This morning I was looking back through my in-box, re-reading the comments I’ve received from some of you in response to previous posts. This time through, I noticed a recurring theme I’ve failed to address before, so I’ll do that today. It has to do with how we paid PLUs (Payback for Loyalty to Us), or more specifically, to whom it was paid.
In case you’re just joining the conversation, PLUs is the new name we’ve given to our longstanding practice of distributing excess capital to members. In the last 20 years Arizona Federal has paid $26 million to members in the form of bonus dividends and loan interest refunds. But regardless of what we have called it or the form it has taken, at its core it is the fulfillment of what is perhaps the most important of the Seven Cooperative Principles: Members’ Economic Participation.
As I explained in a previous post, the principle of Members’ Economic Participation holds that members should contribute equally to the capital of the cooperative and benefit in proportion to the business they conduct. We are using the collection of membership dues to fulfill the first part; PLUs is how we are living out the rest.
At the end of 2012 we paid $3 million to more than 77,000 participating members as their share of the credit union’s capital surplus – an average of more than $38 per person. Judging by the fact that no one has returned the money, these payments seem to have been welcomed by those who received them. But some of those who didn’t receive a payment have taken exception.
To be included in 2012’s PLUs, a member had to be an active checking account or credit card user as demonstrated by completing a prescribed number of pre-defined transactions. We added together transactions made on all accounts owned by an individual member, and we only counted the month of December to give everyone plenty of opportunity to switch to using an Arizona Federal account before the end of the year. December is traditionally a high-transaction month, and we went through the 26th to include the traditional holiday shopping season. Pretty liberal criteria, at least in my opinion.
But what some of those who have commented have objected to is the fact that we tied PLUs to transactional activity at all. Others were disappointed that there wasn’t special consideration for depositors, while qualifying borrowers received a loan interest refund in addition to the base payment. The underlying idea seems to be that if I have “given you my money to use” that should qualify as my participation in the cooperative and entitle me to a share of the proceeds.
Thinking about the traditional banking model and how things used to be, I understand that point of view. We’re all used to the idea of putting our money in an institution that pays us interest, then goes out and invests the money at a profit. No deposits, no profit, so the bigger the depositor, the more important he or she is to the institution.
But today’s financial consumer isn’t content to just have someplace to “put” his or her money – and living that way isn’t really practical anyway. Today, consumers want checking accounts, debit cards, credit cards, online banking, online bill payment, ATMs, mobile account access and mobile deposit – while still expecting to have a physical location nearby should the need for one arise. Some of these activities (e.g. card usage) generate income for the institution (though that’s threatened by recent and anticipated future Congressional action); some just represent a cost of doing business. But make no mistake: these activities have become non-negotiable demands on the part of a majority of consumers, and while one might choose to transact with one institution and deposit and borrow at another, most prefer to do it all in one place.
What does this have to do with PLUs and who receives it? Everything. We do value deposits, and when market conditions warrant it (they don’t now) we may choose to include deposit balances as a factor in PLUs. But just taking in deposits and making loans with them won’t generate the revenue needed to provide all the services I just mentioned; nor does having a large deposit balance here while doing all or most of my other business elsewhere mean I consider the credit union my primary financial institution and am doing all I can to contribute to its success. On the other hand, using the credit union for my day-to-day transactional needs provides ongoing support while at least increasing the likelihood that I’ll give the credit union the opportunity to earn my future business.
And that’s what we need: members who will use the credit union for their daily transactions and turn to Us when they need loans, investments, insurance, and expert advice. We know we have to earn that trust and loyalty, and we’ll continue to do all we can in that regard. And when we succeed, and members do use Us that way, those are the members who will receive PLUs.
We know this is an unusual model, but we believe it is the only one a true cooperative can legitimately pursue. We point to our status as one of the few financial cooperatives in the country to consistently distribute excess capital to members as proof of our sincerity, but in the end, you’ll be the judge.
One last note: one reader wrote that he found our habit of referring to the cooperative and its members (though he used the terms “bank” and “customers”) as Us “very demeaning” and that he presumed it annoyed other people as well. I don’t want to annoy anyone, but I don’t know of a better way to refer to a group of people, united in pursuit of a common goal and of which I am a member, than as “us.” My family and I are “us,” my co-workers and I are “us,” and my fellow credit union members and I are Us. Feel free to share your thoughts about this or anything else and as always, thanks for being … one of Us.