A Resolution to the Board of Directors of State Employees Credit UnionAnnual Membership MeetingOctober 11, 2022
State Employees Credit Union is a not-for-profit cooperative created in 1937 to serve the financial needs of North Carolina state employees, public school employees and their families. Each member-owner of the Credit Union is entitled to one vote - an equal voice - in determining the operation and governance of their cooperative.
Over the last 85 years, SECU has been faithful to its founding principles in seeking to provide the highest quality of financial services - on a fair and equitable basis - at the lowest possible cost to all members in North Carolina. The results of those efforts have been remarkable. SECU is now the second largest credit union in the United States with over 2.6 million members and assets topping $50 billion.
The members are served locally through 275 SECU branch offices – with at least one branch in every North Carolina County. In both urban and rural settings, SECU has been committed to providing a full array of services – loans, savings, investments, insurance, tax preparation, financial counseling – locally, on a personal basis, in each branch office. Additionally, the Credit Union owns and operates over 1200 Cashpoints ATMs providing surcharge-free, 7x24x365 day member convenience in almost every North Carolina crossroads community. Mobile and call center services give members full global, anytime-you-like access to their accounts.
Despite these extensive systems, SECU is efficient and enjoys one of the lowest costs of operations among all credit unions – large and small - nationwide.
It is also worthwhile to note that SECU is and has always been operated on a safe, sound, socially responsible basis. The Credit Union has an unblemished record of unqualified CPA opinion audits and is soundly rated by both State and Federal regulators – and has never been fined for inappropriate practices. Over the entire 85-year history, SECU has always operated “in the black” and has experienced growth each and every year in both members and assets.
Growth, however, has never been the focus of SECU. Growth has come from exceptional service and convenience, highly competitive rates, minimal fees, and the firm, very vocal support of SECU’s member-owners. Independent surveys have consistently found a 98% member-approval rating for the policies and practices of their credit union. This year Forbes business magazine has, unsurprisingly, ranked SECU as the best credit union in North Carolina.
Most noteworthy, SECU enjoys a sterling reputation built upon high standards and the dedicated work of a committed staff, active volunteer advisory boards, and excellent leadership from the Board of Directors.
SECU employees have been charged with putting the members first in every financial interaction by the SECU mission statement: “Do the Right Thing”. The vision statement of SECU: “Send Us Your Mama” assures that each member will be served fairly and with exceptional care. SECU members are treated as if they owned the place, which they do!
All staff are salaried and receive neither monetary nor productivity incentives, which might influence their decision-making and adversely affect their fiduciary responsibility to each member. Integrity has always been the hallmark of the SECU employees. The staff are trusted and respected by the member-owners.
Over the last year, SECU has experienced a period of transition with the easing of the pandemic, with new leadership, and with great upheavals in the U.S. economy and world politics. Transitions of this magnitude always create uncertainty.
Calls for “a change in our culture and a new direction” for SECU, however, have greatly heightened concerns among the staff and membership. Much of this concern may be unjustified, resulting from incomplete information, the always active rumor mill, or internal differences of opinion on new programs or ideas. Better communication can possibly allay these concerns, if unjustified.
There are six actions SECU has taken over the last year, however, which would benefit from further explanation to the membership, as they do represent significant changes in the culture and direction of the Credit Union:
1) Open Membership (anyone can join) - During the year, SECU spearheaded an effort to amend N.C. credit union statutes to permit SECU to alter its charter to allow anyone to join. This legislative effort - which was unsuccessful – appeared driven mainly for the sake of growth, as the principal message put forth as justification was “…don’t intend to have our credit union shrink in the future…growth is the only thing on the radar screen”. This action, of course, drew the unfavorable attention of the banking industry, but equally aroused the animosity and opposition of many of SECU’s peer credit unions in N.C. – with which SECU has shared positive, cooperative relations. That the original draft of the legislation permitted N.C. credit unions to be sold to banks was also not encouraging.
Q: How would open membership in SECU benefit the existing
to Merge Local Government FCU – SECU made an unsolicited offer to merge
with Local Government Federal Credit Union. It is not clear why. LGFCU has been
a strong partner with SECU for over 40 years in seeking to extend credit union
services to N.C. local government employees particularly in rural, economically
The offer to merge was rejected by the LGFCU Board of Directors and appears to have created such a climate of mistrust that LGFCU will discontinue working with SECU in the future.
If this separation occurs, local government employees – our firefighters, policeman, first responders included – look to lose access to the SECU branch system, which they helped create. As an aside, the offer to merge if accepted would have been illegal, based on a 1981 ruling by the NC Supreme Court.
The fate of three other partner credit unions – N.C. Press Association CU (for North Carolina newspaper employees), Greater Kinston CU (the last existing N.C. African-American controlled credit union) and Latino CU (focused on North Carolinians of Hispanic backgrounds) – is yet to be determined.
Q: How would this merger have been beneficial to the current
member-owners of SECU?
3) Introduction of Risk-Based Lending (RBL) – SECU has historically charged each member the same rate on loans in keeping with the cooperative – equal membership – principles of the credit union. Regardless of your economic status, race, gender, age, or “who you knew”; every qualified member-borrower received the same rate of interest on each type of loan.
The Board of Directors has approved a change to risk-based lending, which simply means rates will vary based upon the credit score of the individual member. Credit scores have been shown to closely correlate with the economic status, race, and age of an individual. Risk-based lending will mean that many employees of the state Departments of Corrections and Transportation will pay higher rates for their loans - as will beginning teachers and the support staffs in N.C. public schools, state hospitals, N.C. universities - let alone single moms and young people new to the workforce.
The credit union has praised the staff for their past lending success, stating, “...not only have you built the second largest loan portfolio in the Country [over $25 billion]…but you have done it literally one loan at a time”. And the credit union has acknowledged that under RBL, “…they [the member-owners] may pay a higher rate than they have today on a loan, but they won’t be able to find a lower rate somewhere else”. One other concern expressed by the credit union is that SECU “…lends to folks that most other banks and credit unions won’t lend to”. Those statements may be hard to logically reconcile by reliable, borrowing members, who will be charged these higher rates without recourse.
Despite the assertion that “…our overall loan portfolio is actually overburdened by low quality borrowers”; it should be noted that the SECU loan loss ratio (loan balances which are not repaid by members) is less than one-quarter of one percent – again among the lowest rates of loan losses among credit union peers.
The critical need for sound, responsible lending practices at SECU has recently been accentuated by the departure of SECU’s Chief Lending Officer in September 2022 and by the departure of SECU’s Branch Operations leader in October 2022.
Q: How is charging higher loan rates to member-owners who have always
repaid their SECU loans justified? Does profiling members by credit score best
serve the member-owners?
4) Business/Commercial Lending – SECU appears to be intent upon entering the business/commercial lending business, which has traditionally been left to the banking industry in N.C. The business/commercial lending business is a complex, fiercely competitive area of finance, requiring highly qualified, experienced, and expensive lending professionals.
SECU has no expertise, no systems, and no experienced talent in business/commercial lending. North Carolina is well-served by many excellent banks. Commercial banking is an entirely different business from consumer finance, with different rules, regulations and protocols. The majority of U.S. credit unions do not compete in business/commercial lending; and of those who do, in aggregate commercial/business lending represents less than 5% of loans. Does the credit union believe it can “out bank the banks” in N.C.?
The banking industry has long stated that if credit unions attempted to actively compete in business/commercial finance that they would lobby to ensure the tax-exempt status of credit unions is revoked.
Q: How does entering into business/commercial lending benefit the current members of the credit union? Is it worth the tax-exempt status of the CU? How much would that loss cost the member-owners of SECU?
5) Eliminating the Tax Preparation Service - 2022 is the last year that members – most of modest means - will have access to simplified tax preparation through their credit union. In the recent past, as many as 100,000 members paid $75 for this service. SECU tax preparers were trained (and highly lauded) by the IRS, which also provided the software and support for this service. The members received an excellent benefit, SECU earned over $7 million, and the credit union gained valuable insight into the financial status of these members – often helping them escape predatory loans elsewhere.
Advice from the credit union to these members was: “…they will just need to find another solution”.
Q: Why was the elimination of the tax preparation service viewed as a benefit to the member-owners?
6) Ending the “North Carolina Focus” – There have been many rumors implying that SECU is determined to become a regional or national credit union. These concerns are inflamed by suggestions that a name change to South East Credit Union (SECU) is under consideration and by previously mentioned actions to expand membership to everyone, unsolicited merger proposals, and policy changes that appear to adversely affect many current North Carolina members.
It has been implied that discussions are underway to use SECU Foundation donations as a vehicle for credit union membership expansion. You give; you can join! Regional expansion to adjoining states has been met with anger by existing credit unions in those states, which already serve residents of Virginia, Tennessee, South Carolina, and Georgia extremely well.
There is no question that SECU was chartered to serve folks in North Carolina. Although much has been accomplished, much remains to be done to meet the financial needs of folks in North Carolina.
SECU is a powerful engine for economic development in every county in N.C., providing capital, creating jobs and training, while reinvesting member dollars back into their hometowns and local communities. Just consider the social impact of the SECU Foundation alone. SECU keeps North Carolina money in North Carolina.
SECU knows North Carolina well; it has no such knowledge or experience in other states.
Q: How does regional expansion of the services of SECU help improve the financial condition of current member-owners?
The Board of Directors is elected by the member-owners to set the direction of the State Employees Credit Union.
Members and staff are very interested in your call for a “change in culture and a new direction” for SECU but is unclear what that new strategy means.
SECU member-owners need to understand your change in direction.
Q: Who are we? Where are you leading us? Why are you taking us there?
The Board of Directors review and respond to the above seven questions, after statewide discussions with the staff and all advisory boards; and that the results of those discussions be published to all member-owners of the State Employees Credit Union as soon as practical.
In addition, it is requested that the Board of Directors update, publish, and make available to all member-owners its’ Strategic Plan for SECU no later than 90 days prior to the 2023 Annual Meeting. The Strategic Plan should clearly explain the Board’s recommendations for a new culture and new direction for SECU.
A very loyal member-owner!