Marketing at the Expense of Members

At Credit Union Futures, Ross wrote a nice response to the book The Age of Surveillance Capitalism. I encourage you to read his post.

Unfortunately I don’t know any examples of credit unions doing anything better than the banks when it comes to marketing to their members or curtailing the growing abuses of emerging technology.

Coast Capital Savings never used to engage in email marketing. I never received emails from them except if it was from an employee whom I had been dealing with personally. I always assumed this was a good thing because email is an insecure medium.

This changed on Nov. 23, 2016 with a mass email from CEO Don Coulter encouraging members to vote in the 2016 vote to become a federal credit union. The CEO should not have been meddling in the governance issues of the members, but that’s another matter.

The marketing department got involved in January 2018 when members received the first mass marketing email, offering $10000 in prizes to members who would be willing to chat with them about retirement. The fine print was meant to be reassuring:

“Your privacy is important to us. … Coast Capital Savings email or text messages do not contain links or non-secure web access requiring them to enter their personal or confidential information.”

Perhaps you can guess what was attention-grabbing about this email. At the top was a link to “Sign in,” which took the reader to a web page that invited them to enter their card number and PIN. It should go without saying that members should be trained not to click on email links and then enter their banking information.

This continued for five more marketing emails until members received an email in November (still 2018) with the following worrisome notice:

“We’re sharing this important message to make you aware of a fraudulent email and text that are currently circulating claiming to be from Coast Capital Savings.

Please be advised that Coast Capital Savings would NEVER send you a link via text or email to request your account number, password, …”

Nevertheless, a mere six days later, another marketing email message invited members to click a link to “Sign in”. Of course, we must assume that the email was from Coast Capital. It looked legit…

On December 10, 2018, members received a “Fraud Alert Update” email that perhaps a child would have found reassuring. In language that seems more like it was written by marketing communications than by technical auditors, they said:

“We want to assure you that Coast Capital’s systems are safe and secure.”

Perhaps they were trying to get ahead of the news cycle. It wasn’t until February 4, 2019 that this story broke:

Cyber criminals target local bank customers and wipe out savings

Logan Hill, 14, was devastated to recently find his savings account wiped out – $1,400 of his hard earned money collected from delivering the North Shore News. He was one of more than 140 Coast Capital Savings customers whose accounts were breached after attacks by cyber thieves.

A Coast Capital spokesman said: “The cyberattacks occurred in late 2018 and targeted customers through phishing emails and a brute force attack…”

Also see this article: Cyber thieves make off with hundreds of thousands of dollars in attack targeting Coast Capital Savings

The point of my chronicle is that Coast Capital engaged in their email marketing campaign with no regard for the insecure nature of email, and with no effort to educate members about what it’s like to be on the receiving end of a phishing attack. It will look authentic, and yet the reader must learn to resist clicking! Perhaps it was an easier threat to brush off back in the day when phishing emails would be full of bad grammar and spelling. Times are changing. Coast Capital’s only initiative on this matter was to insert the lawyerly fine-print that I quoted above, weakly implying that clinking on a link contained in an email could be perilous.

Coast Capital is not unique in this regard. Vancity Savings Credit Union started using unsolicited email in December 2017 to notify members that the member’s monthly statement was now available. These emails were different because they contained only plain text (no links to click on), which is a good thing. However, they nevertheless still contained various instructions to members. The problem remained: If you teach members to trust what they read in an email that purports to be from their financial institution, they’re going fall for the next phishing scam that they encounter.

Then in September 2019, Vancity, too, adopted the full-colour HTML marketing mass-email, with lots of links to click on. And if you clicked on the Vancity logo that appeared at the top of the email, you could enter your card number and PIN to log in. And to remind you, this is NOT recommended practice!

Here is an example (from March  2020) of Vancity contradicting its own advice.

So I don’t see anything commendable about how these credit unions have responded to the availability and allure of corporate marketing tools. They have engaged in the type of work that presumably justifies the departmental budget.

Does the marketing department have a role to play at credit unions? Certainly yes, but the messages to their members should surely be different that what the banks would want to say to their clients.

Of course, the problem at Coast Capital is that the Board wants to marginalize the members’ involvement in their credit union–to treat them like customers. The credit union is being cultivated as an asset of the management, the Board, and the eventual new owners who will be the Class D equity shareholders (outside investors).

The broader issue is about how credit unions respond to the changing technological landscape. Let me remind you about my previous blog post in which I described how, in their desire to bring new online banking functionality to their members, Coast Capital did not think it was worth discussing that they would now be storing members’ financial information on US soil, subject to US law.

So in the age of surveillance capitalism, there’s currently no reason to think that credit unions will model the best corporate practices with respect to use of their members information.

The 2019 Vote

The 2019 vote is a vote for five directors and two resolutions.

On the subject of directors, it’s notable that they had “a record number of individuals considering candidacy” (printed booklet, p. 3). And yet there are only two non-recommended candidates who chose to stand for election. No doubt the others realize that non-recommended candidates suffer an embarrassing loss. I have no record of any non-recommended candidate ever being elected.  Even a prior CEO of Coast Capital failed big-time because he was non-recommended. The Board has effective control over who they get as new directors. Voting for directors provides merely a façade of democratic governance at Coast Capital. The credit union is governed like a bank.

Concerning the resolution to not mail paper documents to all the members: seems fine. But notice that they still don’t want to make the annual report available (online, even) to members at the start of the voting period.

Concerning the resolution on director remuneration, the Board is happy to forget what happened in 2013 and 2014, when members exposed that the Board had, over the years, increased their compensation by 283% (437% for the Chair). But mustering enough signatures for a member resolution is impractical, and there is no other way to express an opinion. There continues to be no opportunity for voters to hear any opinion except what the Board wants them to hear. Have you ever gone to an AGM? On average, there are only 104 members present (as compared to the tens of thousands who cast a vote). Moreover, voting is already finished when the AGM is held.

If you love your banking information, set it free?

Recently Coast Capital Savings started offering a money management tool that our management is calling the Take Charge Money Manager. It’s a tool that’s integrated with the online banking system using software provided by MX Technologies, a company based in Lehi, Utah, US. One of its investors is a San Francisco company called Craft and they have some information on the company here.

This integration with a US-based company means that our financial information is being stored outside of Canada, as Coast says in their FAQ:

If you look at the terms and conditions, Coast says this:

The Third Party Provider provides the Take Charge Money Manager services from the United States, and your information will be processed and stored within the United States. Accordingly, your information may be subject to valid information requests made by government agencies in the United States.

There is also a scary looking term (beginning “You will indemnify…”) which makes us members responsible for anything and everything that might go wrong.

I find this all very troubling. Are there really no Canadian providers of similar software? What would it cost us if we wanted—as a matter of principle—to keep our financial information on Canadian soil? How much do we save, at the cost of the unknown perils of a future privacy breach by parties far beyond our control?

If you love your banking information, set it free.
If it remains private, it’s yours. If not, it wasn’t meant to be.

When we engage ourselves in the American political, legal, and social environment, this is the attitude we’re taking. I don’t think it’s wise. I don’t want to be like the victims of Equifax or Wells Fargo.

A federal Frankenstein

With its “federal credit union” initiative, Canada’s Department of Finance is writing itself into a horror story.

Originating from British Columbia, Coast Capital Savings as a federal credit union will be a Frankenstein monster. Starting almost two decades ago, Coast Capital Savings was stitched together from various predecessor credit unions. Now, the mad doctors are trying to move the still-warm corpse of a democracy from its provincial village into a federal laboratory, and trying to animate it with incantations from the federal Bank Act. It will be a soulless wretch. Whereas the life-spirit of a traditional provincial credit union comes from the community it grew out of, a federal credit union makes claim to all communities and therefore to no community. It is little more than the product of mad ambition. Stories of lore suggest that this experiment is unlikely to end well.

In my letter to the Department of Finance responding to their public consultation, I continue…

In your Second Consultation Paper, you reveal that “stakeholders” are already trying to suppress member involvement in federal credit unions (page 27). The bigger problem is that nobody has ever articulated a coherent model of how federal credit unions would be of social value. I’ve heard only the superficial idea that more competition is better for consumers. “One member, one vote”—the defining quality of credit unions—has been preserved in federal credit unions, but for what purpose? We are asked to believe that member-ownership inherently leads to a more beneficent institution, but experience demonstrates that member-owners have no power and that directors and management orchestrate elections and other votes to their own benefit. Having member-owners dispersed across the country is a further diffusion of influence.

I have attached the letters I wrote to the Office of the Superintendent of Financial Institutions, arguing against the continuance of Coast Capital Savings as a federal credit union. They document a sham democracy where free expression is squelched and conflicts of interest go undisclosed. Not only do the Board and management of the credit union have no quarterly accountability to any shareholders, they have also freed themselves of accountability to member-owners.

I’m not going to provide you with specific legislative or policy recommendations; rather, let me provide you with historical facts and allow you to draw your own lessons.

I suggest reading the attached letters at night when you’re home alone, if you like a good fright.

 

Bank & federal credit union harmonization

The experiment called “federal credit union” hasn’t even begun yet and already efforts are underway to diminish the differences between banks and federal credit unions.

The federal Department of Finance released a consultation paper today in which they revealed that “some stakeholders have requested the harmonization of bank and federal credit union eligibility requirements” (page 27), to impose a greater barrier to members who want to submit a proposal for a (special) resolution. The Board of Coast Capital Savings has been advocating a similar thing provincially, trying to increase the signature requirement for a special resolution from 300 to over 5300 (see page 3 of my report)…an impossible number given that there is no established mechanism for members to communicate with one another.

Section 254.1 of the Bank Act gives members access to the member list of a federal credit union, which is not something available to provincial credit union members. Not surprisingly, the consultation paper says that certain “stakeholders” want to limit access to the member list.

In any case, giving members access to a list of physical mailing addresses is very 20th-century. The failed democracy at Coast Capital Savings demonstrates that new ideas are needed.

 

The purpose of credit unions

What does a credit union do? It does everything a bank does.

How does it do it? Just like a bank does, but under the ownership of the people who bank there.

Why does it do it? To keep profits from being siphoned off into the pockets of distant shareholders.

These basic ideas were included in a video produced by Central 1 Credit Union called “Some Choices Matter“. But in their video they also pitch the idea that profits stay in the community. This seems like a good idea—and one of the core values of credit unions—but it turns out that “profits staying in the community” is unhelpful in persuading bank customers to join a credit union. This was demonstrated in the results of the National Credit Union Awareness & Perception Study, released recently by the Canadian Credit Union Association at their 2017 National Conference.

Participants at the conference—all credit union professionals and board members—were asked how they would describe a credit union to someone who knew nothing about credit unions. Listen to their responses. Credit union people have been so well-trained to the idea that “we are not a bank” that they fail to explain themselves clearly by refusing to compare themselves to a bank. The most practical explanation begins: “We’re just like a bank except that…” People know what a bank is.

I edited the Central 1 video, removing most of the talk about communities. I also took out mentions of the word “co-operative” because there’s no good answer to the question of why a new member of a credit union is expected to be “co-operative” in some way. I also took out the annoying mumbo jumbo that marketing people write. I cut 1.5 minutes from their 3.5 minute pitch.

This is the purpose of credit unions in the 21st century. (Smaller credit unions might have other social purposes, too.)

Conflicts of Interest

It’s unfortunate that the Board and management of Coast Capital Savings have not been up-front about their conflicts of interest with regard to changing to a federal credit union. A conflict of interest arises when a person performs in multiple roles with divergent goals at the same time.

To start, the Board and management teamed up in a manner that seems much too cozy.[1] Then they enlisted the help of employees to persuade the membership (i.e., the owners) that the move was a good idea.[2] This all confuses the issue of who works for whom.

Board Chair Bill Cooke (left) and CEO Don Coulter appeared side-by-side to promote the move.

 

Don Coulter (center front) solicited public endorsement by other employees.

 

These employees were tasked with (implicitly) speaking in favor of going national. No disclosure has been made of the information or training that employees were given, although we know that employees were told that going national is in their career interest.

The Board and senior management have much to gain in becoming a federal credit union. Compensation is part of it, and the magnitude is already apparent.[3] The Board Chair’s compensation increased 437% from 2006 to 2009, directly in response to their ambition to go national. The Board’s average compensation increased 283% during the same period. That’s just the beginning. As these executives become “peers” to the executives at the big banks, their compensation levels will rise accordingly, pursuant to the compensation philosophy that was put in place in 2007.[4]

Career prospects expand for anyone who is looking to be near the top of a national financial institution. Furthermore, the Bank Act requires that the CEO be chosen from the Board of Directors, opening up a new career path and fundamentally changing the nature of the co-operative’s Board of Directors. This was not disclosed to the member-owners.

Nor was it disclosed that the executives at Coast Capital Savings were involved in lobbying for the 2012 changes to the federal Bank Act that permitted the move to the federal jurisdiction. The Bank Act is a barrel of snakes that yields undisclosed advantages to the Board and management at the expense of the member-owners.

Ross Gentleman, writing in a post on his blog Credit Union Futures, points out that credit unions are in a position to lobby for changes to B.C. credit union legislation. This gives the Board and management of Coast Capital Savings yet another opportunity to advocate from a position of conflict-of-interest.

References: See The Case Against Coast Capital Savings Becoming a Federal Credit Union.
[1] p. 19
[2] p. 22
[3] p. 33
[4] p. 28

Not a horse nor a donkey, but a mule or a hinny

FICOM asked for public input regarding Coast Capital’s bid to go national, and the title of this post reflects my favorite comment, referring to how a federal Coast Capital Savings would be something of a half-breed business, between a bank and a credit union (see p. 32 of the consolidation).

Using a freedom-of-information request, I obtained copies of the comments that were received by FICOM.

Speaking in favor of the proposal were:

Speaking against the proposal were:

Expressing no opinion were:

Here is a consolidation of the unnamed submissions.

My own submission can be found here:

 

FICOM accepting public comment

As of March 1, 2017, FICOM started accepting public comment on Coast Capital’s bid to go national. You can read FICOM’s press release. The deadline is March 30, 2017.

I have sent them a letter asking them to extend their deadline. The problem is that they provided less than 30 days notice, and there hasn’t been enough time to get feedback from a national dialog, which I think is appropriate in this circumstance.

Breaking news! Someone said something

The vote for national expansion has been ongoing for 26 days now (only 17 remaining), and for the first time I have seen someone make public comments.

This Vancouver Sun article quotes Wayne Nygren, a former CEO of what was then called Credit Union Central B.C., as opposing the national expansion for several reasons, including:

  • It would weaken Coast’s cash position
  • The provincial regulator is preferable to the federal regulator
  • Deposit insurance would be reduced
  • Coast’s withdrawal would weaken the remaining B.C. credit union system
  • Credit unions weren’t designed to be national organizations

The last reason—a socio-political reason—is by far the most important. The economic considerations are short-term and narrow in their vision. If we allow the debate to focus on economic/financial considerations, we’ll forget the real reason that the founders created the credit unions 75 years ago: to take control of their own destinies.

This lone dissenting voice after 26 days shows how the democracy is no longer functioning. A mere newspaper interview doesn’t give him a chance to explain his views, or for other people to debate.

Also, does anybody else wonder why Don Coulter, an employee of the credit union, has access to voting numbers part-way through the vote? This vote ought to be conducted by the Board on behalf of the members. Management should not be running it.

What some people are saying

I’ve received some comments over the past week—some following from the Vancouver Sun article that mentioned my website. Here’s a typical one:

“Just wanted to thank you for this website. I received the Coast Capital mailout re voting on becoming a federal credit union, which, of course, is full of positive statements saying very little about what this change would mean. I remembered there had been a website when the board of Coast Capital was trying to increase its income, and I hoped someone had created a similar more informative site on the latest “great idea” of the board. So good to have my suspicions about the downside of this proposal spelled out. Please carry on with your good work.”

If only every member/voter was willing to seek out an alternative opinion, the Board of Directors would have a fair fight on its hands.

Eastward bound!

The Board is putting it to a vote: should to credit union expand nationally? Voting by the members will begin next Monday (Oct. 17, 2016), until November 28. Results on Dec. 14.

Coast Capital is closing its branches early today for an employee meeting about this. Members will be informed by mail and on the website in the near future.

Here is a worksheet (see below) that employees have been given in order to prepare them to answer questions from members about the national expansion.

It’s troubling that the Board is using the the Coast Capital employees as a propaganda machine to further their objectives. I would be worried for my job prospects if I were an employee who wanted to speak out against this move. Employees might or might not be members of the credit union, but regardless, they should not be put in a position where their bosses can observe their behavior as it pertains to this political matter.

Notice that in their list of “benefits,” the members are treated as customers, not as owners. National expansion will only erode the ability of members to govern the co-operative.

2016: Another year of non-democracy

I have finally got around to posting the video of the 2016 annual general meeting back on May 5. The Members’ Open Forum at the end of the meeting is the time allocated for the members to voice their concerns on any topic. As with previous years, the Board does not include this part of the meeting in the official video release of the meeting. The only reason you can view that part of the meeting here is that I recorded it from the live webcast.

The Board has asked the staff to produce an official report on national expansion of the credit union (i.e., changing to the federal credit union). This issue could be put to a vote by the membership as soon as the 2017 AGM. There was no substantial discussion of this issue the meeting. The Board wants any changes to be right for the members, but you’ll notice that they always speak of the members as customers/users of the credit union. They never say that the change to a federal credit union should be right for the members from a governance point of view.

The CEO Don Coulter’s 2015 compensation was disclosed this year (on page 85 of the 2016 Annual Report): $780,760.

Interestingly, it seems the previous CEO Tracy Redies, who left abruptly in 2014, received something in the neighbourhood of $2 million in severance. This could represent 24 month’s worth of remuneration. Coast Capital’s termination costs were $2 million in 2014, compared to $225,000 in 2015, $0 in 2013, and $53,000 is 2012. We can surmise that Redies’ severance was the reason for the large difference. (See page 71 of the 2016 Annual Report for a list of termination costs; page 96 for a description of the CEO’s severance benefits.)

The 2015 director elections, in remembrance of democracy

The 2015 director elections are upon us. There are no special resolutions this year—not surprising because of the difficulty of collecting the 300 signatures needed. There’s no online discussion among members that I’m aware of.

There are five candidates for the three open director positions. Vote for Mark Latham and James Boyd because as non-recommended candidates, they’re the least likely to have pledged fealty to the establishment. Mr. Latham is very interested in restoring democratic governance.

It’s necessary to cast a third vote, too. I suggest that it’s best to cast your third vote for the strongest or most popular of the remaining candidates, to give the two above-mentioned candidates the best chance of winning over the weaker ones.

I therefore recommend you vote for:
Mark Latham
James Boyd
Christian Findlay