Metsger, like the other two members of the NCUA board, bounced straight from promoting credit unions to writing rules and policing them. It is a typical trajectory inside the clubby world of the “credit union movement,” where regulators often embrace the view that credit unions are inherently good, and more credit unions are good for America.
Among the guests at Metsger’s luncheon was his new boss, NCUA Chairman Debbie Matz, a credit union executive between her two stints as a regulator. Troy Stang, CEO and lobbyist in Oregon for the Northwest Credit Union Association, organized the event — and had Metsger on his payroll until earlier that month. Bill Cheney, the industry’s top lobbyist in Washington, was a director of the two credit unions whose losses after the financial crisis led to a $19 billion taxpayer bailout.
A picture from the event shows the four locked in amiable conversation at Credit Union House, the swank party space built by lobbyists, for lobbying. How they handle issues facing the industry may set the stage for the next credit union crisis — or guarantee a safe and sound system for decades to come.
Metsger says his new job requires a different mode of advocacy, one focused on ensuring the industry’s financial strength. He says friendly gestures by industry advocates, like the luncheon celebrating him, won’t cloud his judgment as a regulator.
“You want to make sure you keep this arms-length, but you also need to have a dialogue with folks and you don’t want to make them feel like you’re in isolation — ‘Oh, no, I can’t be seen with you,’” he said in an interview.
Cheney said the event made sense because the northwest trade association is a part-owner of Credit Union House and Metsger had consulted for the group. “I don’t think that creates any undue influence with the regulator whatsoever,” Cheney said.
Federal credit unions were set up during the Great Depression to serve working-class people who were being turned away by banks. The 1934 law that created them says they would provide credit for “people of small means … to stabilize the credit structure of the United States.”
The industry has strayed from that mission. Fewer than one-third of federal credit union members earn less than 70 percent of the median income in their areas. Bank customers are more likely to be low-income than credit union customers, according to Federal Reserve data. At the same time, regulators are deeming a record number of credit unions “low-income” or “small,” designations that carry generous benefits, such as the ability to accept deposits from non-members and make more commercial loans. Changes in federal law also broadened the mission of the credit union system.
Credit unions have erected a sprawling advocacy machine to protect their tax break from attacks by bankers who believe it confers an unfair advantage.
There are 43 leagues like the Northwest regional group; two major national lobbies — the Credit Union National Association and the National Association of Federal Credit Unions; charitable foundations; groups representing low-income, corporate and other credit union subgroups; for-profit subsidiaries; quasi-independent companies like CUNA Mutual, which charges credit unions for services then pumps tens of millions back into their advocacy network; and even a think tank, the Filene Research Institute.
The groups collected more than $160 million in membership dues and other payments from credit unions from 2008 through 2011, the most recent year for which thorough data are available. That income helps pay for causes like Credit Union House, where dozens of political fundraisers are held each year. Four of the state credit union leagues that own the house put up more than $300,000 apiece to help build it. Hundreds of credit unions and trade groups make annual donations.
If you trace it back, all of that money comes from the pockets of credit union members who pay the fees and interest that make up a credit union's earnings.
Trade groups portray credit unions as humble Davids fighting dreaded banking Goliaths, sponsoring national ad campaigns with populist slogans like “Don’t tax my credit union.” One such ad, sponsored by the Credit Union National Association, tells viewers, “You didn’t save your money to make someone else rich” — a reference to banks, whose profits go to their shareholders.
Top executives at big credit unions, however, can pull down eight-figure pay packages and golden parachutes to rival all but the biggest banks. David Maus, CEO of the Public Service Employees Credit Union in Denver, was paid $11 million in 2010. Cheney, top lobbyist for the Credit Union National Association, received $1.3 million in compensation in 2012, tax filings show.
Promoting growth, adding risk
When they’re not defending their special tax status, credit unions lobby for rule changes that would allow them to act more like banks, take more risks and grow.
They often find sympathetic ears at the NCUA.
Chairman Matz, for example, has repeatedly urged Congress to allow credit unions to boost commercial lending. And she exempted many from the legal cap on business lending by helping them qualify as “low-income credit unions.” Between August 2012 and August 2013 alone, the number of credit unions in that group leapt 72 percent, to 1,961 from 1,140.
Most credit union managers lack the expertise to run prudent small business-lending programs, says Jim Blaine, CEO of the nation’s second-biggest credit union by assets, State Employees’ Credit Union in Raleigh, N.C.
“If you’re going to go into it, you’d better be good, and there are very few credit unions that can do it at this point,” says Blaine, whose credit union has rejected members’ pleas to do commercial lending.
His view is borne out in government audits that have found that credit unions with business lending programs are more likely to fail.