
Difficult Times at Our Credit Union - monort
https://blog.archive.org/2015/11/24/difficult-times-at-our-credit-union/
======
dang
The related NYT article is at
[https://news.ycombinator.com/item?id=10626210](https://news.ycombinator.com/item?id=10626210).
The latter thread had many comments but we merged them here.

------
jawns
My guess is that, given the choice, practically everyone would prefer to bank
with a member-owned cooperative, i.e. a credit union, than a for-profit bank
owned by outside shareholders. I mean, think about it: sneaky fees and
outrageous surcharges are anathema, because it's more important for members to
be satisfied with their experience than to wring out every nickel and dime of
profit at the expense of customer satisfaction. And credit unions have been
around a long time, so we know the model works.

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.

~~~
rm_-rf_slash
These "regulatory hurdles" that prevent credit unions from competing with
banks were not created in a vacuum, they were created by the banks. No amount
of Kickstarting will solve the problem of our political system's fetish for
financial domination. The cause is obvious: as a for-profit institution, a
bank has the money to lobby for preferable laws, let alone the laws they write
themselves. If people began switching from banks to credit unions en masse,
the banks would probably calculate that it would be cheaper and easier to
manipulate the regulatory environment to inhibit credit unions than to compete
on honest terms.

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.

~~~
rayiner
The "banks writing the laws" narrative is misplaced in this context. Credit
unions are tax-exempt. If you remove the mutuality restrictions applicable to
them, they would not be "compet[ing] on honest terms" with commercial banks--
they would have a major competitive advantage on the basis of their tax
status.

~~~
ensignavenger
What major advantage exactly does being tax-exempt offer a Credit Union? A
bank pays taxes on profits, sure, but a credit union doesn't have profits, so
they still wouldn't pay much income tax (no income to tax) even if they
weren't tax exempt! They may have to pay more property tax (not sure if they
are exempt from that or not) or other taxes, but surely a well ran credit
union would not have a significant tax burden if it were not tax exempt.
(Paper work might be an issue... but banks and credit unions alike have to do
plenty of that anyway!)

~~~
rayiner
> A bank pays taxes on profits, sure, but a credit union doesn't have profits

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.

~~~
dragonwriter
> A credit union doesn't have "profits" because it is tax-exempt. They can,
> and do, run surpluses, which they return to members in the form of above-
> market interest rates on deposits or as dividends.

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.

------
c0achmcguirk
The regulatory burden facing credit unions from the NCUA is not near as bad as
what banks face from the FDIC. Right now the FDIC regulators take the stance
that your bank is "guilty until proven innocent."

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.

~~~
MrApathy
Could you provide a source for your anecdote? I find it hard to believe that
the FDIC would look at a mere six loans when their own guidelines [1] call for
at least eight, and that's with a population of a mere ten loans. For a higher
level of precision on any decent loan portfolio the sample size will be at
least 50.

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....](https://www.fdic.gov/regulations/compliance/manual/11/XI-10.1.pdf)

~~~
c0achmcguirk
It was an anecdote from Bill Goedken at the 2015 CUNA CFO Conference. It was
from the session "Mining Gold – New Trends and Discoveries in ‘Big Data’ That
Will Help Your Credit Union Compete". I've linked to the slides ([1]) but
there was no mention of the anecdote in them.

[1] -
[http://www.cunacouncils.org/cuna/assets/files/144820_Goedken...](http://www.cunacouncils.org/cuna/assets/files/144820_Goedken_cfo2015.pdf)

------
wjnc
It's often a lot cheaper, at least in the Netherlands, to buy an unused
banking license than to actually jump through all the hoops to get a new
license. Reading this, this regulator seems to have a lot of leeway to propose
arbitrary restrictions thus hampering business in the interest of protecting
customers. It's hard to do a cost-benefit on this type of customer protection
by the regulator.

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...](http://johnhcochrane.blogspot.nl/2015/08/rule-of-law-in-regulatory-
state.html) [2] [http://www.scmagazine.com/dismissed-labmd-case-could-
impact-...](http://www.scmagazine.com/dismissed-labmd-case-could-impact-ftc-
authority/article/454278/)

------
raverbashing
Whenever people push for more unbound regulation, this is what happens.

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."

~~~
gcb0
because 2008 made out clear that no oversight works just fine.

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.

~~~
TDL
I keep hearing this argument, 'no oversight', and I have yet to see proof of
it. Finance remains the most heavily regulated industry, as it has for
decades.

~~~
snowwrestler
Both things are true. Finance is heavily regulated by at least a dozen
agencies, but the coverage of those agencies has gaps, and significant
overlaps where it's not clear who is supposed to be holding the ball.

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).

------
Sidnicious
I have checking and savings accounts at the Internet Credit Union but I don't
use them.

\- 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/](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.

~~~
jcheng
This kind of stuff is why I'm with Bank of America. I tried switching to First
Tech Credit Union (besides being a CU they also have chip-and-pin credit cards
that work well in Europe). Their website is just terrible. The last straw was
when I found out I can't pay my First Tech credit card with anything but a
First Tech checking or savings account.

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...](https://www.simple.com/help/articles/account-info/shared-accounts)

------
jellicle
I am a member of a credit union and support them whole-heartedly.

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...](http://business.financialpost.com/news/fp-street/the-russian-ex-
convicts-viral-financial-scheme-that-might-be-behind-bitcoins-surge)

"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.

------
eggoa
Am I missing something? They say they have "$1 million in donations spent ...
and $1 million in the bank to back any bad loans". For a bank/CU this sounds
like pocket change. Later they say they have "almost unlimited capital". What
gives?

~~~
HillRat
That's my first reaction as well; NCUA is first, foremost and entirely
concerned with solvency and capital adequacy requirements, so it's no surprise
that they weren't jazzed about a tiny CU taking on high-risk and expensive
products. I haven't done a CAMEL score on them (and haven't touched CU
finances for several years so I'm reaching back into my memories here), but
you can get their financial performance and analysis data at [1], charter
number 24846.

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.

[1]
[http://fpr.ncua.gov/OnlineFPR.aspx?cu_number=24846](http://fpr.ncua.gov/OnlineFPR.aspx?cu_number=24846)

------
zeveb
I'm sympathetic to his concerns, and I applaud him for putting his money where
his mouth is. Some comments:

> 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.

~~~
droopybuns
>>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.

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.

------
bridanp
Not sure this is an aside or not, but I see a lot of big bank versus credit
union in the comments, and that's just not really the case here in my opinion.
I work for a large regional bank and I see a lot of similarities in this story
to my own company, especially in the number of audits being requested and the
rules they are having to follow (Bitcoin for one). I'll agree that a large
part of the rules we have in place are self inflicted: some we asked for and
some we caused in the aftermath of the financial crisis. These constant audits
we've been faced with since the 2008 time period just chew up enormous amounts
of time that we could better spend with innovattion and making the customer
experience better overall. It's really unfortunate that his idea of creating a
financial institution with real innovation is being stopped by bureaucracy
that is probably 80℅ unnecessary regulation.

~~~
davidjairala
Would you say the customer experience was that much better before the
regulations in 2008? Cause that hasn't been my experience personally.

------
panglott
Why was this "a new kind" of credit union? It seems like it was an ordinary
credit union that briefly toyed with the idea of BitCoin.

~~~
galuvian
The article doesn't go into much detail, but since they wanted to 'help non-
profit workers and the poor' my guess is that they wanted to offer loans to
high risk people and the regulators said "NOPE!"

------
Kinnard
Can I say that this is all actually my fault? My company was the first Bitcoin
company offered services by IAFCU. I made the mistake of speaking to a
reporter at WIRED about it. Within hours regulators had the noose set. Had I
not opened my mouth, IAFCU could have built up enough strength to tackle its
opponents.

The polices and structures in this country are not oriented toward mutual
benefit or utility, they are oriented toward entrenched interests.

------
coldcode
Banks don't like competition or new ideas. Regulators have an easier time
attacking small potatoes than for example JP Morgan, which can generally do
whatever they want.

~~~
bko
J.P. Morgan Adds $2.6 Billion to Its $25 Billion Plus Tally of Recent
Settlements

[http://www.wsj.com/articles/BL-MBB-14229](http://www.wsj.com/articles/BL-
MBB-14229)

------
Spooky23
There is a more nuanced story here. Blaming NCUA for the decline in small
credit unions doesn't really tell the story.

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.

------
_Codemonkeyism
Can someone explain what was the idea to serve the under-served that
archive.org should do this?

~~~
gcb0
just someone who has a great idea to help the world having another one.

~~~
jacquesm
It would probably be a good thing to keep archive.org and this credit union
thing separate. Right now this could easily be taken as things not going well
financially for archive.org.

------
openfuture
The system is so broken it's not even funny.

~~~
cubano
It's not broken at all.

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.

~~~
6stringmerc
_Looks around to see if anybody will catch the joke, does it anyway._

The Aristocrats!

------
vessenes
Brewster and Jordan are good folks; idealistic and willing to put their money
and time where their mouth(s) are.

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.

------
bitshiffed
The number of US credit unions thrown around is a fairly misleading. The
majority of decreases in this number are mergers, not CUs being "shut down". A
more useful number may be the total number of US credit union members over the
same period of time.

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'.

------
myth_buster
The bureaucracy seems to be just a Façade to prevent competition (and
consequently innovation).

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.

~~~
titzer
This is probably more often the case than not. Regulation is drafted to
protect entrenched players and establish permanent streams of income. Most
organizations really don't like having a dynamic environment that could make
them obsolete on short time scales.

------
bumpercrop
Before the 1980's mortgage lending was limited to the credit unions and other
member owned institutions like S&Ls. This regulation had been put in place
after the Great Depression of 1929, in order to limit speculation in housing.
This regulation had largely worked, and housing prices were largely flat in
that era. Regan deregulated the banks and this led directly to the failures in
the S&L's later in the 80's. It also led to the wild boom & bust cycles we
have seen in the housing markets.

------
javajosh
George Orwell noted in 1984 that to _really_ control a population, you control
their language - eliminate the words that describe the behaviors and views you
disagree with.

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?

------
acjohnson55
Sounds like kind of a nightmare. But on the other hand, a depository bank /
credit union is a tough area to try to innovate. It's not like a hedge fund,
where all the participants have to be wealthy enough in the first place to
take the risk that it goes south. I wish there were a better answer, but I
want both innovation and a high degree of safety.

------
gcb0
i think the first step here, since they accepted defeat at some level, is to
start releasing names of everyone signing those letters or visiting them.
giving names that newspapers can go after and get names higher up is always
helpful.

~~~
mifreewil
I think you missed the issue. It's not about individuals - it's a systemic
problem.

------
BallinBige
Elizabeth Warren needs to see this!

------
easytiger
If you want to set up a subprime loan shop (which it seems he did) just do it.
Don't hide it as a community benefit

~~~
001sky
don't understand this comment. what about current accounts, checking,
transfers?

~~~
easytiger
The primary motivation was lending, as mentioned several times in the article.

~~~
karlkatzke
He mentioned that he _didn 't_ want to start a predatory subprime loan shop.

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.

~~~
ams6110
Sorry but this is playing with words.

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.

~~~
Jtsummers
Lending to high risk clients, on its own, is _not_ predatory lending. If I'm
willing to accept the risk, I could loan $5k to someone with a poor credit
history and frequent unemployment at a low interest rate. I have to be
somewhat altruistic to do this, and most banks and lenders aren't. I have to
be willing to write it off. It sounded like this was the market they wanted to
be in. Poor people needing money, instead of getting payday loans or high-
interest CC debt, could get _low_ interest loans from this credit union. It's
the opposite of predatory.

I'm not sure it's viable or sustainable, but it is a noble goal, at least.

~~~
phdp
The issue is that you are using your customer deposits to make the loans. When
the loans default and they aren't paying a high interest rate to compensate
you for the higher default rates, you don't have the money to redeem those
deposits at face value, and then the NCUSIF (FDIC for credit unions) will have
to step it. The regulators would rather prevent that in the first place.

~~~
Jtsummers
Right, I understand _why_ they couldn't make the loans (regulators not
allowing it). But if someone were to establish themselves in a way that
_could_ make the sorts of loans this credit union wanted to, _they wouldnot be
predatory_.

> 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.

~~~
easytiger
A bank has to be self sustaining, its deposits must cover portions of its
debts. It can't work if it is based on the changeable altruism of an
individual. As actually even happened in this case, hewasn't prepared to
endlessly indemnify the loans, which is something he could do as a private
lender.

