Credit Union and Cooperative Patronage Refunds - Filene ...

Patronage Refunds: A Differentiator?
In 2009, Brian Briggeman of the Federal Reserve Bank of Kansas
City and Quatie Jorgensen of the University of Arizona wrote
an article entitled “Farm Credit Member- Borrowers’ Preferences
for Patronage Payments,” which appeared in Agricultural Finance
Review. This article reviewed studies that analyzed the preferences of
member- borrowers from Farm Credit Services of East Central Oklahoma.
The conclusion was that members strongly preferred patronage
refunds compared to lower fixed- interest rates, particularly when
given the option of one or the other. In fact, on average, memberborrowers
were even willing to pay higher interest rates in order to
receive a patronage refund.
The 2010 Callahan & Associates study also spoke to the influence of
patronage refunds on membership growth. Credit unions that offer
patronage refunds, through interest refunds, report much higher
annual member growth rates—both for a single point in time (over
the course of 2009) and over a five-year period. In addition, longterm
loan growth appears to be an additional strength for credit
unions offering interest refunds. While the 12-month loan growth
for both groups would be lower due to the economic conditions in
2008 and 2009, the five-year average annual growth of 8.4% for the
patronage refunds group is 30% higher than the other group’s rate of
5.8%.
Capital Management Tool
To us, there seems little doubt that credit unions will need to focus
on capital accumulation in the years ahead. Earnings are needed to
build balance sheet strength, ward off adversity, and attract the kinds
of secondary capital (preferred stock, debentures, etc., from members)
that credit unions have lobbied for. Patronage refunds are the
necessary tool that demonstrates to members that the cooperative is
socially and fiscally responsible with the member’s money. When the
cooperative has too much capital, it will be returned as patronage
refunds or equity retirements.
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