#924: ISU Credit Union CEO Rob Taylor Shares Thoughts Behind Taxation and FOM Issue...

3/30/2018

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A few weeks ago ISU Credit Union President/CEO Rob Taylor wrote a controversial Op/Ed in Credit Union Journal: "Why one CEO agrees some credit unions should be taxed." This opinion brought on a bit of heat for Rob, which he shares with us in this incredibly candid episode.

In talking with him, this issue seems less about taxation and more about overlapping FOMs hurting smaller credit unions because of a possible negative financial effect. The taxation seems to be a byproduct of the expanding FOM issue.

We also asked him to provide his take on Senator Orrin Hatch's recent comments on credit union taxation, how much support Rob has received since his opinion piece was published, where do we go from here, and much, much more.

Check it out and let us know your thoughts.

Ann D.

4/2/2018 01:29:44 pm

A few questions:

How exactly is this larger CU stealing ISU’s members?

Are they offering something ISU does not offer?

If the members are happy with ISU, why would they switch to this other CU?

I was under the impression that the key difference between a bank and a CU was that banks are a for-profit institution, and a CU is a not-for-profit with a volunteer board chosen by the membership to serve the members. Is the CEO of ISU saying that size is the determining difference between a bank and a CU? Because there are many community banks out there the same size as ISU that are not expanding geographically.

Julie M.

4/2/2018 03:46:18 pm

In response to Ann D. A CU is a not-for-profit with a volunteer board chosen by the membership to serve members, until it's not. When expansion gets in the way of serving members, the CU is acting like something it was not originally chartered for. The profits are not being distributed back to its members. The profits are being used to capture market share, in other markets instead. The problem is no single member has a meaningful voice; they only have a single vote. With a bank, normally a small group of shareholders can make a difference; not the case with a credit union. Apathy and unawareness persist.

Rob Taylor link

4/4/2018 04:25:37 pm

Julie M - the fact that the members of the credit have a vote make it so they do have a voice and choice in what that credit union is doing. Profits are being put back into the memberships hands by better rates and terms along with better access (locations) to their credit union. When a credit union gets to large its still not a credit union?? it losses its charter? that's the only reason the credit union can grow is because of its charter. No matter the size its still runs the same. Apathy and unawareness persist indeed...

Julie M.

4/5/2018 06:02:18 pm

Rob, then riddle me this. There is a certain university credit union in the Big 10 conference with two and a half BILLION DOLLARS in assets that paid a measly 0.11% in dividends to its "owner" members last year. Is that the definition of better rates? Their return on assets was 1.50% which exceeded that of every single bank chartered in their home state. How is that being fair to members? Apathy and unawareness do exist. Pull their 5300.

Rob T

4/6/2018 08:17:40 am

Julie M. - Can you please go back and research the fundamental start of a credit union and its purpose? Is it to "pay" its members? if so then its no credit union. The purpose of assets is so it can continue to lend to its members and build locations and stay in business.. I do believe the founding fathers of a credit union pooled together their money to lend and share to anyone that needed it and didn't ask to get paid but rather keep helping others at better rates and terms. Because there is a larger asset size than some that tells me they are more successful than the smaller credit unions that are content in not growing with the time. It almost reminds me of blockbuster ( I am sure you can relate to blockbuster), they refused to go with change within the streaming market and now... they are nowhere to be found. Similar stories with smaller credit unions that sit on their butts and refuse to grow and succeed and blame big brother for it... Please... Apathy and unawareness do exist indeed.... learn the history and differences before you post again... it will do us all a favor! Thanks!

Craig E.

4/3/2018 07:23:32 am

Ann D.
ISU is a successful growing credit union serving a university as it's original and largest SEG. One of the largest CUs in the nation merged a tiny CU in ISU's backyard and then applied for a FOM expansion to include ISU. Mr. Taylor's point is, why would NCUA grant the university as a SEG to an out of state CU? Has ISU CU not been successful serving that SEG? Has the other $7 billion CU suffered because they haven't been serving ISU as a SEG?

Rob T. link

4/4/2018 04:35:24 pm

The fact that the credit union merged with this larger credit union instead of a "successful ISU" has merit in its self. Now this credit union is no longer out of state and can not be labeled as such. FOM is based upon how successful your products and services offered are.. to just sit back and expect to grow because of "one large SEG" is no way to be successful. Get out and do you job Robert Taylor - Increase your FOM and gain more membership based up on your products and services.. and I do believe ISU merged with a smaller credit union in the area that is not in Rob Taylors "FOM" and is imposing on other credit unions in the area... interesting how the street only goes one way... Apathy and unawareness persist.

Matthew

4/6/2018 09:07:11 am

Lets layout a more accurate timeline here. This "Boogeyman" Credit Union actually opened a branch in the area where ISU CU has presence over SIX YEARS ago. At which point, its not an "out of state credit union". After having great success in the community, yes, they merged with another local SEG based CU that put them with locations closer to ISU. Now some 5 years later they have cultivated a relationship with the University leaders to the point of signing them on as a SEG.
Mr. Taylor's true concern is that the new(ish) guy in town is doing it better than he can and he feels threatened. He decry's protectionism in his article, but in the same breath demands it now through taxation of those who are more successful. Maybe instead of taking so much time to beg the government to protect his insecurities, he should address them and try to address them and become an institution people want to be a part of.
An online review would pretty well sum this up; 3/5 Stars
"Probably a better review than I should give them, but they are more meh than bad. Generally you choose a credit union to get better service and lower fees than banks. ISUCU has the fees and not so great service. I was ok with the fees at first because I thought the service would be good. Nope, if you don't constantly followup with them after you request them to do something it will never get done. I don't have time to sit and make sure people do their job so I have moved over to Zions and Mountain America [CU] where they understand what good customer service is."

Jeff C.

4/3/2018 10:48:25 am

Let me get this straight,

He admits the need to extend out from a single SEG to multiple SEGs in order to serve the CUs needs. Then condemns others for doing the same with his own arbitrary idea of how much is too much. He has identified a core issue for every small CU, which generating enough scale to provide the products and services every individual desires, when you only serve a single small SEG. Then he admits his primary SEG initiated contact with another CU looking for overlapping members, which he admits he needed to “fight off”.

Possibly, he should spend less time writing op-ed articles on tax-exemption (though he creates a very weak connection from taxes – seg expansion), and more time bringing the CU into a sound state, and serve the membership. Then they would grow. Then he would not see choice in the market as a threat. Then his membership may not be chaffing under his protectionism, and they would not be seeking alternative institutions.

StuartP

4/6/2018 08:59:58 am

CEO Robert is spot on. We are in a period of economic cannibalism. The large credit unions are eating its young. The large predators are eating the prey. Not economic capitalism. It is economic terrorism. PentagonFCU, Navy FCU, Mountain America FCU, Schools 1st FCU - are banks in the credit union sandbox. They hide behind the credit union charter for the tax exemption. They are pseudo-credit unions. In fact they are banks. Man up - get a bank charter and pay the damn bank tax. They pimp the small credit union for tax exemption purposes while eating them at the same time. The NCUA , CUNA & NAFCU remain blind, deaf and dumb as small credit unions are merged and liquidated into the large credit unions. Without the mergers and liquidations the large would not have the huge growth they now experience. Greed...when more is not enough. They are the whores of the credit union community.

Economic Genius

4/6/2018 01:08:20 pm

StuartP - can you please research and understand the basics of economics before making statements like above... -" Scarcity. You implicitly understand scarcity, whether you are aware of it or not. It is the most basic concept in economics, and it is more of a solid fact than any abstraction. Simply put, the world has limited means to meet unlimited wants, so there is always a choice to be made" - In essence these large credit unions are growing due to choice of the members and they are making it on their own. No matter the size of the credit union its the basic logic behind it and its operated the same - however leadership can have an impact weather they want to succeed and excel in the market place or sit back and piggy back of a University for its FOM and feel no one else can have a presence... That's foolish thinking and leadership and will be the downfall of ISU Credit Union - not the bigger institutions that offer better products and services to its FOM and want to succeed for its membership. Competition is what makes a market place thrive and if you cant see that or understand that I feel sorry for your basic knowledge in the world..

StuartP

4/6/2018 03:29:18 pm

Review the NCUA 5300 Call Reports of the huge predatory pandering pimping billion dollar credit unions. Subtract the gains (members, deposits, loans, etc.) from merging and liquidating other credit unions and they will have little growth or no growth at all. The NCUA rarely will merge like sized asset credit unions together. They frequently will merge huge billion dollar asset credit unions with those less than $100 million. So the huge grown exponentially and the fissure between huge and small continues. It is a NCUA racket only the MAFIA could envy. And the merged out credit union member never is informed of the huge tribute paid to management to facilitate the merger. It is a shakedown. it is legal and unethical at the same time. The CEO and management get a license to steal the members capital/net worth. And you thought the members owned the credit union. Silly you. Recommendation: liquidate the credit union and distribute the liquidation proceeds to the merged out credit union member. Now the member can make an election based on "free will" to open an account at a real bank or a pseudo-bank billion dollar credit union. It's not competition whem the NCUA gifts credit unions by way of merger/acquisition/liquidation to billion dollar credit unions. Better still the NCUA should obtain a RFP (Request For Proposal) and let banks and other financial institutions bid on the credit union in merger. Highest bid prevails and the members are the real winner. Under existing rules the members are the real loser. Multiple bids is real competition. What exists now is a NCUA monopoly and the member is the ultimate loser - they have no choice. The ballot is a joke. Its NCUA rigged to benefit the merger with no meaningful discussion about costs, and pay-out to management, and huge employment contracts with no work or production requirements. It is the lack of leadership at the NCUA that will collapse the small credit union population. The NCUA objective fewer credit unions, fewer problems, fewer credit unions to audit. You mention bigger institutions...thinking WesCorp, MembersUnited, USCentral, Telesis, is that how you define leadership? They all failed and losses were in the billions. Look at how well the taxi medallion monopoly benefited the credit union industry. Can you say: NCUA Assessments?

Econ Genius

4/9/2018 10:04:27 am

StuartP - I am glad you can use google search, use bank Jargon to try and confuse everyone... Once again it comes down to basic econ - There is always a choice to be made. These large CU are not searching for small CU to take over - in fact its the opposite. These smaller CU seek to be merged and you can attack them all you want for not sticking together or seeking other small CU to merge with. Once the merger happens guess what... The member have a choice - stay with that new CU or take your accounts/loans elsewhere. No one is forced to stay with the new CU or forced to stay during the merger.. Basic ECON - everyone has a choice.. Lets keep it simple and what really happens. NCUA doesn't get profits or benefit from it and most of the time these larger CU take a hit for merging with the smaller ones and have to write of debts lost... Interesting to think about it... Its the Small CU seeking the merger...

Robinhood

4/9/2018 02:49:37 pm

Econ Genius - When a bank acquires another bank, the acquired bank shareholders are compensated for their capital investment, at a multiple of book. When a credit union acquires (ooops, merges, politically incorrect there) another credit union, the acquired credit union members get nothing. Their capital is taken away from them. Their multiple of book is 0.00. It would only seem fair that a capital distribution is made to compensate those members of the acquired credit union. But alas, there is none. I guess a 'free lunch' really exists!

Batman

4/9/2018 03:58:21 pm

Robinhood - while you bring up what "banks do" why don't you also explain the difference between a credit union and a bank. Then the difference in how mergers or acquisitions will make more sense to you.Econ guy is right - the smaller credit union essentially comes begging for a merger to the larger credit union because it cannot or does not want to meet the demands of their FOM. Everyone has a choice with mergers - stay or don't stay no one is making you stay. Crazy thing about these larger institutions is their FOM continues to grow and succeed in these mergers.

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#924: ISU Credit Union CEO Rob Taylor Shares Thoughts Behind Taxation and FOM Issue...

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