/news/archives/2015/11/dijsselbloem-u...
If you can make the argument that specific regulations offer no benefit other than to protect larger businesses that's one thing. But "It's hard" isn't convincing enough to me.
A credit union doesn't have "profits" because it is tax-exempt. Like banks they can, and do, run surpluses, which they return to members in the form of above-market interest rates on deposits or as dividends. If they lost tax-exempt status, they would have to pay taxes on the surplus before returning it to members, like banks do on profits before returning it to shareholders.
Interest paid is tax deductible for banks, and dividends paid to demand deposit accounts (the way most credit unions distribute them) are deductible for mutual savings banks (the banks most similar credit unions without tax exempt status), so this tax treatment isn't as special as it seems.
Where are you going to find politicians to vote for who cannot be influenced by money? Not on your ballot, because the one-party-with-two-wings has effectively made it illegal to run a campaign as an alternative. Greens and Libertarians are kept from the debates, kept from the ballot with restrictive measures, and certainly aren't owning the machines that "count" the ballots and determine the elections. (The election fraud from 2000 has never gone away, it just stopped being headline news. It happens in a recent past political election one of the presidential candidates called my house on election night to report their observance of the fraud- in some cases the absolute number of votes they got went down as more votes were counted. A mathematical impossibility.)
I refuse to give up on democracy, just as I refuse to give up on America.
That's the fundamental difference which means that you can't simply go to the ballot box to fix something. You can go to the ballot box to support people who you believe share your values. Sometimes it works, oftentimes it doesn't.
Unfortunately, it's unlikely that the USA will ever become a real democracy, so we have to make the best of the system we currently have.
The US (by Constitutional form) is both a (representative) democracy and a (federal, and democratic) republic.
> Unfortunately, it's unlikely that the USA will ever become a real democracy
You seem to be using "real democracy" to mean "direct democracy", buy direct democracy is no more real than representative democracy. (And there's a good case to be made that the problems the US has with being an effective democracy are curable while remaining a representative democracy, and that the problems lie largely in the particular electoral system.)
Would? No such calculation is necessary because banks are a state-maintained cartel everywhere - the opportunity for fleecing the masses with those sneaky & outrageous charges is just too delightful to pass up.
If people actually had a cheaper and better alternative, no one would keep paying those outrageous charges, and that's why the credit union 'had to be' "regulated"[1] to death.
Ever wonder why all banks charge roughly the same fees?
[1] "Regulation" is quite a double-speakey word. If you regulate an electric current, you make sure it isn't too strong, and that's where the word gets its positive connotation.
But when a government "regulates" anything, it's basically just coercion. "No, you can't offer people this beneficial service. You can't charge less for transfers. You can't give your customers debit cards" and so on.
> The only way for this system to be fixed starts at the ballot box.
Do you think politicians all over the world don't know that every single person on earth would rather not get fleeced with outrageous fees?
They all do, of course, and as evidenced by banks still raping us six ways from Sunday, they don't care.
Take any societal problem you see. Is there real evidence to show that they care? Whatever they tell you to get elected doesn't count, by the way. How often do politicians keep their promises?
Why would you think the solution to any problem would start at the ballot box?
You see things getting worse each year..
So do you not understand that voting doesn't actually solve anything?
Obviously, winning people over into participating in a pointless ritual doesn't help either, nor do the bribes a politician takes to fund the publicity necessary to win people over by lying to them.
Think about it.
2. Banks charge roughly the same fees for the same reason grocery stores charge roughly the same prices - competition.
3. Coercion is a straw man when considering government activity. Anything you don't like becomes coercive. I don't like that my roommate wakes up before me and disturbs my sleep - coercion! I like having subsidized education but not paying taxes - coercion! I like feeling safe with protected borders and the greatest fighting force ever assembled but not paying taxes or protecting people who don't look like me - coercion!
4. There is never a single solution, no silver bullet to resolve complex societal problems. I sympathize a bit with you here - what is the point of progressive reform when the system will adapt? Nothing structural will change, but will only shift. But at the same time, shouting down calls for representative change serve nobody either.
I also resent your use of 'rape' in that context.
That wasn't my claim. I said banks are a state-maintained cartel everywhere, and that implies preventing competition.
One way to prevent competition is to make sure the cartel banks can't fail. It's difficult to compete with a business that gets handed unlimited amounts of other people's money when it's about to go bankrupt.
> Banks charge roughly the same fees for the same reason grocery stores charge roughly the same prices - competition.
Do you sincerely think banks couldn't charge less for their services? :) Because that's what it would take for competition to have resulted in the current price level, as anyone on HN should be able to understand.
I'll stop here now because I suspect you're not being honest.
I don't recall what drove the transformation, but It wouldn't be surprising if those who made the decisions had some upside from either their current or future compensation packages.
Americans have no one to blame but themselves. When I tell people they should divest their savings from BoA, a bank which was directly responsible for massive fraud that caused the housing bubble, they look at me blank eyed and move on. These people have power because we gave it to them.
This used to be quite easy to do, since you didn't have direct payroll deposit and never had to worry about covering more than your outstanding checks.
Now, with all kinds of automatic transactions most people have, you have to coordinate things a bit more carefully.
I really hope this isn't the reason large banks have power (inconvenience of switching). With a whimper...
Meanwhile, Chase has a nice Android app which gives me instant information about all my transactions. They detect fraudulent transactions immediately. Auto-Pay for bills. Convenience and security wins.
Since this is all anecdotal experience: there was a period of time between jobs when they sneakily charged me $5 per month when I did not make a deposit in my checking account. So I do see the evil aspect is there.
But point being, bigger credit unions are generally a bit more smooth at the edges.
Read up on https://en.wikipedia.org/wiki/Hugh_McColl , the Genghis Khan of the US banking industry.
That's the problem for a lot of people.
Once a member, always a member.
EDIT: I think I misunderstood your point. If you're talking about being close to a branch or whatever, then that's also not necessarily a concern. The closest branch for my CU is 350 miles away. But the Co-op network and the website together cover 100% of my needs.
We don't have non-profits deliver most services because they wouldn't be efficient and/or couldn't raise capital from investors. And once investor come in, their profits are taxed. But there's nothing that in-principally stops a charitable organization from opening a non-profit car repair shop which runs with no net profit.
If, for whatever reason, it's feasible for non-profit banks to get started and operate successfully, why would we not allow them? (Please put "because the legislators are bought-off"-type arguments aside. What are the reasons people give?)
Are grocery co-ops limited in membership?
EDIT: So I'm reading through your link above. They mention the obvious way that nominally for-profit corporations could run at zero-profit by returning all excess funds in the form of interest to depositors:
> In contrast, mutual corporations are owned by their depositors, and the equity of a mutual corporation is derived solely from retained earnings. Because depositors are the owners, payments to depositors can include both interest and an equity return to depositors in their role as owners. While depository institutions are generally permitted to deduct interest paid on deposits, mutual thrifts are also allowed a deduction for amounts paid or credited to their depositors as dividends on their accounts, including amounts that represent an equity return, if such amounts may be withdrawn on demand subject only to customary notice of intention to withdraw.
Why don't credit unions just become non-profit and do this?
There can be. If you mean, why can't there be "tax-exempt non-profit banks", the reason is because the tax code doesn't allow it (though no-capital-stock member-owned banks seem to be effectively untaxed, except on transactions subsidized by federal assistance to such banks, if they actually distribute their operating surplus to demand deposit accounts of the members.)
> We don't have non-profits deliver most services because they wouldn't be efficient and/or couldn't raise capital from investors.
If you are referring to "tax exempt non-profits", we don't have them deliver most services because there are limited categories in tax law of tax-exempt non-profits.
Maybe here's another way to formulate my question: why can't a credit union operate as a for-profit bank, but just structure their company so that it's committed to never earning a profit and hence never paying much taxes? (It's perfectly legal for corporations to pursue ends besides maximizing shareholder value, so long as they are publicly disclosed, popular misconceptions notwithstanding.) In other words, why do credit unions bother to satisfy the legal requirements of being credit unions?
Tax-exempt non-profits are a subset of organizations not organized for profit. To be tax-exempt, an organization must not only be not-organized-for-profit, it must also meet the qualifications of one of an enumerated list of categories of tax-exempt non-profits in the Internal Revenue Code.
> Maybe here's another way to formulate my question: why can't a credit union operate as a for-profit bank
Because then it would be a "bank" and not a "credit union".
> but just structure their company so that it's committed to never earning a profit and hence never paying much taxes?
An organization structured like that is a mutual savings bank; as the return of surpluses via demand accounts (the same way a credit union typically returns surpluses) is tax deductible for them, as discussed upthread, it is quite possible to have a bank (rather than a credit union) that returns surpluses to members like a credit union and is effectively untaxed (it looks like a mutual savings bank that didn't retain surplus profits would be untaxed except on things for which it received federal subsidies as a mutual savings bank.)
> Why do credit unions bother to satisfy the legal requirements of being credit unions?
Because the legal requirements for starting a bank are pretty hard, too (whether legitimately to protect people from bad banks, or as protectionism through regulatory capture by incumbents, whatever, the barriers are there), so while the rules are slightly different for credit unions, you don't actually make your job easier by trying to start a bank-to-operate-like-a-credit-union.
> Because the legal requirements for starting a bank are pretty hard, too
So then the point of being a credit union, ultimately, is just to avoid the legal requirements of starting a bank? And it really has little to do with tax-exempt status? Elsewhere in this thread people have said the opposite. rayiner, above:
> You're ignoring a very important part of the story: credit unions, unlike banks, are tax-exempt: http://www.treasury.gov/press-center/press-releases/Document.... (see page 2). Those "mutuality" restrictions you note are the trade-off for tax-exempt status. Otherwise, the regulations applicable to credit unions and banks are more or less the same (see pages 1-2).")
It's a fantastic company that does great things because they want to help people, not grow huge profits. They were among the first to do ATM fee refunds (use any ATM), they never charged fees for using another ATM, were among the first with scanned check deposits, then smartphone camera deposits.
If you're eligible, you really should be using USAA. I prefer them even to the local SF credit unions.
Edit: I guess they are both a bank and insurance company.
It would be great if someone were to include some information about their executive compensation plan to see how their incentives are aligned in comparison with the large retail banks.
Their insurance rates are very competitive and their customer service is stellar.
There is a branch in Annapolis, Maryland across the street from the Naval Academy. Just as the Washington, DC branch, they don't handle cash but have a full-service ATM outside.
However, upon creation of new accounts in the past 2-3 years, they offer the predatory BoA-style overdraft protection. It's opt-in, so I imagine very few customers choose it. Still, I was dismayed to see it even being offered. It is completely out of place with the rest of the USAA offerings.
Are companies still using Utah-based "industrial loan corporations"? That used to be an interesting vehicle for providing banking services.
One bank was getting examined to determine if it was engaging in unfair lending practices. The regulators pulled 6 loans at random from the bank's portfolio. 3 loans were to men, 3 to women. Then they looked at the average interest rate on the loans to the men, the 3 on the loans to women. They found a .5% difference between the male and female averages (the men had the lower rate).
The regulators fined the bank several thousand dollars and required it to adopt new processes to ensure that future loans were "fair."
Had the regulators looked closer, they would have noticed that the three random loans to men all went to older men with high credit scores...and each male was in a white collar job (doctor, lawyer, etc.). The loans to women, which were pulled at random, were each to younger women, just starting their careers. These were auto loans to a first time car buyer, etc.
The regulators didn't care about the details and punished the bank anyway. You are guilty until proven innocent, and they don't expend a lot of effort trying to prove you innocent.
In this day and age of big data, a bank or credit union's best bet is to use the power of business intelligence to continually prove that it is lending fairly in the community and climate that it dwells.
Furthermore, having dealt with regulators before, there's always an opportunity to provide written responses with requests for data or an appeal process. Not hard for a bank to argue that a sample size of six isn't representative of their overall lending practices.
[1] (Warning: PDF) https://www.fdic.gov/regulations/compliance/manual/11/XI-10....
[1] - http://www.cunacouncils.org/cuna/assets/files/144820_Goedken...
This doesn't make a lot of sense, as sampling post-Enron (not just banks, anyone), should follow a SOX-404 type of methodology (and banks internally, at least in the US, tend to follow this sampling methodology).
On why this does make perfect sense:
What might have really happened is the bank didn't want to push this, as the regulator were holding something else to their head, or might hold something else to their head (which they may also be unaware of) and [the bank] wants to be seen as a cooperative, not uncooperative, institution.
This is extremely likely.
It isn't like a regulatory body can instantly understand a bank's business. They can't come in at a micro-level and try to understand the books (at least, for a larger bank). There's not the organisational understanding level there. So, an uncooperative institution gets hit by fines and warnings against directors.
Small level non-infraction which may blow-up later (related or unrelated), the bank thinks just take the hit and don't fight it. A smaller organisation may really be worried they're not doing something right (but they don't know what) so this gives some time to get things in order. A larger organisation... similar.
This also benefits the regulators (not to push if the bank put up their hands for a minor crime) as it is super easy for a highly complex organisation to obstifucate things later, if they want to, if they see the regulator as somewhat pesky. In this case, the regulator will have to be extremely sure of their case and push things through legal channels often at a country's executive level, and then things also get difficult. For the case of a rural credit cooperative, the regulator may see them as a general social good (as in 'good thing') but needing to be punched on the nose a few times to keep in line. And then there's internal pressure and politics within a regulator of what 'good' actually is.
>a bank or credit union's best bet is to use the power of business intelligence to continually prove that it is lending fairly in the community and climate that it dwells
Completely agree.
Related reads:
* Rule of Law in the Regulatory State by John Cochrane [1]
* WebMD versus FTC [2]
[1] http://johnhcochrane.blogspot.nl/2015/08/rule-of-law-in-regu... [2] http://www.scmagazine.com/dismissed-labmd-case-could-impact-...
The big players can hire another lawyer and get the regulators for a tennis match at that fancy club while the small players drown in paper.
Ah, and also this: ". As an engineer, when I looked at how the transaction systems work, I was shocked to see few technological safeguards. I imagine there is major fraud activity. Ironically, the bankers and regulators need exactly the technologists that they are pushing away."
those are laws to protect laws placed to protect banks et al long before. the original laws give some state insurance for a very cheap price, which can easily be abused if someone start a bank/union, give lots of loans to a partner and then crash said bank/union. ... which is exactly what the 2008 was about if you stop believing all banks were surprised by the crash...
edit: and yes, they fail mostly at bribes. nobody does business with any government without bribes. maybe he is not such an accomplished banker as he believed if he never got to that part. i know in construction you won't get far without it.
I personally consider banking and government in general to be fairly corrupt, but do you have any evidence that literal bribery is common?
It's more a combination of favors, revolving door employment and consideration for friends and family.
I'm not trying to be pedantic if you were just speaking in hyperbole, but I'm curious on the methodology for determining that.
To name two examples from the financial meltdown:
- Lending practices at banks are regulated by the Federal Reserve. Lending practices by mortgage brokers financed by i-banks and hedge funds were essentially unregulated. Those are where a lot of the bad loans and securities started.
- Derivatives are normally regulated by the CFTC, but credit default swaps were specifically exempted from that regulation in 2000, on the assumption that other federal regulators would cover the downstream risks under their purview (they did not).
I actually imagine that there's remarkably little of the tennis-match corruption you indicate, but I know that there's quite a lot of the over-lawyered corruption. Even worse, there's a lot of completely well-intentioned regulation whose hidden costs drive up prices, while not really providing much in return (related to the old question, 'ever wonder if taxation without representation would have been cheaper?').
Anyone who's dealt with the federal procurement system has to wonder if a little pocket-lining corruption would be cheaper than dealing with the paperwork intended to prevent & detect corruption; anyone dealing with a heavily-regulated industry has to wonder if the regulations cost more than the fraud, waste and abuse they prevent.
- I'm in NYC. ATMs that don't take a surcharge are few and far between. There are two near my house, at a McDonald's and a bodega. According to the locator, only one ATM in all of Manhattan takes check deposits. An iPhone app called CU24 ATMs can find them (be sure to switch the filter to "surcharge-free ATMs" because by default it shows all ATMs), which is nice.
- Online banking is done through a website called It's Me 247 (https://obc.itsme247.com/237/). It's frustrating to use — to log in you enter your account number, password, and the answer to a security question (it can't remember your browser). There are no mobile apps, and it doesn't work with Mint. There is a mobile site, but like the desktop site you have to log in with your account number, password, and a security question every time you use it.
- Their main website is actively broken on my phone (it's locked to 1x zoom and you can't scroll horizontally) due to an incorrectly-used <meta> tag. Jordan himself wrote back to my email after a few days to say that he was working on mobile support, but the website was never fixed. (This was >1 year ago.)
- I can't direct deposit into my savings account because it shares an account number with my checking account.
- There's no way to pay bills or send checks online.
- I called to order checks when I signed up. I never heard back and never got any checks.
In the end, I was never able to switch from Chase, which has clearly-marked ATMs all over the city (most of which accept checks) and a nice mobile app. If I were going to use another bank, it'd probably be Simple, which prides itself on being easy to use.
I wanted to love the IAFCU but day-to-day banking was too frustrating.
On the other hand, I had no idea they had all of these regulatory difficulties, and their mission to provide banking to the under-served sounds an order of magnitude more important than keeping people like me happy.
Probably a lose leader to the investment products, which you don't have to use, but I'm extremely happy.
I wasn't able to use Simple either, as I'm married and even after all these years they don't support joint accounts: https://www.simple.com/help/articles/account-info/shared-acc...
And I think it's great that we scrutinize new wanna-be banks and make sure they aren't a pump-and-dump fraud scheme. Because in the absence of such regulation, something like 100.0% of new banks would be pump-and-dump fraud schemes.
Which one is more likely, assuming you know nothing about Kahle: that Kahle is trying to make an honest buck serving an underserved market, or that he's trying to copy what this guy is doing:
http://business.financialpost.com/news/fp-street/the-russian...
"People are falling over themselves to sign up."
If you aren't prepared to get your ass ridden by regulators, you aren't prepared to be a bank. You aren't good enough to offer banking services to the public.
These guys obviously had the best of intentions and a real desire to make a better world. I wish they could have found a way to clear that path, but I don't think that a CU was the right institutional form.
> an under-documented local Rutgers student...We sought an exception from the NCUA, but they said no.
I don't know why he would expect to lend money to an illegal alien, nor why he expects the government to let him deal with someone whose very presence is a violation of the law. I should be surprised that a state university admits someone who has not been admitted to the state which owns that university, but I'm not.
> We were stunned to find we were the first full service credit union chartered in New Jersey since the NCUA was formed 1970.
I'm not all that surprised: New England is a particularly corrupt and regulation-bound part of the country. It's amazing to me that anyone would do business there or California.
I'm not surprised, although I am saddened, at the failure of their Bitcoin effort. I'm fairly certain than NCUA was concerned about the possibility of money laundering (never mind that it shouldn't be a crime, nor should it be something the regulatory system cares about: it is and it does, and that has consequences).
> I see a system as unhealthy if regulators put 200 to 300 institutions out of business every year for decades on end while only allowing a few to start.
Are those 200-300 healthy or not? Are the ones allowed healthy? Are the ones disallowed unhealthy?
This is the problem with regulation: it's in the regulators' interest to be as strict as possible, because any failure will be harshly punished (in the press, in the civil service, and in the courts), while success has no reward.
Kahle has had an unpleasant introduction to the real world. Regulation has costs, typically hidden from idealists; they are revealed to him, because he tried to do something new.
This type of banking is a specialization that is referred to as "low documentation" by bankers. It exists in areas with large migrant worker communities like California and Washington.
It is innovative and profiable, but extremely difficult in the post 2008 regulatory climate. I know bankers who work in this industry. The commentary I have heard is that the regulatory burdens are severe.
If you don't have the endurance for being incorrectly threatened with fines and crimes which you have to successfully prove wrong, you won't survive.
It sounds like gambling with stakes that exceed my risk tolerance.
The polices and structures in this country are not oriented toward mutual benefit or utility, they are oriented toward entrenched interests.
Credit unions generally weren't underwriters of mortgages -- they were small savings institutions serving a community that wrote mostly small consumer loans with easier underwriting standards.
Nowadays, getting consumer financing is pretty trivial. So I don't need a CU to underwrite Christmas.
Also, the definition of "community" is watered down as to be meaningless. The credit union that I'm a member of is open to anyone living in like 9 counties in my area and is the 4th largest bank in terms of assets in the region.
So why would I join or start the "BigCo Helpdesk employees CU" when I can get most of the customer benefits and more services from a bigger CU?
I think the expectations here that these guys would suddenly appear and be writing mortgages in a short period of time is an unrealistic goal, and probably damaged their credibility with the regulators. The same regulators are easy scapegoats because they can't talk back.
EDIT: Nothing necessarily to do with archive.org, except that Brewster is a great guy and he happens to really dislike banks, so he looped in a friend involve in the banking sector
You can only draw that conclusion if you put on blinders and look at it one-dimensionally. Lots of things happened around the same time that NCUA was founded. Visa had turned into a member-licensing system, and consumer credit was become much easier to get. Computerization started happening and made banking operations more scalable.
The bread and butter of credit unions were small, workplace communities that offered savings and small loans. Most didn't even offer checking accounts. In the days when many blue-collar workers with variable wages were unable to get bank credit, they offered a accessible way to get small personal and secured loans and save. My father in law was a fireman, and there was a department credit union. The firehouse captains would come around with a boot and envelope on payday to collect deposits. New folks on the job would get loans for uniforms and boots in advance of reimbursement by the department. To 18 year old firemen in the 1960s, no consumer credit was available.
Now, consumer credit is trivial to obtain, so that market is drying up.
You also have to look at small credit union operations. When they started diversifying into stuff like auto-loans, many began to fail because they weren't equipped to handle the more sophisticated business model. They were, after all member owned cooperatives doing small loans. NCUA ended up holding the bag for those lost deposits, and tightened up standards, which in turn led to more CU shutdowns and mergers.
A very similar story applies to the former bedrock of american banking -- the small savings & loan. As their business because commoditized and the commercial banks consolidated, their oxygen got cut off.
It's running exactly the way the entrenched players want it to run, squashing competition with heavy-handed regulators and killing innovation at pretty much every turn.
The Aristocrats!
As far as I can tell, the reality is pretty much as they describe: there is negative appetite for new banking institutions of any sort in America.
This is a top-down perspective from regulatory and law enforcement -- large centralized banks make enforcement (legal and regulatory) much easier.
I'm sure that of the 5,000+ changes requested by the NCUA most were bullshit. But, there are many, many standards that modern banks adhere to -- and groups like the NCUA do tier out responsibility to credit unions based on their size, and how 'bank-like' their operations are. A small credit union is just going to look 'amateurish' to these examiners, and they have a fundamental duty to make sure that depositors are safe.
What Brewster and Jordan seem to have discovered, and I think this is an important thing to know, is that the burden imposed means that it's impossible to bootstrap a financial institution like this in the current environment, even if there are millions of dollars of funding available.
This is super sad.
The credit union that disappears form the official count usually doesn't see much more than a name change, and adding new services & members. This usually results in better service for both original CUs members; a combination of branch locations, ATMs, and services from both of the original CUs.
I've also never heard of "force them to merge their assets into bigger credit unions". Would be very interesting to hear more specifics about this, if it actually means something more than 'hassle them so much that they find a larger CU to merge into, on their own, just to escape'.
I'm not an economist but the more and more I read up on the matter following the cracks that showed up after the crisis of '07-'08, the more disillusioned I become.
There was a lot of optimism regarding Bitcoin being a deflationary currency affecting change from outside the system but it's going down the same route. The big players (Conbase/Circle) in this field are just being absorbed by the existing system and will loose their outsider advantage.
Economically, businesses provide "words", degrees of freedom that people exercise when they spend or act. Banking is ugly because there are some "words" we don't want people to use, like derivatives, or over-leveraging. But the banks themselves then use this safety mechanism to eliminate or weaken the words that would threaten them, like cooperative banks.
In the end, it boils down to Congress. The Executive has a lot to say about it too. Perhaps as technology improves we can install a Panopticon in Wall Street and Washington, reducing the cost and risk of regulatory enforcement. And if they protest we can say: well, what do you have to hide?
He wanted to offer non-predatory lower interest loans to higher risk clients, in concert with banking services that are difficult to provide to higher risk immigrant clients like checking and savings accounts and debit cards.
But the NCUA wouldn't allow him to set interest rates lower or offer checking/debit accounts.
That indicates that those rates aren't actually predatory at all, but required in order to defend against default.
Which really isn't all that surprising: in the case of payday loans and such, there are many operators, and anyone who could lessen his profit-per-loan could very easily snap up a great number of customers, increasing his net profit. That no-one has done this indicates either collusion or that the rates are fair.
sub prime lending then?
What many people seem to think of is the high interest rates, unfavorable terms and other things which push subprime loans into the predatory loan category. It's entirely possible (though apparently hard here, with the restrictions on rates they could provide) to offer non-predatory subprime loans.
If you are making loans to high risk clients, this is predatory lending. There's a reason they are high-risk: they are less likely to be able to pay the loans, or have demonstrated prior poor handling of debt. Don't be misled by "low interest" either: the "predatory lenders" in the last housing bubble were not for the most part charging exorbitant interest rates, rather they were lending far too much money to people with almost no qualifications.
If you make credit easy to get for people who can't handle it, they will end up bankrupt and the creditors will end up holding the bag.
I'm not sure it's viable or sustainable, but it is a noble goal, at least.
> If you are making loans to high risk clients, this is predatory lending.
What I was specifically replying to. High risk loans are not predatory loans. Predatory loans are high risk, high interest, unfavorable terms (short repayment periods, high-value collateral for low-value loans, aggressive collection tactics, etc.). We have to be clear when we talk about a topic to not mix the terms in a way that skews our discussion from the actual circumstances. That way lies miscommunication and misrepresentation of those involved.