Credit Union and Cooperative Patronage Refunds - Filene ...

to low interest rates, credit union members would hold similar
preferences for the payment of annual patronage refunds.
• There is something about consistent patronage refunds that
matures the cooperative in the eyes of its members. It’s like the
co-op has confidence in its membership and in its viability. The
co-op is serious about financial success and wants to provide
the goods and services that will make it profitable.
• We think that co-ops that make money and pay patronage
refunds are more likely to survive and flourish as businesses than
co-ops that do not have the same emphasis on profitability or
accountability to members.
• Co-ops have a story to tell, particularly when they pay patronage
refunds. The members of the American Bankers Association
(ABA) would never willingly operate with the deep member
involvement that is encouraged under co-op principles. The
relevant audience of an IOF bank is limited to its common
stockholders, whereas the relevant audience of a co-op is all of its
customers or members. IOF banks do not subject their capital
plans to customer scrutiny or think it necessary to explain to
customers why the bank was investing in growth rather than in
equity redemptions, why the firm did not pay a patronage refund,
why the patronage refund decreased in size, or why that product
or this service could not be provided at a lower overall price.
• IOF banks would never accept as one of their primary objectives
the return of surplus capital to customers. The inclination of IOF
banks is to hoard and use capital rather than return it. Co-ops are
not as glitzy as IOF banks. The discipline that management must
execute and the leadership required of a co-op is more onerous
than that needed for an IOF. But the rewards—the intangibles—
of affiliating oneself with an organization that is operated for the
benefit of its members rather than the organization’s own pocketbook
are immensely rewarding. We heard as much from Prunty,
Hanson, and Mislansky in our interviews for this report.
• Timing is everything. With the Basel capital requirements and
the state of the economy, boards of directors and management
must make educated, wise decisions about when to implement a
patronage refund program.
Similar to the experience of rural electric cooperatives, the more that
regulators and investor- owned competitors see that the cooperative’s
membership is vibrant, informed, and supportive of the credit union,
the more difficult it is for the tax exemption to be attacked.
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