Future of CU Leagues, The

Leagues keep CUs grounded-as well as help them grow.

What role will credit union leagues play in the future? The same role they've played since day one: protecting and preserving credit unions. But how leagues accomplish this mission is changing.

Initially, leagues organized credit unions and dispatched field reps to nurture them, explains Paul Mercer, Ohio Credit Union System president and American Association of Credit Union Leagues (AACUL) chairman. Young credit unions couldn't have survived without their leagues.

"Today, credit unions look to leagues for reliable information and as partners to leverage market pricing and provide services," says Rosie Holub, president/CEO of the Missouri Credit Union Association. "Credit unions give us dues dollars-investments in which they expect a return. The return has to have some sort of tangible deliverable at the end, whether it's in advocacy, a service role, or whether it's information and being a knowledge broker."

Perhaps more telling about leagues' role today is to ask why credit unions belong. The nationwide affiliation rate is 92%, an enviable percentage among trade groups.

Why CUs belong

Credit unions belong to leagues for advocacy, education, information, and leadership. "Those are the four key elements of our mission statement," says David Chatfield, president/CEO of the California and Nevada credit union leagues. "Almost everything we do falls into one of those areas. Chief among them is advocacy: legislative, regulatory, and public advocacy."

"None of us individually is strong enough, in financial or political resources, to face today's challenges alone," adds Holub. "We're stronger as a group. We need that, as we've seen with the bankers' attacks."

"It's important for credit unions to have a single advocate that can articulate their history, philosophy, and continuing need to remain an independent entity within the financial services market," says Dan Egan, president of the Massachusetts, New Hampshire, and Rhode Island leagues.

Leagues also serve as catalysts for collaboration in business ventures and social projects, notes Mercer, agreeing advocacy is job one. The Ohio League maintains a strong lobbying presence with the Ohio General Assembly and with its federal congressional delegation. It sponsors a state legislative day that 300 credit union people attended last fall.

All leagues devote a lot of time and energy to legislative and regulatory lobbying. In Missouri, where bankers are challenging credit union field-of-membership (FOM) rules, the league changed its annual meeting format to include lobbying state legislators. It opened its own "credit union house" in Jefferson City, a block from the state capitol. The "Home of Missouri's Credit Unions" is a renovated 1885 Victorian-style building staffed by Peggy Nails, senior vice president for legislative affairs.

Credit unions join leagues because they can trust league products and services, maintains Dick Ensweiler, Texas Credit Union League president/CEO and Credit Union National Association (CUNA) chairman. "Credit unions can stay focused on what they have to do," he says, "knowing the league is taking care of the rest."

What's changing?

The leagues and CUNA are keenly attuned to credit union interests. CUNA's Renewal Project, launched in 1995, gave credit unions direct elections and direct representation. The leagues constantly monitor their members' service preferences and attitudes.

The Missouri League surveys its members every two years. Item processing and information services-compliance and field support-are top-rated services, followed by public and legislative affairs, which includes communications. The league keeps a database similar to a marketing customer information file on each credit union so league employees know each member credit union's needs.

What's changing? Generalist field reps are giving way to specialists on league staff. Although field reps still make the rounds in Texas and Missouri, the "coffee and chat" visits are disappearing. Field reps still are vital in Missouri, where 52% of 178 league member credit unions have less than $10 million in assets and 34% have less than $5 million in assets.

"The laundry list of league services is far greater than it has been at any time during my 24 years in the business, and it continues to grow," says Egan. "But it makes it exciting."

The Massachusetts League, for example, offers an array of services, including professional development, training, business solutions, auditing, business and strategic planning, indirect lending, shared branching, research, marketing, image campaigns, and social responsibility efforts.

Massachusetts dedicates two people to technology. It also offers annual and internal audits for credit unions. The annual audit function is changing as credit unions turn to certified public accountant audits.

The Texas League has six field reps and provides specialists. Texas, in cooperation with four other leagues, offers a league information site. An attorney leads credit unions through a Web-based reference to answer their compliance questions.

Texas provides a custom asset/liability management (ALM) program. The league loads 5300 report data, compares the data with previous ALM reports, and highlights ratios to watch. The Texas League also has a marketing agency, a human resources (HR) search and consulting firm, and an audit and technology review service that performs system security tests.

League challenges

Credit union consolidation is bringing league changes and challenges. "We once had 1,400 credit unions in Ohio," says Mercer. "We now have 500."

Leagues serve the needs of a wide variety of credit unions. In Massachusetts, credit unions range from $200,000 to $2.5 billion in assets.

Leagues also change as credit unions modernize, expand member services, and make FOM changes. Leagues and credit unions have become more sophisticated at member service, but there's a downside to this. "Increased activity serving members has increased visibility and led to increasing banker attacks," notes Chatfield. "And that leads to the increased emphasis on advocacy we now have."

Credit union consolidations are a double-edge sword. They require leagues to add services at the same time consolidations reduce resources available through membership dues, notes Mercer.

"The primary challenge is developing enough sources of income to support the development of new products and services," says Egan. "You can't use dues money because it's dedicated toward the critical core trade association services. So you need other income sources for research and development."

As a result, in Massachusetts, two-thirds of the combined operating budget comes from nondues revenue; one-third from dues. Twenty years ago, the funding was 60% dues; 40% nondues funding.

Missouri takes a different approach. Previously, the service corporation was the incubator-the innovator of new products and services. "I strongly believe that model has changed," says Holub. "The model that takes you forward is the league as partner, investor, and facilitator of new services through vehicles such as credit union service organizations."

After a 10% return on equity, the league service corporation pays a patronage refund to members based on each credit union's contribution to net income. Holub believes this provides an incentive for credit unions to use the league's services over other providers'.

Seven years ago, California simplified its 16-step dues formula with a three-tiered formula to mitigate the impact mergers were having on dues revenue.

"Leagues need to be more efficient," says Chatfield. "We've done a fairly good job, but we can't stop." During his 14 years, the number of league and league service company employees has been reduced from 125 to 85. "We're doing more with fewer people."

Missouri reduced its governance structure from 20 to 12, elected by region instead of by chapters. "As credit unions consolidate, voting can become disproportionate," says Holub. Chapters have changed their focus and meet as often as they want. They create their own roles, such as focusing on community involvement or political advocacy.

CU and league mergers

Will credit union mergers lead to league mergers? Two recent attempts fell through, and league CEOs believe management contracts may be a better model.

"Each group of credit unions in each state has to have its own political autonomy, its own board of directors, its own dues structure-in short, its own governance," says Egan.

Egan is president of three leagues. Twenty years ago, shortly after he became president of the Massachusetts League, that group signed a management agreement with the New Hampshire Credit Union League. The Rhode Island Credit Union League agreement followed in 1991. Each pays for management services according to its size. All three leagues are partners in two subsidiaries: New England Credit Union Services and Members Insurance Agency.

"I think there needs to be a league in every state, if for no other reason than for governmental affairs purposes," says Chatfield. "It doesn't work for 'carpetbaggers' to come in and lobby a legislature. You need to have the local people doing that."

California has managed the Nevada League for nine years. "We think of it as a partnership, and it works very well," says Chatfield. "Nevada credit unions have more services, and we've reduced their dues twice."

"Leagues can combine many back-office functions, such as HR and accounting," says Holub. "The roadblock to consolidation comes down to unique state politics, board complexion, and the similarity of product and service priority among potential partners."

League management contracts also occur in Colorado, which manages the Wyoming Credit Union League, and in Virginia, which manages the D.C. Credit Union League.

Another way leagues are marshaling resources and saving money is through collaboration. Missouri transferred its credit and debit card business to the Illinois Credit Union System. The Illinois program offers greater economies of scale, serving 834 credit unions in 34 states.

Likewise, the Illinois League recommends Missouri for item processing to members in Southern Illinois, and 34 Illinois credit unions participate. "Previously, those kinds of cross-state alliances were impossible due to political borders," says Holub.

Economic realities are producing more cross-border activities. California recently began providing educational resources to Arizona credit unions through an agreement with the Arizona Credit Union System. And California has shared some educational activities with the Hawaii Credit Union League for several years.

Leagues help credit unions innovate and then spin off mature ventures to the users. "We have a family of organizations the league founded over time," says Chatfield, ticking off names such as WesCorp and Financial Service Centers Cooperative Inc., both of San Dimas, Calif.; CO-OP Network, Ontario, Calif.; and Credit Union Direct Lending (CUDL), Rancho Cucamonga, Calif.

CUDL, for example, was formed 11 years ago as a 50-50 partnership between the league and The Golden 1 Credit Union, Sacramento, Calif, which created the automated point-of-purchase auto lending program. It's now owned by 54 credit unions and five leagues. "Our ownership is only 10% or 11% now. The kids grow up and leave home," Chatfield explains. "We're still family. We meet regularly through the System Coordinating Council."

In 1973, Connecticut League Managing Director John A. Bickel wrote "A Proposal for a Model League." The concern was that a proliferation of credit union organizations could fracture the credit union system: the Credit Union Executives Society, the National Credit Union Managers Association, the National Association of Federal Credit Unions, the Defense Credit Union Council, the Congress of Central Credit Unions, and so on.

The proposal said leagues should become umbrella organizations relating to the growing number of special interests.

Some of what Bickel recommended has come to pass. (In fact, he was the New Hampshire League's president when it entered into a management agreement with the Massachusetts League.) Leagues now offer special services to groups such as small credit unions and provide networks for marketers, HR professionals, and lenders.

As a result, the feared fracture of the credit union system didn't happen. "It didn't happen primarily because we had this established system of state leagues and the national association," says Egan. "As credit unions evolve and become more complex, this idea of state associations tied directly to the national association in a collective group based on credit unions has been the solidifying factor for the industry. This system created an environment where the industry can thrive."

Copyright Credit Union National Association, Inc. Mar 2005
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