When Brent asked me to be a guest blogger, I initially was writing a post on my love of NPS. But in the past week have had the opportunity to spar with Ron Shevlin again on the subject, so you can go there for that.

Then I read Doug True’s guest post. What’s on his amazing mind. It got me thinking. I just celebrated my 28th year in the credit union movement. If you told me 28 years ago that I’d be a guest blogger on Open Source CU—huh? There are about four words in that sentence that didn’t exist 28 years ago.

So, what’s on my mind?

I’m in Oshkosh this morning. Watching the news.

I just heard my copy of USA Today drop in front of my door.

Open it.

Front Page: How Rising Home Values Placed your Finances at Risk.

Hmmmmmm…you mean all of the VISA Home Equity cards weren’t a good idea?

It goes on to say….”Banks urged owners to borrow more, based on ‘phantom equity’ that has vanished.”

Flooding Threatens Outdated Levees

I am seeing tons of evidence of last week’s flood in Oshkosh. Very sad.

Sports: Hmm. Celtics won. Probably not the best choice for the announcement:

“Celtics Reign, End Drought.”

Money section: Banks Raise Penalty Fees for Clients’ Overdrafts.

Too depressing.

Let’s see what my google alerts give me. Ahhhhh…...Grace.

What a beautiful word. Grace.

Rita Haynes, CEO of Faith Community United Credit Union appeared in the Dallas Morning News yesterday. “Give Credit Unions the Credit They Deserve ” was the title of the article.

They have created the “Grace Loan” – a small, short-term loan that requires the borrower save a portion of what they would have given to the payday lender in fees, thus teaching them good financial habits and helping build a credit history for their goals.

It got me thinking about the history of credit unions. Our purpose in society. Our cause.

Grace: Pay day lenders are charging interest rates that can reach 400 percent and cripple those who are least able to bear the consequences of debt.

History: The first credit union in North America, the Caisse populaire de Lévis in Quebec, Canada, began operations on Jan. 23rd, 1901 with a ten cent deposit. Founder Alphonse Desjardins, a reporter in the Canadian parliament, was moved to take up his mission in 1897 when he learned of a Montrealer who had been ordered by the court to pay nearly $5,000 in interest on a loan of $150 from a moneylender.

Grace: While payday lenders are geared to take advantage of the poor, credit unions – with investment pools of money formed by members themselves – are geared to help the working class or low-income families establish good credit.

We counsel folks to take loans that are appropriate for their circumstances and in this way protect their members from crushing debt and encourage a habit of savings.

History: Credit Unions were chartered to make loans for provident and productive purposes only.

Grace: We teach someone how to plan and save and become a good credit risk.

History: Credit unions were chartered to promote thrift.

Thank you Rita.

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Denise is a rambunctious Culture Consultant. Her goal is to help credit unions question everything and to renew their faith and their commitment to the credit union brand. Read more from Denise on her blog Cult-ivation .

The Aite Group LLC reported that 33 percent of credit unions with over $100 million in assets are planning to convert to mutual savings banks. Likely these converted credit unions will ultimately become for-profit, stockholder-owned financial institutions.

One-third of this class of credit union represents $193.8 billion in assets, assuming the 33 percent of converting credit unions is spread across the 1200 representative credit unions in this class evenly. In turn that represents over a quarter (27 percent to be exact) of all credit union assets. One-quarter of the money in credit unions is on its way out the door.

In 2006, fee income exceeded return on average assets (page 4 of the 2006 report, if you’re interested) credit union-wide for the first time ever as CUs looked for ways to replace money drained away by compressed interest margins. Banks are using the same tactic.

At the same time, Nobel Peace Prize winner Muhammed Yunus is considering starting a credit union in the U.S. There are movements of varying size and momentum, but movements nonetheless, to provide alternatives to banks through such things as peer-to-peer lending, democratically-run, socially responsible banks, and account aggregation and financial planning using social networks.

Isn’t the message credit unions preach differentiating themselves from banks now even more relevant – even hip?

So, then…why leave?

The Wall Street Journal published an article titled “Beyond Payday Loans” last week, written cooperatively by political cartoons Bill Clinton and Arnold Schwarzenegger.

In the article, they discuss the $8 billion problem of payday lending.

Here’s a snippet:

Here is one initiative that can unite progressives and conservatives as well as business leaders and community activists: helping the “unbanked” enter the financial mainstream by opening checking and savings accounts, and working collaboratively with financial institutions and community groups to develop and market products that work for this untapped market. This will put money in the pockets of individuals and grow the economy. And it won’t cost taxpayers a dime.

Is it just me, or do Bill and Arnold seem to be channeling the credit union philosophy?

Two credit unions tackling the problem are Wright-Patt CU with their StretchPay loan and Prospera CU, with GoodMoney.

StretchPay is a short-term loan of either $250 or $500 available to Wright-Patt members. The loan comes with a low 18% APR, and is payable over 30 days.

GoodMoney, with branches located in Goodwill stores, offers short term loans at half the rate of the average payday lender, lower-fee check-cashing, bill payment options, wire transferring, and financial education through Goodwill’s Financial Information and Service Center.

Check out this video on GoodMoney from the 2007 Herb Wegner Awards:

Both initiatives stem out of the National Credit Union Foundation’s program REAL Solutions. Full disclosure, REAL Solutions is a client of ours – it’s how I’ve been exposed to some of the awesome things they’re doing for the movement. REAL Solutions is helping credit unions develop products to serve low-income and unbanked consumers.

When we were discussing this, Charlie asked this question:

Are CUs really helping people by making it easier and the rates lower, rather than helping people get into a better financial habit?

I think offering attractive alternatives to predatory lending is step one in the process, but it is kind of a band-aid on the greater question – How do you truly effect people’s financial behavior? Can it be done?

(Also, hat tip to Payment News for highlighting the WSJ article.)

Ron Shevlin said something to Matt and I at dinner a few months ago that resonated with me. Credit union websites should be operational. Sites should be a resource for staff to solve problems, not just a marketing tool.

Coast Capital Savings Credit Union does a great job of communicating its voice. It’s aggressively casual. It communicates the personality of the credit union and is an extension, perhaps even the center piece, of the marketing campaign. Creatively, it’s good work.

I hope more credit unions don’t do this. I hope they realize Coast Capital is a rare breed, willing to cop an attitude in a very conservative, very attitude-less industry. There’s only room for one smart-ass in the class.

Instead, when creating content for a site, credit unions should focus less on what the Coast Capitals of the world are doing and more on what their MSR’s are doing. Don’t worrying about fluffy, fun, catchy content – go the other way. Become operational. Become informational. Creative writing is expensive and difficult to maintain (insert picture of frazzled brand manager wringing her or his hands and asking “is it ON BRAND???!!!” with every update).

This idea of sites being operational is something that as a web development firm, I’m going to discuss with our clients. It’s something any of you in credit unions out there reworking websites and creating copy might consider. Leverage what you do well when developing content.

Don’t be flashy. Inform. Solve problems. That’s what CU’s are good at. And consider the first audience to be your front-line staff. Put information on the site that they can use to solve member problems when they call or come into a branch. Consider what information CAN go on the site. I’m sure most operational CU documents might find a home on the website for your staff and membership to use. PDF’s of forms; outlines of procedures; how to find your routing number.

At that point, it really DOES become a resource. It informs. And information drives traffic.

One of the saving graces of the leftover-filled dead week between Christmas and New Year’s Day are the year-end wrap-ups. No wrap-up story ever won a Pulitzer, but they’re interesting to read. So, to the pot-luck of lists and reprisals, I’m going to add my own.

This being a blog, and therefore collaborative, I’m eager to hear everyone else’s contributions to and opinions on the OpenSourceCU.com Top Credit Union Stories of 2007 (Now With Resolutions!). During this week of warmed-over dressing, think of this list as a sizzling sirloin steak, hot from the fire, ready for you to tuck into (for you vegetarians, think of it as whatever it is you tuck into that’s really satisfying…salad maybe? potatoes? tofu?)

My seven top credit union stories of 2007…bon appetit!

No. 7: The iPhone

It has its flaws. It’s wildly expensive. It’s great-grandfather was the Newton. But this zeitgeist-expanding gadget moves the bar for mobile computing and, ultimately, mobile banking services. It also allows for easy use of social media and opens the number of communication channels. Think about the annoyed member posting to a blog while in line to wait on a member service representative to fix a mistake another MSR made. If someone using a iPhone actually stands in lines waiting for MSR’s.

Resolution: It’s an antiquated attitude that technology and social media are just toys. I would love credit union staffers to open their minds to new technology and look at it from a perspective of early adopters and ask some simple questions: How is this used? How does this impact me? How could this impact my credit union?

Sub-Resolution: Personally, I need to avoid being a curmudgeon myself and open my own mind and ask similar questions. Keeping up with technology is hard, but invaluable.

No. 6: Gigi Hyland’s calling for a more consumer-centric approach to products.

Said Ms. Hyland in January: “The main themes of my remarks were to urge credit unions to continue to be consumer-centric in product and service delivery and to provide insight into the regulatory perspective on current issues, such as BSA and membership growth.”

Okay, this isn’t earth-shattering, and there are discussions like this all the time, but it’s validation from the top that CU’s need to approach their products and pricing the same way other companies do – with a focus on what the market demands.

Resolution: Credit Unions need to leverage that tax-exempt status to continue (or in some CU’s cases start to) offer cost-competitive pricing, provide dividends and serve immigrants and under-served communities. I’d also like to see credit unions trim their product offerings to better serve their membership and community. If you cannot profitably provide dozens of products and services, then take a good, hard look at your product mix and eliminate those that are underperforming or aren’t profitable. Don’t keep up with the Jones’s. Keep up with your field of membership.

On the surface, this is an oxymoronic request, but really, it’s about finding a niche and drilling down and serving it. Some CU’s can profitably operate wide. Most cannot and need to focus on their core membership, find what that it needs and really serving it in ways banks and other CU’s can’t.

No. 5: Hackers steal 45.7 million credit card numbers from TXJ Companies

The breach of security is the largest in history and reflects the importance of CU ID theft prevention policies. Given that credit unions have a 3.8 percent market share in revolving credit, the breach affected over 1.7 million credit union members. And that’s just credit cards. Debit cards, with fewer consumer protections, were likely part of that mix and even a small percentage would be thousands if not millions of debit card numbers.

Resolution: Credit Unions should treat debit card fraud the same way they treat credit card fraud. See top story No. 4 for support of this resolution. Members need to know all their transactions are secure, credit or debit. From my experience in credit union operations, I know this is expensive, but a credit union should act in the best interest of its members.

No. 4: CURIA momentum

At latest count, 141 members of the House of Representatives are signed on as co-sponsors of H.R. 1537. By raising the percentage of assets from 12-ish to 20 percent, this will allow CU’s to better serve under-served areas and small businesses, which in turn creates wealth in a community.

Resolution: Credit Unions need to mobilize staff and, in turn, membership to ensure members of Congress support H.R. 1537 and understand the difference and mission of credit unions. An adage of advertising says that when the marketing director of a company is tired of hearing his/her advertising message, it’s at that point that its impacting the consumer. Talk about it until you’re sick of it.

No. 3: Wings/Continental credit union flap

Nasty, nasty stuff.

Resolution: Stop doing this.

No. 2: Zopa

Peer-to-peer lending could be a threat to credit unions, given credit unions’ philosophical mission. Instead, Zopa is partnering with credit unions, each improving each other’s credibility and reach. I’m excited about this partnership.

Resolution: Like the No. 7 resolution, credit union staff needs to be more plugged into technology and how it affects their products, services as well as how members use it. It’s a competitive advantage to embrace it and folly to ignore it.

No. 1: The housing bust

Although credit unions didn’t seriously contribute to the questionable practices that puts the country on the precipice of recession, every credit union every member will be affected. As much as credit unions need to compete, they also must council and advice as part of their financial services product mix.

Resolution: With a tax-exempt status, strong capitalization (in general) and sound, conservative policies and procedures, credit unions are primed to be part of the solution, right?

There you have it, my year-end list complete with a side of resolutions, served hot and fresh. Enjoy!

It’s not the Beatles at Shea. Eventually, it could be bigger.

Zopa launched in limited release today in the US with a wider launch next week. Sure, the peer-to-peer lending site Prosper is already a player in the US market, strumming its own eBay-inspired, populace-driven power-ballads out for nearly two years. Zopa’s British Invasion brings a slightly different model to these shores.

Borrowers can apply for a five-year loan, with interest rates ranging from 8.75% to 16.99%, depending on their credit profiles. If approved, borrowers can get their funds immediately. From there, they can create profiles to explain their reasons for borrowing and can promote their profiles on the Zopa Web site, their own blog or other social-networking sites to appeal to friends, family and others willing to help them with their loans.”

Wall Street Journal, November 28, 2007

Six credit unions, including Forum Credit Union, will be matching the Zopa lenders and borrowers. In addition to P2P lending, US lenders can purchase Zopa-branded CDs to mitigate risk, an option not available to Prosper. Borrowers secure loans from this capital. It’s a familiar three chords, no?

It combines social media in a way Prosper hasn’t. It mitigates risk for lenders. It’s working through the CU movement. The Beatles borrowed from Elvis and Buddy Holly, and Zopa is innovating in its niche as well.

Of course, we’ve been listening to bootlegs and waiting for it to launch in these shores for over a year. Our fearless leader Matt provided some numbers in his September 2006 post. Netbanker.com says it could be a $9 billion market by 2017.

Keep in mind, too, that Zopa’s cost structure is significantly lower than banks and CUs, which has led Zopa to compare itself favorably with its US partners. Working with credit unions as a point of entry is a good strategic move for both Zopa, who gets regulatory assistance and the credit unions, who align themselves with a potentially industry-changing technology.

This invasion may not have the screaming teenagers or Ed Sullivan, but it is causing a small but significant uproar.

I participated in a Twitter conversation this morning sparked by this CUNA News Now story.

I was reminded of Don’t buy stuff you cannot afford.

It was brought up that “People are going to do it no matter what. Would you rather they go to a check cashing co or a CU?”

My reply was that I would rather them go to a CU than a payday lender. I just wish the CU would automatically open a Holiday Club account with every new loan to help these folks pay for next year.

Two and a half years ago, I wrote about Piggly Wiggly’s biometric payment pads.

Novel idea, but not a particularly great one.

Today CU Times wrote about Shell gas stations in Chicago piloting biometric payments. Now before we get all “wave of the future” about this, let’s consider a few reasons why this isn’t that cool.

As this Tech Digest post points out,

• You’ll have to link your fingerprint to a credit card or bank account first.
• How much time does it really save? Swiping a card just can’t take that much longer than a fingerprint scan. In fact, I’d bet it’ll slow things down.
• The Mission:Impossible-ish scanner would be just one more thing I’d have to touch before squirting some Purell on my hands as soon as I got back in my car. Thus, contactless = more sanitary, right?

I don’t know what tomorrow’s wallet will look like, but I doubt it resembles my index finger.

I’m already bracing for the “Donny, you’re out of your element” comments that I usually get when posting on matters of the economy.

Fire away, haters.

From a Yahoo! Finance article called The $915 billion bomb in consumers’ wallets -

If there is an international precedent the U.S. should be watching, it’s actually that of the U.K. British consumers are just as overstretched as Americans, but since the real estate market there rose faster and fell earlier, they’re about 18 months ahead in the credit cycle. Since the last quarter of 2005, credit card delinquencies and charge-off rates in Britain have risen as much as 50%, forcing banks to take huge write-offs.

It’s a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages. That’s suicidal, of course, given that credit card interest rates are more than double even the heftiest mortgage. Keep your fingers crossed that it’s not a trend that crosses the Atlantic.

Five years from now, will I carry plastic cards in a leather wallet?

Some context: I already don’t carry cash. My wallet currently includes a few CCs and a debit card, my insurance card, DL and that’s it.

Also, I’d classify myself an early adopter of newfangled technology.

Will I have a wallet at all?

American Banker’s Morning Scan reports today that Countrywide Financial is about to run up their phone bill. They’re about to start calling $16 billion worth of folks with ARMs that’ll reset before the end of next year. They want the refinance. Shouldn’t we?

Why shouldn’t CUs get aggressive in refinancing these loans? Hey, you’ve got access to the member’s credit reports. You know what an ARM looks like… you know that seeing Wells Fargo Financial or Citi Financial or HSBC on the credit report with a mortgage means you could help many of these folks dramatically – many are resetting ARMs.

We won’t be able to save every ARM. Yup, a lot of our members took loans that in hindsight weren’t the best move. Let’s help the ones we can.

BTW, kudos to American Banker for redesigning their site and including a Banker’s Blog Watch. Double kudos for putting us on there.

Check out Patelco CU’s gr8 r8 Savings, where members up to age 21 get 8.00% with $1 minimum balance.

On the marketing side, I don’t know if they’re doing anything with social media to promote the account, but Common Wealth CU is proving that product tie-ins can fit in social media.

Wouldn’t it rock if they had a gr8 r8 Checking where balances could be checked via SMS? How about an iPhone/iPod Touch-optimized part of online banking and the account sign-up process?

Christopher describes a current i3 project on the Nexus blog -

Here’s the general idea. Create a credit union island in Second Life, an online virtual world created by its “residents,” that would function as a central online location for the industry. Participating credit unions can set up a portal to the island through their Web sites. Check out the video below.

The island itself will include financial management games, virtual stock market tickers (yes, there really are virtual stock markets in SL), and a simulated currency-exchange-rate display. Even cooler is that credit union members will be able to use a virtual ATM to convert their Linden dollars (the virtual currency of SL) to U.S. dollars and deposit them directly in their CU accounts. No one else does that, not even Wells Fargo, which was an early adopter of virtual worlds.

The comment thread is where it gets even more interesting. Take a gander.

BTW, I love the idea of the ATM but not the idea of actual staffing. Also, I’m not too jazzed about the financial management games idea, but effective implementation could change my mind.

Just my two lindens.

Giles writes on the Zopa blog in Opaque banking practices -

It’s old news that most people don’t believe banks operate in their customers’ best interests, and many believe their profits are excessive. But the public had always regarded the banks as safe. Now it turns out they may not be after all.

Worse still, the man on the street can’t actually assess how safe or otherwise they are. The way some of them operate is impenetrably complex, and seems almost deliberately so. People might have become used to hidden catches in the small print, but now they are faced with potentially much bigger problems, hidden away in the banks themselves.

Reassurances from the management of Northern Rock were disregarded as swiftly as you’d expect. Similar words from the Government seemed to fan the flames of nervousness and doubt rather than help. In no time huge queues formed outside Northern Rock branches as customers demanded their hard earned savings.

In order to rebuild trust, banks will have to become radically more open and transparent. And this means some of the more exotic and opaque practices – like those that caused Northern Rock’s crisis – may have to be consigned to the City’s bin. This may leave some banks struggling on the road back to reality.

Meanwhile, back at Zopa, the last few weeks have served to shed new light on the appeal of Social Lending. Since we launched we have been proud of the innovative way we have created for people to bypass banks and get a better deal directly from each other. And we have done this by lending responsibly, and not to the sub-prime market. This can be seen from our default levels of below 0.1% across all of our lending.

Let me pause here to repeat that last line. “This can be seen from our default levels of below 0.1% across all of our lending.”

Giles continues:

We have also long been proud of our transparency. From very simple, and low charges, through to letting our members see who they are lending to or borrowing from.

But the last few weeks have also highlighted another key attraction of Zopa’s operation – ‘tangibility’. It is easy to see exactly what is going on. People are borrowing and lending between each other, with Zopa making it much safer and easier to do. There’s no highly paid City Slicker buying and selling futures, derivatives, Bizarre Bonds or whatever to make Zopa happen.

I haven’t written much about Zopa in the past year. When they make it to the US market (soon from what I hear), I hope they continue to speak in this same straightforward way. They’ll gain market share.

This Techcrunch post announces Mint as the most bad-A of the TC40.

Why should you care?

Look at the screenshot on said Techcrunch post and say with a straight face that isn’t impressive.

Most FIs will be calling an emergency meeting (right after you sign up for the service, because you know you will).

FIs have long known “our customers/members won’t switch – switching costs are too high.”

Not anymore. Underwhelmed customers/members can now put a dollar amount to what you’re costing them.

As Tony puts it, “THEY will find the best deal for YOUR members. Shouldn’t YOU be doing that?”

“Switching cost” is now “switching savings.”