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Difficult Times at Our Credit Union

174 points by monort 11y ago

dang 11y ago
The related NYT article is at https://news.ycombinator.com/item?id=10626210 https://news.ycombinator.com/item?id=10626210. The latter thread had many comments but we merged them here.
_Codemonkeyism 11y ago
Can someone explain what was the idea to serve the under-served that archive.org should do this?
- patcon 11y ago
  I was a member a spent some time talking with one of the ladies running the credit union -- they set up shop in an area where there were socio-economically depressed communities, and were soliciting members from those underserved communities (if i remember correctly) EDIT: Nothing necessarily to do with archive.org, except that Brewster is a great guy and he happens to really dislike banks, so he looped in a friend involve in the banking sector
- gcb0 11y ago
  just someone who has a great idea to help the world having another one.
  - jacquesm 11y ago
    It would probably be a good thing to keep archive.org and this credit union thing separate. Right now this could easily be taken as things not going well financially for archive.org.
- mjs 11y ago
  I'm puzzled by the name too. How was the Credit Union funded? I'm assuming no archive.org money went into it--?
raverbashing 11y ago
Whenever people push for more unbound regulation, this is what happens. The big players can hire another lawyer and get the regulators for a tennis match at that fancy club while the small players drown in paper. Ah, and also this: ". As an engineer, when I looked at how the transaction systems work, I was shocked to see few technological safeguards. I imagine there is major fraud activity. Ironically, the bankers and regulators need exactly the technologists that they are pushing away."
- gcb0 11y ago
  because 2008 made out clear that no oversight works just fine. those are laws to protect laws placed to protect banks et al long before. the original laws give some state insurance for a very cheap price, which can easily be abused if someone start a bank/union, give lots of loans to a partner and then crash said bank/union. ... which is exactly what the 2008 was about if you stop believing all banks were surprised by the crash... edit: and yes, they fail mostly at bribes. nobody does business with any government without bribes. maybe he is not such an accomplished banker as he believed if he never got to that part. i know in construction you won't get far without it.
  - mistermann 11y ago
    > nobody does business with any government without bribes. maybe he is not such an accomplished banker as he believed if he never got to that part. I personally consider banking and government in general to be fairly corrupt, but do you have any evidence that literal bribery is common?
    - Spooky23 11y ago
      Handing a bag of cash to someone isn't the way corruption at this level works. That happens with low level people, who trip up and get caught. It's more a combination of favors, revolving door employment and consideration for friends and family.
  - TDL 11y ago
    I keep hearing this argument, 'no oversight', and I have yet to see proof of it. Finance remains the most heavily regulated industry, as it has for decades.
wjnc 11y ago
It's often a lot cheaper, at least in the Netherlands, to buy an unused banking license than to actually jump through all the hoops to get a new license. Reading this, this regulator seems to have a lot of leeway to propose arbitrary restrictions thus hampering business in the interest of protecting customers. It's hard to do a cost-benefit on this type of customer protection by the regulator. Related reads: * Rule of Law in the Regulatory State by John Cochrane [1] * WebMD versus FTC [2] [1] http://johnhcochrane.blogspot.nl/2015/08/rule-of-law-in-regulatory-state.html http://johnhcochrane.blogspot.nl/2015/08/rule-of-law-in-regu... [2] http://www.scmagazine.com/dismissed-labmd-case-could-impact-ftc-authority/article/454278/ http://www.scmagazine.com/dismissed-labmd-case-could-impact-...
- deleted 11y ago
  [deleted]
openfuture 11y ago
The system is so broken it's not even funny.
- SuddsMcDuff 11y ago
  The numbers speak for themselves, a sharp decline in the number of credit unions for every year since NCUA was formed. It's hard to imagine that this wasn't the intention.
  - Spooky23 11y ago
    I posted a similar reply in the other CU thread, sorry for the repetition. You can only draw that conclusion if you put on blinders and look at it one-dimensionally. Lots of things happened around the same time that NCUA was founded. Visa had turned into a member-licensing system, and consumer credit was become much easier to get. Computerization started happening and made banking operations more scalable. The bread and butter of credit unions were small, workplace communities that offered savings and small loans. Most didn't even offer checking accounts. In the days when many blue-collar workers with variable wages were unable to get bank credit, they offered a accessible way to get small personal and secured loans and save. My father in law was a fireman, and there was a department credit union. The firehouse captains would come around with a boot and envelope on payday to collect deposits. New folks on the job would get loans for uniforms and boots in advance of reimbursement by the department. To 18 year old firemen in the 1960s, no consumer credit was available. Now, consumer credit is trivial to obtain, so that market is drying up. You also have to look at small credit union operations. When they started diversifying into stuff like auto-loans, many began to fail because they weren't equipped to handle the more sophisticated business model. They were, after all member owned cooperatives doing small loans. NCUA ended up holding the bag for those lost deposits, and tightened up standards, which in turn led to more CU shutdowns and mergers. A very similar story applies to the former bedrock of american banking -- the small savings & loan. As their business because commoditized and the commercial banks consolidated, their oxygen got cut off.
- cubano 11y ago
  It's not broken at all. It's running exactly the way the entrenched players want it to run, squashing competition with heavy-handed regulators and killing innovation at pretty much every turn.
gcb0 11y ago
i think the first step here, since they accepted defeat at some level, is to start releasing names of everyone signing those letters or visiting them. giving names that newspapers can go after and get names higher up is always helpful.
- mifreewil 11y ago
  I think you missed the issue. It's not about individuals - it's a systemic problem.
easytiger 11y ago
If you want to set up a subprime loan shop (which it seems he did) just do it. Don't hide it as a community benefit
- 001sky 11y ago
  don't understand this comment. what about current accounts, checking, transfers?
  - easytiger 11y ago
    The primary motivation was lending, as mentioned several times in the article.
    - URSpider94 11y ago
      Do you not believe that responsible lending can be a community benefit?
    - karlkatzke 11y ago
      He mentioned that he didn't want to start a predatory subprime loan shop. He wanted to offer non-predatory lower interest loans to higher risk clients, in concert with banking services that are difficult to provide to higher risk immigrant clients like checking and savings accounts and debit cards. But the NCUA wouldn't allow him to set interest rates lower or offer checking/debit accounts.
      - zeveb 11y ago
        > But the NCUA wouldn't allow him to set interest rates lower That indicates that those rates aren't actually predatory at all, but required in order to defend against default. Which really isn't all that surprising: in the case of payday loans and such, there are many operators, and anyone who could lessen his profit-per-loan could very easily snap up a great number of customers, increasing his net profit. That no-one has done this indicates either collusion or that the rates are fair.
      - 11y ago
c0achmcguirk 11y ago
The regulatory burden facing credit unions from the NCUA is not near as bad as what banks face from the FDIC. Right now the FDIC regulators take the stance that your bank is "guilty until proven innocent." One bank was getting examined to determine if it was engaging in unfair lending practices. The regulators pulled 6 loans at random from the bank's portfolio. 3 loans were to men, 3 to women. Then they looked at the average interest rate on the loans to the men, the 3 on the loans to women. They found a .5% difference between the male and female averages (the men had the lower rate). The regulators fined the bank several thousand dollars and required it to adopt new processes to ensure that future loans were "fair." Had the regulators looked closer, they would have noticed that the three random loans to men all went to older men with high credit scores...and each male was in a white collar job (doctor, lawyer, etc.). The loans to women, which were pulled at random, were each to younger women, just starting their careers. These were auto loans to a first time car buyer, etc. The regulators didn't care about the details and punished the bank anyway. You are guilty until proven innocent, and they don't expend a lot of effort trying to prove you innocent. In this day and age of big data, a bank or credit union's best bet is to use the power of business intelligence to continually prove that it is lending fairly in the community and climate that it dwells.
- MrApathy 11y ago
  Could you provide a source for your anecdote? I find it hard to believe that the FDIC would look at a mere six loans when their own guidelines [1] call for at least eight, and that's with a population of a mere ten loans. For a higher level of precision on any decent loan portfolio the sample size will be at least 50. Furthermore, having dealt with regulators before, there's always an opportunity to provide written responses with requests for data or an appeal process. Not hard for a bank to argue that a sample size of six isn't representative of their overall lending practices. [1] (Warning: PDF) https://www.fdic.gov/regulations/compliance/manual/11/XI-10.1.pdf https://www.fdic.gov/regulations/compliance/manual/11/XI-10....
  - c0achmcguirk 11y ago
    It was an anecdote from Bill Goedken at the 2015 CUNA CFO Conference. It was from the session "Mining Gold – New Trends and Discoveries in ‘Big Data’ That Will Help Your Credit Union Compete". I've linked to the slides ([1]) but there was no mention of the anecdote in them. [1] - http://www.cunacouncils.org/cuna/assets/files/144820_Goedken_cfo2015.pdf http://www.cunacouncils.org/cuna/assets/files/144820_Goedken...
Spooky23 11y ago
There is a more nuanced story here. Blaming NCUA for the decline in small credit unions doesn't really tell the story. Credit unions generally weren't underwriters of mortgages -- they were small savings institutions serving a community that wrote mostly small consumer loans with easier underwriting standards. Nowadays, getting consumer financing is pretty trivial. So I don't need a CU to underwrite Christmas. Also, the definition of "community" is watered down as to be meaningless. The credit union that I'm a member of is open to anyone living in like 9 counties in my area and is the 4th largest bank in terms of assets in the region. So why would I join or start the "BigCo Helpdesk employees CU" when I can get most of the customer benefits and more services from a bigger CU? I think the expectations here that these guys would suddenly appear and be writing mortgages in a short period of time is an unrealistic goal, and probably damaged their credibility with the regulators. The same regulators are easy scapegoats because they can't talk back.
coldcode 11y ago
Banks don't like competition or new ideas. Regulators have an easier time attacking small potatoes than for example JP Morgan, which can generally do whatever they want.
- bko 11y ago
  J.P. Morgan Adds $2.6 Billion to Its $25 Billion Plus Tally of Recent Settlements http://www.wsj.com/articles/BL-MBB-14229 http://www.wsj.com/articles/BL-MBB-14229
Sidnicious 11y ago
I have checking and savings accounts at the Internet Credit Union but I don't use them. - I'm in NYC. ATMs that don't take a surcharge are few and far between. There are two near my house, at a McDonald's and a bodega. According to the locator, only one ATM in all of Manhattan takes check deposits. An iPhone app called CU24 ATMs can find them (be sure to switch the filter to "surcharge-free ATMs" because by default it shows all ATMs), which is nice. - Online banking is done through a website called It's Me 247 (https://obc.itsme247.com/237/ https://obc.itsme247.com/237/). It's frustrating to use — to log in you enter your account number, password, and the answer to a security question (it can't remember your browser). There are no mobile apps, and it doesn't work with Mint. There is a mobile site, but like the desktop site you have to log in with your account number, password, and a security question every time you use it. - Their main website is actively broken on my phone (it's locked to 1x zoom and you can't scroll horizontally) due to an incorrectly-used <meta> tag. Jordan himself wrote back to my email after a few days to say that he was working on mobile support, but the website was never fixed. (This was >1 year ago.) - I can't direct deposit into my savings account because it shares an account number with my checking account. - There's no way to pay bills or send checks online. - I called to order checks when I signed up. I never heard back and never got any checks. In the end, I was never able to switch from Chase, which has clearly-marked ATMs all over the city (most of which accept checks) and a nice mobile app. If I were going to use another bank, it'd probably be Simple, which prides itself on being easy to use. I wanted to love the IAFCU but day-to-day banking was too frustrating. On the other hand, I had no idea they had all of these regulatory difficulties, and their mission to provide banking to the under-served sounds an order of magnitude more important than keeping people like me happy.
- terinjokes 11y ago
  I switched from Chase to Charles Schwab Bank. Decent mobile app, can take pictures of checks to deposit them, can use any ATM without fear of surcharges, I've got checks should I need to use them, great customer service, and works with the online budget management software. Probably a lose leader to the investment products, which you don't have to use, but I'm extremely happy.
- jcheng 11y ago
jawns 11y ago
My guess is that, given the choice, practically everyone would prefer to bank with a member-owned cooperative, i.e. a credit union, than a for-profit bank owned by outside shareholders. I mean, think about it: sneaky fees and outrageous surcharges are anathema, because it's more important for members to be satisfied with their experience than to wring out every nickel and dime of profit at the expense of customer satisfaction. And credit unions have been around a long time, so we know the model works. What's stopping credit unions from being competitive against traditional banks are the regulatory hurdles. For instance, all credit unions' members must have some common affiliation, such as a small geographic area, or a common employer or alma mater. So you can't just create a credit union that competes with the likes of Capital One 360 or other online banks, even though it would be beneficial for that to happen, because the law says it can't be open to just anyone. Although credit unions are perhaps the most successful and widespread example of cooperative businesses in the U.S., we Americans have not really embraced cooperatives, and that's a shame. Look at the U.K., where one of the most popular grocery chains is a co-op, or at Mondragon in Spain. Wouldn't it be awesome to have something like Walmart, but entirely member-owned? Instead of all those profits going to a relatively few wealthy shareholders, they'd go back to the members in the form of lower prices. Technology has made it easier to gather like-minded people to start cooperatives. I would love to see a Kickstarter-like service take it to the next level.
- acveilleux 11y ago
  Where the laws are more relaxed, credit unions can be competitive. The Desjardins credit union (technically a federation of credit unions) based out in Quebec is a good example, they have 5.8m members and 254B$ of assets. They even have branches in the US, but those are chartered as banks and owned by the federation. That said, it's hard for a cooperatively structured to be nimble and the bureaucracy and internal politics are legendary.
  - lostcolony 11y ago
    Banks are known for their nimbleness, lack of bureaucratic red tape, and lack of internal politics?
eggoa 11y ago
Am I missing something? They say they have "$1 million in donations spent ... and $1 million in the bank to back any bad loans". For a bank/CU this sounds like pocket change. Later they say they have "almost unlimited capital". What gives?
- HillRat 11y ago
  That's my first reaction as well; NCUA is first, foremost and entirely concerned with solvency and capital adequacy requirements, so it's no surprise that they weren't jazzed about a tiny CU taking on high-risk and expensive products. I haven't done a CAMEL score on them (and haven't touched CU finances for several years so I'm reaching back into my memories here), but you can get their financial performance and analysis data at [1], charter number 24846. These guys obviously had the best of intentions and a real desire to make a better world. I wish they could have found a way to clear that path, but I don't think that a CU was the right institutional form. [1] http://fpr.ncua.gov/OnlineFPR.aspx?cu_number=24846 http://fpr.ncua.gov/OnlineFPR.aspx?cu_number=24846
panglott 11y ago
Why was this "a new kind" of credit union? It seems like it was an ordinary credit union that briefly toyed with the idea of BitCoin.
- galuvian 11y ago
  The article doesn't go into much detail, but since they wanted to 'help non-profit workers and the poor' my guess is that they wanted to offer loans to high risk people and the regulators said "NOPE!"
jellicle 11y ago
I am a member of a credit union and support them whole-heartedly. And I think it's great that we scrutinize new wanna-be banks and make sure they aren't a pump-and-dump fraud scheme. Because in the absence of such regulation, something like 100.0% of new banks would be pump-and-dump fraud schemes. Which one is more likely, assuming you know nothing about Kahle: that Kahle is trying to make an honest buck serving an underserved market, or that he's trying to copy what this guy is doing: http://business.financialpost.com/news/fp-street/the-russian-ex-convicts-viral-financial-scheme-that-might-be-behind-bitcoins-surge http://business.financialpost.com/news/fp-street/the-russian... "People are falling over themselves to sign up." If you aren't prepared to get your ass ridden by regulators, you aren't prepared to be a bank. You aren't good enough to offer banking services to the public.
deleted 11y ago
[deleted]
zeveb 11y ago
I'm sympathetic to his concerns, and I applaud him for putting his money where his mouth is. Some comments: > an under-documented local Rutgers student...We sought an exception from the NCUA, but they said no. I don't know why he would expect to lend money to an illegal alien, nor why he expects the government to let him deal with someone whose very presence is a violation of the law. I should be surprised that a state university admits someone who has not been admitted to the state which owns that university, but I'm not. > We were stunned to find we were the first full service credit union chartered in New Jersey since the NCUA was formed 1970. I'm not all that surprised: New England is a particularly corrupt and regulation-bound part of the country. It's amazing to me that anyone would do business there or California. I'm not surprised, although I am saddened, at the failure of their Bitcoin effort. I'm fairly certain than NCUA was concerned about the possibility of money laundering (never mind that it shouldn't be a crime, nor should it be something the regulatory system cares about: it is and it does, and that has consequences). > I see a system as unhealthy if regulators put 200 to 300 institutions out of business every year for decades on end while only allowing a few to start. Are those 200-300 healthy or not? Are the ones allowed healthy? Are the ones disallowed unhealthy? This is the problem with regulation: it's in the regulators' interest to be as strict as possible, because any failure will be harshly punished (in the press, in the civil service, and in the courts), while success has no reward. Kahle has had an unpleasant introduction to the real world. Regulation has costs, typically hidden from idealists; they are revealed to him, because he tried to do something new.
- droopybuns 11y ago
  >>I don't know why he would expect to lend money to an illegal alien, nor why he expects the government to let him deal with someone whose very presence is a violation of the law. This type of banking is a specialization that is referred to as "low documentation" by bankers. It exists in areas with large migrant worker communities like California and Washington. It is innovative and profiable, but extremely difficult in the post 2008 regulatory climate. I know bankers who work in this industry. The commentary I have heard is that the regulatory burdens are severe. If you don't have the endurance for being incorrectly threatened with fines and crimes which you have to successfully prove wrong, you won't survive. It sounds like gambling with stakes that exceed my risk tolerance.
acjohnson55 11y ago
Sounds like kind of a nightmare. But on the other hand, a depository bank / credit union is a tough area to try to innovate. It's not like a hedge fund, where all the participants have to be wealthy enough in the first place to take the risk that it goes south. I wish there were a better answer, but I want both innovation and a high degree of safety.
myth_buster 11y ago
The bureaucracy seems to be just a Façade to prevent competition (and consequently innovation). I'm not an economist but the more and more I read up on the matter following the cracks that showed up after the crisis of '07-'08, the more disillusioned I become. There was a lot of optimism regarding Bitcoin being a deflationary currency affecting change from outside the system but it's going down the same route. The big players (Conbase/Circle) in this field are just being absorbed by the existing system and will loose their outsider advantage.
- titzer 11y ago
  This is probably more often the case than not. Regulation is drafted to protect entrenched players and establish permanent streams of income. Most organizations really don't like having a dynamic environment that could make them obsolete on short time scales.
javajosh 11y ago
George Orwell noted in 1984 that to really control a population, you control their language - eliminate the words that describe the behaviors and views you disagree with. Economically, businesses provide "words", degrees of freedom that people exercise when they spend or act. Banking is ugly because there are some "words" we don't want people to use, like derivatives, or over-leveraging. But the banks themselves then use this safety mechanism to eliminate or weaken the words that would threaten them, like cooperative banks. In the end, it boils down to Congress. The Executive has a lot to say about it too. Perhaps as technology improves we can install a Panopticon in Wall Street and Washington, reducing the cost and risk of regulatory enforcement. And if they protest we can say: well, what do you have to hide?
bitshiffed 11y ago
The number of US credit unions thrown around is a fairly misleading. The majority of decreases in this number are mergers, not CUs being "shut down". A more useful number may be the total number of US credit union members over the same period of time. The credit union that disappears form the official count usually doesn't see much more than a name change, and adding new services & members. This usually results in better service for both original CUs members; a combination of branch locations, ATMs, and services from both of the original CUs. I've also never heard of "force them to merge their assets into bigger credit unions". Would be very interesting to hear more specifics about this, if it actually means something more than 'hassle them so much that they find a larger CU to merge into, on their own, just to escape'.
bridanp 11y ago
Not sure this is an aside or not, but I see a lot of big bank versus credit union in the comments, and that's just not really the case here in my opinion. I work for a large regional bank and I see a lot of similarities in this story to my own company, especially in the number of audits being requested and the rules they are having to follow (Bitcoin for one). I'll agree that a large part of the rules we have in place are self inflicted: some we asked for and some we caused in the aftermath of the financial crisis. These constant audits we've been faced with since the 2008 time period just chew up enormous amounts of time that we could better spend with innovattion and making the customer experience better overall. It's really unfortunate that his idea of creating a financial institution with real innovation is being stopped by bureaucracy that is probably 80℅ unnecessary regulation.
- davidjairala 11y ago
  Would you say the customer experience was that much better before the regulations in 2008? Cause that hasn't been my experience personally.
bumpercrop 11y ago
Before the 1980's mortgage lending was limited to the credit unions and other member owned institutions like S&Ls. This regulation had been put in place after the Great Depression of 1929, in order to limit speculation in housing. This regulation had largely worked, and housing prices were largely flat in that era. Regan deregulated the banks and this led directly to the failures in the S&L's later in the 80's. It also led to the wild boom & bust cycles we have seen in the housing markets.
BallinBige 11y ago
Elizabeth Warren needs to see this!
Yakimoto 11y ago
>I also resent your use of 'rape' in that context. I can't wait till the PC fad blows over.
- rm_-rf_slash 11y ago
  Trivializing sexual assault is extremely poor form.
  - Yakimoto 11y ago
    Continue to trivialize it more by using it to beat everyone around [including randoms on the internet] with your smugness.
    - rm_-rf_slash 11y ago
      I suspect you missed the parent comment before it got flagged.
  - kbenson 11y ago
    I feel for both sides of this argument. Trvializing something traumatizing that people feel strongly about is not good, but I'm not sure using it in this context is exactly trivializing. The commenter could have said "banks still kill us with fees us six ways from Sunday" and most people would not say they were trivializing murder. Also, I'm not sure when sexual assault became worse than murder, but at some point in the past it did. You can't use rape/sexual assault as hyperbole in many places where you could easily use kill/murder etc. Maybe that's because there are survivors to read/hear the communication and be affected by it (although there are plenty of people affected by loss of a loved one through murder). In any case, I think this disproportionate response with regard to talking about sexual assault when compared to talking about items of a similar or worse level, such as murder, leads to people being confused by what appears to be inconsistent responses on crimes of this caliber. So, with all that said, I don't think it's all that hard to understand why some people don't understand the problem of using "rape" as slang to mean "taken advantage of" or "coerced" when "murder", "kill", and "dead" are often used with no problem to mean "mad at", "should expect a rough time" or "be careful". Unless you are willing to either additionally condemn all uses of that type of speech, or define why it's very different, reducing the use of "rape" as used here to "trivializing sexual assault" is both inconsistent and unfair.
vessenes 11y ago
Brewster and Jordan are good folks; idealistic and willing to put their money and time where their mouth(s) are. As far as I can tell, the reality is pretty much as they describe: there is negative appetite for new banking institutions of any sort in America. This is a top-down perspective from regulatory and law enforcement -- large centralized banks make enforcement (legal and regulatory) much easier. I'm sure that of the 5,000+ changes requested by the NCUA most were bullshit. But, there are many, many standards that modern banks adhere to -- and groups like the NCUA do tier out responsibility to credit unions based on their size, and how 'bank-like' their operations are. A small credit union is just going to look 'amateurish' to these examiners, and they have a fundamental duty to make sure that depositors are safe. What Brewster and Jordan seem to have discovered, and I think this is an important thing to know, is that the burden imposed means that it's impossible to bootstrap a financial institution like this in the current environment, even if there are millions of dollars of funding available. This is super sad.
Kinnard 11y ago
Can I say that this is all actually my fault? My company was the first Bitcoin company offered services by IAFCU. I made the mistake of speaking to a reporter at WIRED about it. Within hours regulators had the noose set. Had I not opened my mouth, IAFCU could have built up enough strength to tackle its opponents. The polices and structures in this country are not oriented toward mutual benefit or utility, they are oriented toward entrenched interests.

174 points by monort 11y ago

dang 11y ago

The related NYT article is at https://news.ycombinator.com/item?id=10626210 https://news.ycombinator.com/item?id=10626210. The latter thread had many comments but we merged them here.

_Codemonkeyism 11y ago

Can someone explain what was the idea to serve the under-served that archive.org should do this?

patcon 11y ago
I was a member a spent some time talking with one of the ladies running the credit union -- they set up shop in an area where there were socio-economically depressed communities, and were soliciting members from those underserved communities (if i remember correctly) EDIT: Nothing necessarily to do with archive.org, except that Brewster is a great guy and he happens to really dislike banks, so he looped in a friend involve in the banking sector
gcb0 11y ago
just someone who has a great idea to help the world having another one.
- jacquesm 11y ago
  It would probably be a good thing to keep archive.org and this credit union thing separate. Right now this could easily be taken as things not going well financially for archive.org.
mjs 11y ago
I'm puzzled by the name too. How was the Credit Union funded? I'm assuming no archive.org money went into it--?

raverbashing 11y ago

Whenever people push for more unbound regulation, this is what happens. The big players can hire another lawyer and get the regulators for a tennis match at that fancy club while the small players drown in paper. Ah, and also this: ". As an engineer, when I looked at how the transaction systems work, I was shocked to see few technological safeguards. I imagine there is major fraud activity. Ironically, the bankers and regulators need exactly the technologists that they are pushing away."

gcb0 11y ago
because 2008 made out clear that no oversight works just fine. those are laws to protect laws placed to protect banks et al long before. the original laws give some state insurance for a very cheap price, which can easily be abused if someone start a bank/union, give lots of loans to a partner and then crash said bank/union. ... which is exactly what the 2008 was about if you stop believing all banks were surprised by the crash... edit: and yes, they fail mostly at bribes. nobody does business with any government without bribes. maybe he is not such an accomplished banker as he believed if he never got to that part. i know in construction you won't get far without it.
- mistermann 11y ago
  > nobody does business with any government without bribes. maybe he is not such an accomplished banker as he believed if he never got to that part. I personally consider banking and government in general to be fairly corrupt, but do you have any evidence that literal bribery is common?
  - Spooky23 11y ago
    Handing a bag of cash to someone isn't the way corruption at this level works. That happens with low level people, who trip up and get caught. It's more a combination of favors, revolving door employment and consideration for friends and family.
- TDL 11y ago
  I keep hearing this argument, 'no oversight', and I have yet to see proof of it. Finance remains the most heavily regulated industry, as it has for decades.

wjnc 11y ago

It's often a lot cheaper, at least in the Netherlands, to buy an unused banking license than to actually jump through all the hoops to get a new license. Reading this, this regulator seems to have a lot of leeway to propose arbitrary restrictions thus hampering business in the interest of protecting customers. It's hard to do a cost-benefit on this type of customer protection by the regulator. Related reads: * Rule of Law in the Regulatory State by John Cochrane [1] * WebMD versus FTC [2] [1] http://johnhcochrane.blogspot.nl/2015/08/rule-of-law-in-regulatory-state.html http://johnhcochrane.blogspot.nl/2015/08/rule-of-law-in-regu... [2] http://www.scmagazine.com/dismissed-labmd-case-could-impact-ftc-authority/article/454278/ http://www.scmagazine.com/dismissed-labmd-case-could-impact-...

deleted 11y ago
[deleted]

openfuture 11y ago

The system is so broken it's not even funny.

SuddsMcDuff 11y ago
The numbers speak for themselves, a sharp decline in the number of credit unions for every year since NCUA was formed. It's hard to imagine that this wasn't the intention.
- Spooky23 11y ago
  I posted a similar reply in the other CU thread, sorry for the repetition. You can only draw that conclusion if you put on blinders and look at it one-dimensionally. Lots of things happened around the same time that NCUA was founded. Visa had turned into a member-licensing system, and consumer credit was become much easier to get. Computerization started happening and made banking operations more scalable. The bread and butter of credit unions were small, workplace communities that offered savings and small loans. Most didn't even offer checking accounts. In the days when many blue-collar workers with variable wages were unable to get bank credit, they offered a accessible way to get small personal and secured loans and save. My father in law was a fireman, and there was a department credit union. The firehouse captains would come around with a boot and envelope on payday to collect deposits. New folks on the job would get loans for uniforms and boots in advance of reimbursement by the department. To 18 year old firemen in the 1960s, no consumer credit was available. Now, consumer credit is trivial to obtain, so that market is drying up. You also have to look at small credit union operations. When they started diversifying into stuff like auto-loans, many began to fail because they weren't equipped to handle the more sophisticated business model. They were, after all member owned cooperatives doing small loans. NCUA ended up holding the bag for those lost deposits, and tightened up standards, which in turn led to more CU shutdowns and mergers. A very similar story applies to the former bedrock of american banking -- the small savings & loan. As their business because commoditized and the commercial banks consolidated, their oxygen got cut off.
cubano 11y ago
It's not broken at all. It's running exactly the way the entrenched players want it to run, squashing competition with heavy-handed regulators and killing innovation at pretty much every turn.

gcb0 11y ago

i think the first step here, since they accepted defeat at some level, is to start releasing names of everyone signing those letters or visiting them. giving names that newspapers can go after and get names higher up is always helpful.

mifreewil 11y ago
I think you missed the issue. It's not about individuals - it's a systemic problem.

easytiger 11y ago

If you want to set up a subprime loan shop (which it seems he did) just do it. Don't hide it as a community benefit

001sky 11y ago
don't understand this comment. what about current accounts, checking, transfers?
- easytiger 11y ago
  The primary motivation was lending, as mentioned several times in the article.
  - URSpider94 11y ago
    Do you not believe that responsible lending can be a community benefit?
  - karlkatzke 11y ago
    He mentioned that he didn't want to start a predatory subprime loan shop. He wanted to offer non-predatory lower interest loans to higher risk clients, in concert with banking services that are difficult to provide to higher risk immigrant clients like checking and savings accounts and debit cards. But the NCUA wouldn't allow him to set interest rates lower or offer checking/debit accounts.
    - zeveb 11y ago
      > But the NCUA wouldn't allow him to set interest rates lower That indicates that those rates aren't actually predatory at all, but required in order to defend against default. Which really isn't all that surprising: in the case of payday loans and such, there are many operators, and anyone who could lessen his profit-per-loan could very easily snap up a great number of customers, increasing his net profit. That no-one has done this indicates either collusion or that the rates are fair.
    - 11y ago

c0achmcguirk 11y ago

The regulatory burden facing credit unions from the NCUA is not near as bad as what banks face from the FDIC. Right now the FDIC regulators take the stance that your bank is "guilty until proven innocent." One bank was getting examined to determine if it was engaging in unfair lending practices. The regulators pulled 6 loans at random from the bank's portfolio. 3 loans were to men, 3 to women. Then they looked at the average interest rate on the loans to the men, the 3 on the loans to women. They found a .5% difference between the male and female averages (the men had the lower rate). The regulators fined the bank several thousand dollars and required it to adopt new processes to ensure that future loans were "fair." Had the regulators looked closer, they would have noticed that the three random loans to men all went to older men with high credit scores...and each male was in a white collar job (doctor, lawyer, etc.). The loans to women, which were pulled at random, were each to younger women, just starting their careers. These were auto loans to a first time car buyer, etc. The regulators didn't care about the details and punished the bank anyway. You are guilty until proven innocent, and they don't expend a lot of effort trying to prove you innocent. In this day and age of big data, a bank or credit union's best bet is to use the power of business intelligence to continually prove that it is lending fairly in the community and climate that it dwells.

MrApathy 11y ago
Could you provide a source for your anecdote? I find it hard to believe that the FDIC would look at a mere six loans when their own guidelines [1] call for at least eight, and that's with a population of a mere ten loans. For a higher level of precision on any decent loan portfolio the sample size will be at least 50. Furthermore, having dealt with regulators before, there's always an opportunity to provide written responses with requests for data or an appeal process. Not hard for a bank to argue that a sample size of six isn't representative of their overall lending practices. [1] (Warning: PDF) https://www.fdic.gov/regulations/compliance/manual/11/XI-10.1.pdf https://www.fdic.gov/regulations/compliance/manual/11/XI-10....
- c0achmcguirk 11y ago
  It was an anecdote from Bill Goedken at the 2015 CUNA CFO Conference. It was from the session "Mining Gold – New Trends and Discoveries in ‘Big Data’ That Will Help Your Credit Union Compete". I've linked to the slides ([1]) but there was no mention of the anecdote in them. [1] - http://www.cunacouncils.org/cuna/assets/files/144820_Goedken_cfo2015.pdf http://www.cunacouncils.org/cuna/assets/files/144820_Goedken...

Spooky23 11y ago

There is a more nuanced story here. Blaming NCUA for the decline in small credit unions doesn't really tell the story. Credit unions generally weren't underwriters of mortgages -- they were small savings institutions serving a community that wrote mostly small consumer loans with easier underwriting standards. Nowadays, getting consumer financing is pretty trivial. So I don't need a CU to underwrite Christmas. Also, the definition of "community" is watered down as to be meaningless. The credit union that I'm a member of is open to anyone living in like 9 counties in my area and is the 4th largest bank in terms of assets in the region. So why would I join or start the "BigCo Helpdesk employees CU" when I can get most of the customer benefits and more services from a bigger CU? I think the expectations here that these guys would suddenly appear and be writing mortgages in a short period of time is an unrealistic goal, and probably damaged their credibility with the regulators. The same regulators are easy scapegoats because they can't talk back.

coldcode 11y ago

Banks don't like competition or new ideas. Regulators have an easier time attacking small potatoes than for example JP Morgan, which can generally do whatever they want.

bko 11y ago
J.P. Morgan Adds $2.6 Billion to Its $25 Billion Plus Tally of Recent Settlements http://www.wsj.com/articles/BL-MBB-14229 http://www.wsj.com/articles/BL-MBB-14229

Sidnicious 11y ago

I have checking and savings accounts at the Internet Credit Union but I don't use them. - I'm in NYC. ATMs that don't take a surcharge are few and far between. There are two near my house, at a McDonald's and a bodega. According to the locator, only one ATM in all of Manhattan takes check deposits. An iPhone app called CU24 ATMs can find them (be sure to switch the filter to "surcharge-free ATMs" because by default it shows all ATMs), which is nice. - Online banking is done through a website called It's Me 247 (https://obc.itsme247.com/237/ https://obc.itsme247.com/237/). It's frustrating to use — to log in you enter your account number, password, and the answer to a security question (it can't remember your browser). There are no mobile apps, and it doesn't work with Mint. There is a mobile site, but like the desktop site you have to log in with your account number, password, and a security question every time you use it. - Their main website is actively broken on my phone (it's locked to 1x zoom and you can't scroll horizontally) due to an incorrectly-used <meta> tag. Jordan himself wrote back to my email after a few days to say that he was working on mobile support, but the website was never fixed. (This was >1 year ago.) - I can't direct deposit into my savings account because it shares an account number with my checking account. - There's no way to pay bills or send checks online. - I called to order checks when I signed up. I never heard back and never got any checks. In the end, I was never able to switch from Chase, which has clearly-marked ATMs all over the city (most of which accept checks) and a nice mobile app. If I were going to use another bank, it'd probably be Simple, which prides itself on being easy to use. I wanted to love the IAFCU but day-to-day banking was too frustrating. On the other hand, I had no idea they had all of these regulatory difficulties, and their mission to provide banking to the under-served sounds an order of magnitude more important than keeping people like me happy.

terinjokes 11y ago
I switched from Chase to Charles Schwab Bank. Decent mobile app, can take pictures of checks to deposit them, can use any ATM without fear of surcharges, I've got checks should I need to use them, great customer service, and works with the online budget management software. Probably a lose leader to the investment products, which you don't have to use, but I'm extremely happy.
jcheng 11y ago

jawns 11y ago

My guess is that, given the choice, practically everyone would prefer to bank with a member-owned cooperative, i.e. a credit union, than a for-profit bank owned by outside shareholders. I mean, think about it: sneaky fees and outrageous surcharges are anathema, because it's more important for members to be satisfied with their experience than to wring out every nickel and dime of profit at the expense of customer satisfaction. And credit unions have been around a long time, so we know the model works. What's stopping credit unions from being competitive against traditional banks are the regulatory hurdles. For instance, all credit unions' members must have some common affiliation, such as a small geographic area, or a common employer or alma mater. So you can't just create a credit union that competes with the likes of Capital One 360 or other online banks, even though it would be beneficial for that to happen, because the law says it can't be open to just anyone. Although credit unions are perhaps the most successful and widespread example of cooperative businesses in the U.S., we Americans have not really embraced cooperatives, and that's a shame. Look at the U.K., where one of the most popular grocery chains is a co-op, or at Mondragon in Spain. Wouldn't it be awesome to have something like Walmart, but entirely member-owned? Instead of all those profits going to a relatively few wealthy shareholders, they'd go back to the members in the form of lower prices. Technology has made it easier to gather like-minded people to start cooperatives. I would love to see a Kickstarter-like service take it to the next level.

acveilleux 11y ago
Where the laws are more relaxed, credit unions can be competitive. The Desjardins credit union (technically a federation of credit unions) based out in Quebec is a good example, they have 5.8m members and 254B$ of assets. They even have branches in the US, but those are chartered as banks and owned by the federation. That said, it's hard for a cooperatively structured to be nimble and the bureaucracy and internal politics are legendary.
- lostcolony 11y ago
  Banks are known for their nimbleness, lack of bureaucratic red tape, and lack of internal politics?

eggoa 11y ago

Am I missing something? They say they have "$1 million in donations spent ... and $1 million in the bank to back any bad loans". For a bank/CU this sounds like pocket change. Later they say they have "almost unlimited capital". What gives?

HillRat 11y ago
That's my first reaction as well; NCUA is first, foremost and entirely concerned with solvency and capital adequacy requirements, so it's no surprise that they weren't jazzed about a tiny CU taking on high-risk and expensive products. I haven't done a CAMEL score on them (and haven't touched CU finances for several years so I'm reaching back into my memories here), but you can get their financial performance and analysis data at [1], charter number 24846. These guys obviously had the best of intentions and a real desire to make a better world. I wish they could have found a way to clear that path, but I don't think that a CU was the right institutional form. [1] http://fpr.ncua.gov/OnlineFPR.aspx?cu_number=24846 http://fpr.ncua.gov/OnlineFPR.aspx?cu_number=24846

panglott 11y ago

Why was this "a new kind" of credit union? It seems like it was an ordinary credit union that briefly toyed with the idea of BitCoin.

galuvian 11y ago
The article doesn't go into much detail, but since they wanted to 'help non-profit workers and the poor' my guess is that they wanted to offer loans to high risk people and the regulators said "NOPE!"

jellicle 11y ago

I am a member of a credit union and support them whole-heartedly. And I think it's great that we scrutinize new wanna-be banks and make sure they aren't a pump-and-dump fraud scheme. Because in the absence of such regulation, something like 100.0% of new banks would be pump-and-dump fraud schemes. Which one is more likely, assuming you know nothing about Kahle: that Kahle is trying to make an honest buck serving an underserved market, or that he's trying to copy what this guy is doing: http://business.financialpost.com/news/fp-street/the-russian-ex-convicts-viral-financial-scheme-that-might-be-behind-bitcoins-surge http://business.financialpost.com/news/fp-street/the-russian... "People are falling over themselves to sign up." If you aren't prepared to get your ass ridden by regulators, you aren't prepared to be a bank. You aren't good enough to offer banking services to the public.

deleted 11y ago

[deleted]

zeveb 11y ago

I'm sympathetic to his concerns, and I applaud him for putting his money where his mouth is. Some comments: > an under-documented local Rutgers student...We sought an exception from the NCUA, but they said no. I don't know why he would expect to lend money to an illegal alien, nor why he expects the government to let him deal with someone whose very presence is a violation of the law. I should be surprised that a state university admits someone who has not been admitted to the state which owns that university, but I'm not. > We were stunned to find we were the first full service credit union chartered in New Jersey since the NCUA was formed 1970. I'm not all that surprised: New England is a particularly corrupt and regulation-bound part of the country. It's amazing to me that anyone would do business there or California. I'm not surprised, although I am saddened, at the failure of their Bitcoin effort. I'm fairly certain than NCUA was concerned about the possibility of money laundering (never mind that it shouldn't be a crime, nor should it be something the regulatory system cares about: it is and it does, and that has consequences). > I see a system as unhealthy if regulators put 200 to 300 institutions out of business every year for decades on end while only allowing a few to start. Are those 200-300 healthy or not? Are the ones allowed healthy? Are the ones disallowed unhealthy? This is the problem with regulation: it's in the regulators' interest to be as strict as possible, because any failure will be harshly punished (in the press, in the civil service, and in the courts), while success has no reward. Kahle has had an unpleasant introduction to the real world. Regulation has costs, typically hidden from idealists; they are revealed to him, because he tried to do something new.

droopybuns 11y ago
>>I don't know why he would expect to lend money to an illegal alien, nor why he expects the government to let him deal with someone whose very presence is a violation of the law. This type of banking is a specialization that is referred to as "low documentation" by bankers. It exists in areas with large migrant worker communities like California and Washington. It is innovative and profiable, but extremely difficult in the post 2008 regulatory climate. I know bankers who work in this industry. The commentary I have heard is that the regulatory burdens are severe. If you don't have the endurance for being incorrectly threatened with fines and crimes which you have to successfully prove wrong, you won't survive. It sounds like gambling with stakes that exceed my risk tolerance.

acjohnson55 11y ago

Sounds like kind of a nightmare. But on the other hand, a depository bank / credit union is a tough area to try to innovate. It's not like a hedge fund, where all the participants have to be wealthy enough in the first place to take the risk that it goes south. I wish there were a better answer, but I want both innovation and a high degree of safety.

myth_buster 11y ago

The bureaucracy seems to be just a Façade to prevent competition (and consequently innovation). I'm not an economist but the more and more I read up on the matter following the cracks that showed up after the crisis of '07-'08, the more disillusioned I become. There was a lot of optimism regarding Bitcoin being a deflationary currency affecting change from outside the system but it's going down the same route. The big players (Conbase/Circle) in this field are just being absorbed by the existing system and will loose their outsider advantage.

titzer 11y ago
This is probably more often the case than not. Regulation is drafted to protect entrenched players and establish permanent streams of income. Most organizations really don't like having a dynamic environment that could make them obsolete on short time scales.

javajosh 11y ago

George Orwell noted in 1984 that to really control a population, you control their language - eliminate the words that describe the behaviors and views you disagree with. Economically, businesses provide "words", degrees of freedom that people exercise when they spend or act. Banking is ugly because there are some "words" we don't want people to use, like derivatives, or over-leveraging. But the banks themselves then use this safety mechanism to eliminate or weaken the words that would threaten them, like cooperative banks. In the end, it boils down to Congress. The Executive has a lot to say about it too. Perhaps as technology improves we can install a Panopticon in Wall Street and Washington, reducing the cost and risk of regulatory enforcement. And if they protest we can say: well, what do you have to hide?

bitshiffed 11y ago

The number of US credit unions thrown around is a fairly misleading. The majority of decreases in this number are mergers, not CUs being "shut down". A more useful number may be the total number of US credit union members over the same period of time. The credit union that disappears form the official count usually doesn't see much more than a name change, and adding new services & members. This usually results in better service for both original CUs members; a combination of branch locations, ATMs, and services from both of the original CUs. I've also never heard of "force them to merge their assets into bigger credit unions". Would be very interesting to hear more specifics about this, if it actually means something more than 'hassle them so much that they find a larger CU to merge into, on their own, just to escape'.

bridanp 11y ago

Not sure this is an aside or not, but I see a lot of big bank versus credit union in the comments, and that's just not really the case here in my opinion. I work for a large regional bank and I see a lot of similarities in this story to my own company, especially in the number of audits being requested and the rules they are having to follow (Bitcoin for one). I'll agree that a large part of the rules we have in place are self inflicted: some we asked for and some we caused in the aftermath of the financial crisis. These constant audits we've been faced with since the 2008 time period just chew up enormous amounts of time that we could better spend with innovattion and making the customer experience better overall. It's really unfortunate that his idea of creating a financial institution with real innovation is being stopped by bureaucracy that is probably 80℅ unnecessary regulation.

davidjairala 11y ago
Would you say the customer experience was that much better before the regulations in 2008? Cause that hasn't been my experience personally.

bumpercrop 11y ago

Before the 1980's mortgage lending was limited to the credit unions and other member owned institutions like S&Ls. This regulation had been put in place after the Great Depression of 1929, in order to limit speculation in housing. This regulation had largely worked, and housing prices were largely flat in that era. Regan deregulated the banks and this led directly to the failures in the S&L's later in the 80's. It also led to the wild boom & bust cycles we have seen in the housing markets.

BallinBige 11y ago

Elizabeth Warren needs to see this!

Yakimoto 11y ago

>I also resent your use of 'rape' in that context. I can't wait till the PC fad blows over.

rm_-rf_slash 11y ago
Trivializing sexual assault is extremely poor form.
- Yakimoto 11y ago
  Continue to trivialize it more by using it to beat everyone around [including randoms on the internet] with your smugness.
  - rm_-rf_slash 11y ago
    I suspect you missed the parent comment before it got flagged.
- kbenson 11y ago
  I feel for both sides of this argument. Trvializing something traumatizing that people feel strongly about is not good, but I'm not sure using it in this context is exactly trivializing. The commenter could have said "banks still kill us with fees us six ways from Sunday" and most people would not say they were trivializing murder. Also, I'm not sure when sexual assault became worse than murder, but at some point in the past it did. You can't use rape/sexual assault as hyperbole in many places where you could easily use kill/murder etc. Maybe that's because there are survivors to read/hear the communication and be affected by it (although there are plenty of people affected by loss of a loved one through murder). In any case, I think this disproportionate response with regard to talking about sexual assault when compared to talking about items of a similar or worse level, such as murder, leads to people being confused by what appears to be inconsistent responses on crimes of this caliber. So, with all that said, I don't think it's all that hard to understand why some people don't understand the problem of using "rape" as slang to mean "taken advantage of" or "coerced" when "murder", "kill", and "dead" are often used with no problem to mean "mad at", "should expect a rough time" or "be careful". Unless you are willing to either additionally condemn all uses of that type of speech, or define why it's very different, reducing the use of "rape" as used here to "trivializing sexual assault" is both inconsistent and unfair.

vessenes 11y ago

Brewster and Jordan are good folks; idealistic and willing to put their money and time where their mouth(s) are. As far as I can tell, the reality is pretty much as they describe: there is negative appetite for new banking institutions of any sort in America. This is a top-down perspective from regulatory and law enforcement -- large centralized banks make enforcement (legal and regulatory) much easier. I'm sure that of the 5,000+ changes requested by the NCUA most were bullshit. But, there are many, many standards that modern banks adhere to -- and groups like the NCUA do tier out responsibility to credit unions based on their size, and how 'bank-like' their operations are. A small credit union is just going to look 'amateurish' to these examiners, and they have a fundamental duty to make sure that depositors are safe. What Brewster and Jordan seem to have discovered, and I think this is an important thing to know, is that the burden imposed means that it's impossible to bootstrap a financial institution like this in the current environment, even if there are millions of dollars of funding available. This is super sad.

Kinnard 11y ago

Can I say that this is all actually my fault? My company was the first Bitcoin company offered services by IAFCU. I made the mistake of speaking to a reporter at WIRED about it. Within hours regulators had the noose set. Had I not opened my mouth, IAFCU could have built up enough strength to tackle its opponents. The polices and structures in this country are not oriented toward mutual benefit or utility, they are oriented toward entrenched interests.