Credit Union and Cooperative Patronage Refunds - Filene ...
Credit Union and Cooperative Patronage Refunds - Filene ...
Credit Union and Cooperative Patronage Refunds - Filene ...
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The capital accumulated through earnings is considered commonwealth,<br />
<strong>and</strong> since it’s a financial cooperative, there has to be some<br />
benefit to ownership. Prunty acknowledges that a 10% capital target<br />
dem<strong>and</strong>s significant fiscal discipline to be able to meet all the credit<br />
union’s obligations. He is fortunate to have a board of directors<br />
that finds CoVantage’s patronage refund program indispensable.<br />
According to Prunty, the board is the driver of CoVantage’s patronage<br />
refund payments. And since the board represents the members,<br />
one cannot help but conclude that members are the wellspring from<br />
which this patronage refund co-op philosophy emanates.<br />
CoVantage tailors its patronage refund program to recognize the<br />
contributions of members at all stages of their financial lives. It<br />
acknowledges that in a member’s younger years, he or she is more<br />
frequently a borrower, <strong>and</strong> thus it pays a 4% rebate on interest paid.<br />
As members age, they can receive a savings bonus of up to 4% on<br />
interest earned. Both of these expenditures are expenses on CoVantage’s<br />
income statement <strong>and</strong> hence reduce CoVantage’s ROA.<br />
CoVantage is an aggressive marketer, but its use of, for example,<br />
bonus payments on debit cards or other profitable services does<br />
not go as far as the programs of Dow Chemical or Wright-Patt.<br />
Prunty noted that the rates the credit union pays on share deposits<br />
are already the highest or second highest in the market. Prunty’s<br />
comments highlight the fact that the leadership of credit unions<br />
must evaluate what they are doing <strong>and</strong> how well the credit union<br />
is performing before they determine whether the credit union can<br />
justify paying bonuses or rebates on top of what it is paying for share<br />
deposits or charging for products <strong>and</strong> services.<br />
This notion echoes the earlier debate of the unnamed farm credit<br />
association. The argument of some of the directors is that the association<br />
is already providing a patronage refund in charging relatively<br />
modest fees <strong>and</strong> rates <strong>and</strong>, therefore, is a competitive force that<br />
provides economic <strong>and</strong> financial benefits without paying a patronage<br />
refund.<br />
Prunty says that when CoVantage’s portfolio is compared with<br />
credit unions that don’t offer patronage refunds to their members,<br />
CoVantage’s loan portfolio is of higher quality. In addition,<br />
CoVantage members who went through bankruptcy reaffirmed their<br />
debt 60% of the time in 2010 <strong>and</strong> 50% in 2009. He believes this is<br />
due in part to the patronage refund program.<br />
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