'We've Only Just Begun'

The Federal Credit Union System is turning 90, and NCUA's Todd Harper shares four keys to CU success for the next 90 years.

By Todd Harper | September 09, 2024 at 10:00 AM

Pres. Roosevelt signed the Federal Credit Union Act into law on June 26, 1934.
Credit/National Archives

Ninety years ago, President Franklin Delano Roosevelt signed the Federal Credit Union Act, establishing the federal system of credit unions and increasing access to affordable financial products and services for more Americans. Since then, the system has evolved considerably from one in which credit unions offered basic savings accounts, appliance loans, and short-term credit to one that provides long-term share certificates, money market accounts, auto loans, mortgages, credit cards, commercial lending, and private student loans.

So, as we look ahead to the next 90 years and what the credit union system can become, we should mind the lessons of the immortal lyrics of the Carpenters, "We've only just begun."

Today's credit union system is thriving, and we at the NCUA need to make it even stronger and more resilient. With the financial services marketplace ever evolving, the system must continue to innovate and focus on the needs of its members, especially those of modest means. Credit unions also need to embrace transparency, fairness, vigilance, and foresight to remain successful in the years ahead.

Transparency

Transparency is the sunshine that better protects credit union members and the system, feeds efficiency, saves time, and leads to better decision-making. When credit unions and their members have good data and information, they can make better decisions, benchmark, and set themselves up for success.

In the spirit of transparency, the NCUA is developing a proposed rule that would require federal credit unions to publicly disclose information about executive compensation. All federal credit union member-owners deserve to know what their credit union leadership is paid, just like what state-chartered credit unions provide to their members and public companies disclose to their shareholders about executive pay. In addition, the NCUA's recent requirement that credit unions with more than $1 billion in assets report income from overdraft and non-sufficient funds fees on their Call Reports provides transparency into how credit unions operate and compare with their peers.

Transparency is also why the NCUA advocates for the restoration of its third-party vendor authority. When the NCUA has greater visibility into the operations of credit union service organizations and third-party vendors, we can better protect credit union members and the system and save credit unions time and money. We can also close a regulatory blind spot that threatens the nation's vital infrastructure, enabling the agency to find and address regulatory and operational harm before systemic threats evolve. After all, the best way to solve a problem is to keep it from happening in the first place.

Fairness

Credit unions were created to provide financial services to underserved populations left behind by mainstream financial institutions. If credit unions are to continue to follow this statutory mission, fairness must be their guiding principle.

That's why the NCUA joined other federal financial regulators in issuing a final rule on quality control standards for automated valuation models used by mortgage originators and secondary market issuers when valuing homes. That final rule mandates that these tools incorporate fair lending principles and adhere to quality control standards designed to comply with nondiscrimination laws.

Fairness is also why credit unions must continue to advance diversity, equity, inclusion, and accessibility, so all members have access to safe, fair, and affordable financial services. This isn't a political proposition; it's a business imperative. Diversity works. It improves organizational performance, results in better products, and strengthens the bottom line.

With their roots in providing affordable financial services to under-resourced communities, credit unions must stay focused on serving everyone regardless of race, ethnicity, gender identity, orientation, or religion. With greater perspectives in the workplace and in product offerings, credit unions can better fulfill their statutory mission, contribute to expanding the middle class, strengthen our democracy, and create a financial system that works for all.

Vigilance

In today's complex and quickly changing economy, credit union executives, leaders, and boards must exercise active, not passive, management. Considering the economic, financial, and technological challenges on the horizon, credit unions must remain vigilant in managing all risks.

Cybersecurity risk, for example, is increasing. Last November's FedComp outage and the widely reported ransomware attacks on various credit unions this year are reminders of what's at stake. Members have lost access to funds; faced bounced payment, late-payment, and overdraft fees; and had their credit scores negatively affected. Cyberattacks are a matter of when, not if, and credit unions must be prepared.

Vigilance also means the responsible stewardship of financial institutions. The failures of Cal State 9 Credit Union and Western Corporate Federal Credit Union demonstrate the unsustainable costs of incentivizing short-term gain. To address this problem, the NCUA Board approved a proposed joint agency rule on incentive-based compensation that will align executive incentives with the long-term stability of the financial institutions they manage. This proposal, required by statute, will help billion-dollar-plus credit unions avoid a repeat of the financial crisis 15 years ago.

Foresight

Finally, foresight is needed to address the longstanding consolidation trend that challenges the credit union system. A credit union board's failure to plan for the transition of its management and key decision-makers comes with high costs, including the potential for an unanticipated merger when key personnel depart, especially in smaller credit unions.

To address this concern, the NCUA Board recently reproposed a rule that would require all federally insured credit unions to have a tailored succession plan — depending on the credit union's size, complexity, or risk of operations — that covers the board of directors, the supervisory committee, and other officials. Like cyberattacks, a change in leadership is a matter of when, not if, so credit unions must be prepared.

Keys to Success

Transparency. Fairness. Vigilance. Foresight. These are the keys for the next 90 years of credit union success, and these north stars align with the seven-generation stewardship principle. This widely used management concept, which traces back to the Iroquois Nation, holds that leaders should look ahead seven generations to determine the impact of their choices on their descendants. If a choice will lead to positive outcomes and promotes overall well-being over that long term, then it's an action worth pursuing.

And, by doing just that — as a regulator and as an industry — we'll be following the advice given to us by the Carpenters, "So many roads to choose. We'll start out walkin' and learn to run. And yes, we've [only] just begun."