News & Highlights

A Dozen Lessons Learned in Credit Union Collaborations By Guy Messick

In my thirty years of forming credit union collaborations, I have come to see common lessons, especially in multiply owned CUSOs providing one or more back office operational services.  I examine twelve of those lessons in these types of CUSOs.

  1. Collaborations are usually born out of fear. Creating and maintaining collaborations is hard work and it takes a significant motivator to undertake the effort. Sometimes the motivation is opportunity but it is often fear.  The fear of becoming obsolete in a world full of low cost and efficient competitors is real.  Collaborations are created by those with the vision to see the challenges that lie ahead and understand the urgency to make changes while there is still time to act.
  2. Collaborations must overcome cultural and instinctive biases. Sharing resources and working together in a collaboration for the mutual benefit of the partners is a foreign concept in the for-profit business world. The success of a collaboration is not dependent upon the legal terms in a contract, rather it is the power of the owner/user model. All users of the collaboration own the collaboration.  If there is a problem for a user, the owner fixes it. You would think credit union folks get this concept and many do but not all.   It is an especially hard concept for examiners and lawyers.
  3. A collaboration is a relationship not a transaction. A collaboration will succeed if the partners view the relationship with the lens of the long term benefits and understand that all services are not “home runs” all the time.   Constantly “hitting singles” will win you the game. Just as in a marriage, the key is to make adjustments to nurture the relationship between the partners and consider the effect of one’s actions on the other partners.
  4. Trust is the key to all collaborations. This is a trust that the partners share a belief of the importance of the collaboration, trust to meet the commitments made, trust to be truthful, trust to “have the back” of your partners; and trust to communicate to keep the partners aligned.  Trust begins with the credit union CEO’s and, if successful, moves to the senior staff, the board and the rest of the staff.  Many successful collaborations have begun when two or three credit union CEO’s decide that it is essential to obtain scale.  They say to each other, “We have to do this and while all the details are not clear yet, we are committed and will find a way.”   The collaboration will start off with a plan but the plan is constantly changing as the collaboration faces unforeseen issues to overcome.  At some point, a collaboration requires a leap of faith grounded on trust.  After it is formed a collaboration requires constant vigilance to protect it from adverse internal and external forces.
  5. A champion may create a collaboration but the institution must sustain it. Credit union CEO’s and boards change. The enduring collaborations will develop new champions within the credit unions to ensure its continued successful ongoing operation and benefits.  Credit union boards will hire new CEO’s who fully support the collaboration.
  6. Scale by itself is not enough. Inserting a CUSO into a credit union’s operations actually adds costs unless the credit union adapts its internal business model. Credit unions must agree to use the same policies, documents, procedures and related vendors.   It is only through standardization of the back office functions that scale enables the credit unions to achieve the efficiencies they seek.   Doing more with less people is also key to saving money.  Usually the CUSO employees will have higher levels of expertise that are now affordable given there are less employees with a more efficient process.   The strategic thinking has to be elevated.   A $250 million credit union in a collaboration with three other equal sized credit unions must think in terms of how a credit union with the scale of $1 billion operates.  Significant benefits from collaborations require significant changes.
  7. Quantify the benefits of the collaboration so you will know how to maximize the benefits. You will be able to determine what services will have the “biggest bang for the buck” and what metrics will determine success.  You will also know how many partners is an ideal number before the complications of running the collaboration make it counterproductive.
  8. For operational services, peer sized credit union partners each with an equal vote works best. Peer sized credit unions face similar problems that require common solutions.
  9. Developing a collaborative mindset is key. Determine what services are off-limits to collaboration (e.g., member facing services) and be open to collaborating on all other services with credit unions of like mind-set. When new services are considered, think of how new services might be enhanced if done through the collaboration and how that might help both your credit union and your partner credit unions.
  10. If the CUSO is providing a key service hire a person with CEO level capabilities to run the CUSO. If the CUSO is run by a person who has to be micro-managed daily by the credit union partners, the CUSO will be mired in mud.   The CUSO CEO is accountable to the credit unions but he or she needs the ability to work effectively without constant supervision.
  11. Educate and communicate with the credit union boards and staff on the reasons for the collaboration and how the collaboration will affect their roles. The more education and communication there is, the more likely the changes will be accepted internally.
  12. Provide a means to unwind a collaboration. Nothing is permanent.   If a partner wants out, the CUSO’s operating agreement should provide a means for the partner to disassociate in a manner that does not harm the collaboration and is fair to the disassociating partner.

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Sessions Abdicates His Responsibility on Marijuana

On January 4, 2018, Attorney General Sessions issued a memo formally rescinding years of Department of Justice (DOJ) guidance, most notably the 2013 Cole Memorandum, that laid out the federal government’s effectively hands-off approach to state legalized marijuana. It will now be up to individual U.S. Attorneys in those states that have legalized marijuana to decide whether or not to enforce, and how to go about enforcing, federal marijuana laws. In taking this action, Sessions has done a grave disservice to the states that have legalized marijuana, the marijuana industry, and the U.S. Attorneys he is charged with leading.

Following the Sessions announcement, a DOJ official was quoted as saying that the message for federal prosecutors is that going forward they should approach marijuana cases “like all other cases.” But the fatal flaw in that message is the notion that marijuana cases are like all other cases. What other federally illegal activity has been able to operate openly and freely under the watchful eye of, and pursuant to policy guidance from, DOJ? Marijuana cases are unique precisely because DOJ treated them as such for 20 years.

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Never Burn a Bridge With Former Girlfriends

Never burn a bridge with former girlfriends.  It can jump start a career.   I stayed friendly with my high school girlfriend Maryanne who married John Unangst the President of Franklin Mint Federal Credit Union.   John formed one of the first CUSOs in 1988.   The CUSO provided mortgage services and data processing services to multiple credit unions.   As a result of meeting John through Maryanne, I formed John’s CUSO.  John became a director on the newly formed NACUSO Board and asked me to go with him to San Diego on his dime to a NACUSO Conference and play golf.  My bags were packed before he finished his invitation.

In San Diego, I did a presentation to a four table conference.  John suggested to the NACUSO Board that I be their General Counsel.   My most attractive feature was that I was free.   So began my representation of NACUSO.  I thought I could handle this gig as CUSOs are essentially small businesses and I had a lot of experience representing small businesses, including being the attorney for the local Chamber of Commerce.   I grew up in a small business.  My parents owned two restaurants. Eventually, my practice evolved into the near exclusive representation of credit unions and CUSOs.

The part of our practice that gets my juices flowing is helping credit unions create and expand CUSOs and other collaborative relationships.   How can we structure a relationship between organizations and people that will reward all participants on a personal and professional level?  Collaboration is not easy.  It is not altruistic.  It is finding people with the right values and incentives to work together to achieve a common goal.  It is a challenge but when it works, it can provide amazing results.

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Spotlight on 7 Insurance President, Jerry Tweeten

We’re excited to feature the 2017 NACUSO CU Collaboration & Innovation Award winner 7 Insurance. We sat down with Jerry Tweeten to hear how he came to work in credit unions and how two credit unions, less than a mile apart decided to not see each other as competitors but collaborators for the benefit of their members.  

PART ONE: Life Story and Experience

Jerry Tweeten, President of 7 Insurance, not to be confused with “Elf on a Shelf”

What’s your current position and can you give me a brief overview of what it is you do in your work? I am the President, and we are a full lines independent insurance agency. We are a collaboration of Y12 FCU and ORNL FCU and I oversee nine CSR/Agents.  I manage both credit union’s corporate insurance programs and their other insurance programs, GAP, Service Contracts, Debt Cancellation, Accidental Death & Dismemberment (AD&D), and collateral protection insurance (CPI) programs.

What would you say most motivates you to do what you do? What are you most excited or passionate about?

What motivates and excites me most of all, along with our team, is saving our members money.  The savings are real, not perceived. We have saved our members well over $500,000.   Our most successful stories involved three of our members that saved over $3,000 annually on their insurance and provided better coverage.  How can this not excite you?

I want to hear the story of how you came to work with credit unions. What attracted you to work for 7 Insurance?

In 1986 I started at Alaska USA FCU as a temp employee, working in their insurance department. I worked within the insurance department during my tenure there and established their insurance CUSO as their Manager of Insurance Services.

My father was a CMSGT at Elmendorf AFB and opened an account for my brother, sister and myself.  AK USA FCU was always part of my life since we moved to Alaska in 1977, so for me it was a place that was always there for us.  I had a friend who knew the human resources person at AK USA FCU and she told me there were open positions. I was there the next day and started working the following week.  AK USA FCU believed in me and offered me every opportunity to succeed. I can’t thank them enough for what they did for me and my family.  I’ve been working in and around credit union’s since 1986 and won’t work in any other industry.

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Better, Faster, Cheaper. How One CU Got All Three With a Core Conversion

NACUSO is on a mission to tell stories of collaboration, innovation and cooperation that not only strengthen the credit union movement but also are in the best interests of our members. We believe that we’re better together. We also know that the CUSO model has mitigated the need for many credit unions to merge by obtaining economies of scale and driving efficiencies. CUProdigy is a great example of helping credit unions with a quality cloud based core that is affordable. We heard about the tremendous cost savings and reached out to a recent convert, Roy MacKinnon, CEO of Edwards FCU.

Roy, first, tell me a little about your credit union.

Edwards FCU was founded in 1962 on Edwards AFB in California and was originally chartered to serve personnel on the base. Edwards FCU received a community charter shortly after 2000 as many military base credit unions did.  Today, we serve all of the Antelope Valley, which is nicknamed Aerospace Valley because, in addition to the Air Force base, other major manufacturers are here like Lockheed, Northup Grumman and The Spaceship Company. We are proud to say that Edwards is the only locally born and raised credit union that’s still headquartered in the Antelope Valley.

How did you come to work at Edwards FCU?

I became the CEO of Edwards in May of 2016. Previously, I was with First Entertainment Credit Union for 25 years. This was my first CEO gig and I knew what I was walking into. I was handed a financial statement showing a $120K loss and 7.2% capital the first month. I immediately initiated a freeze on just about everything. By mid-year we were running at an annual loss of about $200K. By year-end, with a significant expense reduction and with the financial benefits of a PSCU conversion, we reduced our year-end loss to just $5,900.

I felt a missed opportunity existed, one that many credit unions encounter when they convert to a community charter – founding segments are ignored. In this case, it was the air base. I told the board that if they hired me, we would go back to our core, get our house in order, and then when we’re a little healthier we’ll go back to the community in a very disciplined way.

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Taking a Breath at Year End and Peering Over the Cliff by Guy Messick

This change thing is exhausting.  In 2017 our capacity to adjust to change has been challenged.   Every day we wake up to see what the Tweeter in Chief said in the middle of the night and who he offended.  We wake to discover which TV or political icon acted inappropriately in his past.   We hold our breath with every North Korean missile launch to see what terrifying threats are going to be tossed about by leaders with fingers on buttons.

So assuming we are still alive and can focus on business in 2018, let’s examine the big change issues for credit unions.  The regulatory side looks favorable for 2018.  Now that Mick Mulvaney has taken over the CFPB, we can expect that the regulatory overreach by the CFPB will halt.  NCUA, with Chairman McWatters, is in regulatory cut-back mode.

In 2018, more credit unions will begin to escape from the clutches of legacy core processing systems.   The business model for some of the legacy core providers is to sell you technology that was developed forty years ago and charge credit unions through the roof to connect other software to the core.   That model is excessively expensive, slow to adapt and slow to implement.   In response, credit unions banded together and raised over $26 million to form the CUSO Constellation Digital Partners, LLC.   Constellation is developing technology that will enable credit unions to pick and choose which apps they wish to provide to their members and then easily connect the apps to the credit union’s core system.  It is core neutral.  The technology will enable credit unions to both compete with fin tech providers and take advantage of the technology developed by fin tech providers.   Credit unions will encourage software developers to create software for credit unions using code that will enable the software to be delivered inexpensively and efficiently.  Innovators take note of this opportunity.

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How a $10 Million, 5-Person Credit Union Created One of the Best FI Websites in the World

Over two years ago we wrote about this amazing credit union in Roswell, New Mexico.  And about a year later we interviewed their CEO in a Spotlight article. Both of these stories focusing on how small credit unions are vital and remain viable through collaboration. 

We were so excited to receive a story from the CU Service Network, that highlighted one of their members – this very tiny, very bold small credit union, The Florist FCU.  Enjoy!

Every year, the folks over at The Financial Brand publish a list of the top FI websites around the world. We at CU Service Network look forward to their listing all year because they showcase such beautiful and original websites, shattering the concept that banking is boring and dull. We also enjoy keeping up-to-date on industry trends and branding because it helps us serve as consultants for our clients.

Back in August, I was browsing their recent article 20 Visually Stunning Website Designs From Banks & Credit Unions and did a double take. My eyes weren’t playing tricks on me: $10M, 5-employee The Florist FCU was listed.

I wasn’t the only one that was shocked. Cisco Malpartida Smith, CEO of The Florist FCU, was as well. After spotting the listing, I immediately emailed the CEO to share with him the great publicity. “I had no idea,” he responded, bluntly.

“My first reaction was, ‘We couldn’t possibly be on a list like this. How does it even logically make sense?’ he said, laughing. “It’s very humbling.”

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Advocacy Updates

Report on Advocacy Fund spending… NACUSO Working for You

Through the support of our members and partners, NACUSO raised approximately $273,000 in contributions toward its Advocacy Fund (and predecessor Legal & Litigation Fund) over the past 3 years.  The goal of the two funds together are to enable NACUSO to conduct crucial advocacy work on behalf of CUSOs and their credit union owners / partners.

In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars (we provided detail of how the funds were spent from 2014-2015 last year, which is also included in the attached Report), we would like to provide you with the following information, which was provided in detail to each contributor in the first quarter of 2017.  NACUSO spent the following amounts from the Advocacy funds during 2016:

$24,000     Dollar Associates, LLC - paid for advocacy work with Congress and NCUA on CUSO issues
$24,000     Messick & Lauer, P.C. - paid for advocacy work with NCUA and meetings with Congress on CUSO issues
$   718     Travel to Washington DC for meetings with Congress and NCUA
$48,718    Total amount spent influencing Congress and NCUA for favorable CUSO environment

The remaining funds, out of the total $273,000 in combined contributions, equal $110,323.  This represents the balance in Restricted Cash as of 12-31-16, as per the NACUSO Advocacy and Legal Fund Analysis report (click link below).

The NACUSO Board and its Legislative & Regulatory Advocacy Committee is continuing to prioritize the advocacy of a regulatory environment that is pro-CUSO and pro-collaboration within our industry.  NACUSO needs your support for this initiative and to accomplish its purposes.  While strategies may change over time based upon circumstances and opportunities to advance the cause of CUSOs, the necessity for funding of such initiatives is essential if NACUSO is going to remain in a position to impact the decision-making process for CUSOs and the credit unions that invest in, or utilize them.

Click to Contribute

For a summary of how NACUSO has worked to maintain an environment that is supportive of collaborative investment, the following report entitled NACUSO Working For You (see below) provides a summary of the work we have done on your behalf.  To capsulize some of its key points, a summary of what we feel are the NACUSO “wins” this past year are:

  • Effectively opposing the costly extension of Vendor Authority to NCUA.
  • Worked with NCUA on the revised MBL Rule.
  • Advocating for the expansion of CUSO powers to originate loans credit unions are authorized to make, to help bring scale and expertise benefits to credit unions in all loan categories.
  • Encouraged NCUA to be transparent in its budget and rule making including the OTR calculation.
  • Working with NCUA to minimize adverse impact of the CUSO Registry and to correct the acknowledgements initially in the Registry.

To emphasize the last bullet above, initially, in its first version of the CUSO Registry documentation that CUSOs were required to submit with their data to NCUA in 2016, the agency’s acknowledgement form required CUSOs – when submitting their data – to accept responsibility under regulations that only apply to credit unions but were not intended to, apply to CUSOs.  These acknowledgments, if left unchallenged and signed by CUSO officials, could have exposed CUSOs to potential penalties under regulations that do not, and were never intended to apply to CUSOs.  Upon becoming aware of this inappropriate acknowledgement requirement, NACUSO worked directly with senior NCUA staff to bring our concerns to their attention.  NCUA agreed to the NACUSO position and made the needed changes to the acknowledgements for the CUSO Registry data submission process.  In addition, for those CUSOs who had already submitted their registration and signed the acknowledgements, NACUSO developed a letter with the appropriate wording for those CUSOs to send to NCUA to clarify this acknowledgement concern. (more…)

NCUA Meeting Provides CUSO Guidance 6/16/16

NACUSO Visits NCUA to Discuss the CUSO Registry and CUSO Reviews

On June 14, Jack Antonini, NACUSO President and Guy Messick, NACUSO General Counsel met with NCUA Staff on the results of the CUSO Registry and the thinking on how CUSO Reviews will be handled.

The CUSO Registry sign-up period and the follow-up by NCUA found there were approximately 900 CUSOs.   NCUA believes that there are more CUSOs that have not reported.  Under the NCUA Regulations (Part 712.1(d)), “A CUSO also includes an entity in which a CUSO has an ownership interest of any amount, if that entity is engaged primarily in providing products or services to credit unions or credit union members.”   So these subsidiary CUSOs are considered CUSOs and required to make annual reports to NCUA.   The NCUA staff believes that many CUSOs were not fully aware of this requirement and there are a number of subsidiary CUSOs that have not reported.   NCUA will be following up with CUSOs to obtain these filings.   NCUA is also scrubbing the data and asking for clarification if the data is indicating that there may have been a reporting error. (more…)

Report on Advocacy Fund spending…NACUSO Working for you

Through the support of our partners, NACUSO raised approximately $63,000 in contributions toward its Legal and Litigation Fund in 2014 with a primary purpose to develop strategies for the most effective way to seek the repeal and/or mitigation of the impact of the CUSO Rule that NCUA had adopted in November 2013.  Subsequently, NACUSO established an Advocacy Fund to supplement the Legal and Litigation Fund.  The goal of the two funds together were to enable NACUSO to coordinate legal decision making, with a crucial advocacy component that will have more impact than the always risky option of legal action.  In total, $190,600 was contributed to the NACUSO Advocacy Fund.  Combined these two related initiatives received total contributions from NACUSO partners of approximately $253,600 in 2014 and 2015.

In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars, we would like to provide you with the following information.  NACUSO spent the following amounts from the two funds during 2014 and 2015:

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CUSO Registry Clean Up Period 4/22/16

As most of you know, all CUSOs are obligated under the NCUA Regulations to register certain information directly with NCUA on an annual basis.   Over 800 CUSOs did so in February and March.   NCUA is now in the process of making sure all CUSOs have registered.   Their new deadline is April 30.  They are taking CUSO information from the credit union 5300 call reports and sending out letters reminding “CUSOs” that they have to register.   Some credit unions may have incorrectly listed a company as a CUSO.  Other credit unions list their CUSO but use an acronym for the CUSO instead of the CUSO’s full name.   NCUA, not knowing better is sending letters to any and all companies listed on the call reports. (more…)

Regulatory Update 3/15/16

Letter to NCUA regarding CUSO Registry Acknowledgement: Yesterday, NACUSO informed you of a change we negotiated with our General Counsel (Messick & Lauer) with the NCUA regarding the CUSO Registry Acknowledgment each CUSO is required to agree to when submitting their CUSO registration in the NCUA’s CUSO Registry system.  As we pointed out in our Regulatory Alert yesterday, the acknowledgment required CUSOs to agree to be bound by statutes that only apply to credit unions and which imposed penalties that are not applicable to CUSOs.

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Change to the CUSO Registry Acknowledgement 3/14/16

During the process of assisting with CUSO Registry questions, it came to our attention that in order to complete the CUSO Registry, CUSOs were required to agree to be bound by statutes that apply to credit unions and which imposed penalties that are not applicable to a CUSO.  On behalf of NACUSO and the many CUSOs in this industry, Messick & Lauer (NACUSO’s General Counsel) have advocated and negotiated to revise this acknowledgement to more accurately describe the duty of CUSOs to respond to the CUSO Registry.  It is a contractual duty with the credit union and not a direct regulatory obligation to NCUA.   As NCUA continues to pay more attention to CUSOs, NACUSO will continue to take action to be the voice of CUSOs and to resist any attempts at regulatory overreach.  The NCUA has changed the acknowledgement text.  For your reference, the text of the previous and current CUSO Registry acknowledgments are below. (more…)

Regulatory Update 2/26/16

NCUA’s CUSO Registry Training & Demonstration webinar held on February 11 is now available to be viewed.  If you missed the webinar, or want to view it again, to help you in completing the CUSO Registry, you can watch it by clicking on the following link:  View 2/11/16 Webinar. You have until March 31, 2016 to complete your initial registration of all CUSOs.