The Credit Union Thread: Why Staying On Mission Matters

Speaker A: This is who we serve. Why do we have to go out and form a charity so we can let other people in? Why do we have to add five more segs if we're doing great as a credit union and we're serving our base? I think that's some of the debate in the credit union system today. If it's all just grow, grow, grow 100%, 24 hours a day, I mean, we could all find ways to do that, but we look at just serving our base as good as we possibly can.

Speaker B: Welcome to 22 Minutes in Lending. Your go to PODC for insights on all things lending from lending practices, regulatory updates, how to enhance lending efforts, and more. In each episode, Vince Pasillon connects with industry leaders to discuss the latest trends and happenings around the lending industry. Let's dive in to the latest in lending.

Speaker C: Welcome back to 22 Minutes in Lending. I'm, um, your host, Vince Pasione. And today I'm especially excited to welcome someone I've known for over 15 years, going back to when he was one of my very first business partners in the credit union industry. Today we're joined by Paul Gentile, president and CEO of Merck Employees Federal Credit Union. Paul oversees a $1.8 billion institution dedicated to serving the workforce of Merck and Core, one of the world's largest pharmaceutical companies. Paul's career is unique in our industry. A decade at the helm of the Credit Union Times, key leadership roles of both the New Jersey Credit Union League and cuna. And president of New England's Cooperative Credit Union association and now leading one of the strongest employee based credit unions in the country. Paul, it is great to have you here.

Speaker A: Thank you, Vince. Pleasure to be here. Excited.

Speaker C: Great. Well, we'll jump right in. I always love to hear about the journey. So we talk a lot to a lot of different credit union CEOs and a lot of them talk about starting as tellers and starting in corporate finance. But you're, but 30 years ago you were a publisher. Um, so how did you end up in the CEO spot at this credit union?

Speaker A: Yeah, well, I was a editor, publisher, Credit Union Times for many years. Wonderful, uh, organization. That's really where I got my foot in the door of credit unions. Like I like to tell people, being the editor of Credit Union Times is like going to college on credit unions because you had to learn about everything. You had to know about data processing, you had to know about state politics, you had to know about credit debit, you had to, you had to know about lending. So it was A really unique experience to really get a background on the great system that I love today and have never left. Uh, so, yeah, started at Credit Untimed and then moved on to the political side with the New Jersey Credit Union League and then the Cooperative Credit Association. A little time at kuna. So, yeah, it's been a wild ride. But I'm really, really happy to be here at Merck. It's a wonderful institution. We are solely dedicated to helping our members. And there's many ways we do that. Uh, we're a traditional credit union. We really like to do things the old school way. Um, serving our members needs, always focused on being their trusted partner. And that's why I think we have such dedicated and loyal members today.

Speaker C: So, Paul, you mentioned, um, the trade association, obviously you mentioned starting on the political side. We certainly have done some joint work together. When you were at CUNA and lobbying on behalf of student loans, what did you learn from, from your time in the trade associations and that you were able to apply in your current role as CEO at Merck Federal Credit Union?

Speaker A: Well, it's a great question. I think, honestly, I learned a lot more at Credit UN times because again, you had to be an expert on everything if you're going to write about it. So that was a big heavy. It was like being, again, going to school on credit unions. Uh, the political side, I think you really learn the different wants and needs of credit unions, how we're so diverse and trying to get things that benefit the system and all the individual credit unions is challenging. So you look for common areas where you could help the credit union system do well.

Speaker C: So look, you've talked about the macro, right? Uh, and I know that's part of why. And you touched it earlier, right? Being at the CU times, you have to almost be an expert in everything, right? Because you never know what you're going to write about. And it gives you a purview that probably a lot of people lack. But if you think about the macro backdrop, what is the biggest challenge that's facing credit unions right now? Is it the regulatory environment? Is it the economic environment? I mean, I know they all come together to affect you, as you just said, but what do you think the biggest challenge is?

Speaker A: Yeah, so I think, uh, there's a couple of things. I think if you look at the more pedestrian things right in front of us, right, we all have a challenge with fraud. It's a big, big issue in the credit union system, the financial system, it's only getting worse. Um, so that's Sort of a day to day operational challenge that we're all trying to, um, you know, stare down and beat. For example, we at the credit untick it very seriously. We have a fraud service we offer our members free. It's called Careful. It monitors all their accounts, gives them constant education on fraud. We had an incredible story just two days ago. A woman came in for $42,000 in cash to buy her neighbor's car. She was an elderly woman. We didn't believe it. We thought there was something going on. Um, she was adamant. She said, my family's involved. My neighbor I've known for five years, I'm buying the car. We dug a little deeper and she was being defrauded. She was being defrauded from somebody from another country who told her that the credit union received $42,000 in her account, um, for illicit activity and she needed to return it immediately. And they told her not to mention, um, the fraud because the credit wouldn't give them the money. So she made up a story that she was buying a car and she was not. So these things are happening every day and it's so sad to see, especially the older members. By the way, when she learned that she was being defrauded because she really believed she had to, uh, owe this money, she broke down crying. She was hugging everybody in the credit union. Like, these are the real things that we do on a daily basis. You know, I think fraud is such a big issue on the practical side, um, the regulators are a little bit behind. The regulators do a great job. But when they come in to examine you, fraud is not even mentioned. Right? We're doing our BSA exam, we're doing our IT security exam. You don't hear anything about fraud. So I think they got to focus on that and get a little bit better at that. Um, but big picture, Vince, when I look big picture, I guess what I worry about is, you know, the credit sort of industry. We're doing great things. Um, you see a lot of credit unions buying banks, which, you know, it's America, that's great. You, um, see a lot of credits have expanded dramatically. Again, capitalism, it's great. Um, I do worry over time if it's going to diminish sort of our thread and hurt us on the tax exemption front and what it is to be a credit union. So I think we have to get our stories together and show our value what exactly we're doing for the membership in America. So we keep that credit union thread strong and maintain our status and not lose our Status. Yeah, I worry about that. And, um, I think we need great messaging on Capitol Hill to win that battle. That's why I think elder abuse, things like that, the goodwill stories that we do, we should be more front and center with, you know.

Speaker C: Yeah, it's the niches, right? That's that, it's the niches. It's, it's sticking to those niches and, and allowing the, giving the regulators and the legislators a story. Right. Um, as to why credit unions do matter. Because when I was reading this morning, the COVID of the American Banker, is it Michael Ball, they're talking about credit unions buying banks again. And every time that happens, you know, the flag's going to come up again and again and again. Um, and it's great for those that are doing it. Many of them are picking up things like they're acquiring small business lending. Right. They're putting footprints in new states that make sense for them. But, uh, it does continue to raise that flag as to the, hey, why are we letting them do this? So, Paul, when we look at Merck, right, so Merck, 68,000 employees globally, 30,000 in New Jersey. Right. You're sitting there in Rahway. You're a SEG based credit union. You're probably one of the oldest SEG based credit unions. We see credit unions open up there as field of membership. We see association based credit unions, we see community based credit unions. But this is a SEG Credit union. So who are you serving within Merck?

Speaker A: It's the employees and family members of Merck. Oftentimes people will join the company and they hear about, hey, you need to join the credit union. We want to give them a reason to join. Um, I believe that starts with lending. An auto loan, a home loan, a student loan. I think, you know, lending is really a big tie for the newer people that come aboard. But we have a great history of getting the family members to sign up. You have people that come in generational credit union members. Mother, father, daughter, son, granddaughter, grandson. It goes all the way down the line. And we spend a lot of time on, you know, making sure people pass down, uh, the valued membership. But we are serving a corporate membership. So, you know, we deal with things like a lot of people are relocating. There's relocation service, Merck does. So we want to be there for the lending side. We help people with mortgages when they're relocating. So we still have to have that sort of understanding of what they're trying to do, um, and help them. But you know, like I say, all the Time here, Vince. As long as you're doing the right thing by the membership, it doesn't matter if you're serving Merck or if you're serving the general population. Just do the right thing and you'll do well. And I think that's what's happening here right now. We're doing very well right now.

Speaker C: Now, Paul, I visited you recently. You're right there on that campus in Rahway with your branch. Tell us a little bit. What's the relationship like? I mean, do you get a lot of foot traffic? People coming in? They coming in to transact? Are they coming in with questions? I know you're big on financial literacy. Talk about the relationship with this. With this particular employer.

Speaker A: Well, yeah, that we do get a lot of foot traffic from the employees. Um, you know, I know everyone thinks banking is completely remote today, or, you know, a lot of people think that way. But we see being on campus, imagine you're an employee here. You could just stop by, go get your lunch, and then stop into the credit union, get some money out, get a question answered, find out about a loan. So, yeah, we definitely get a lot of foot traffic. Uh, we do have our online membership, obviously, and we'll hear from people, um, at Merck if they think something could be a little bit better. So it's good that we're right there. Right. People are not shy about giving us feedback. So that's another big part of it. And we'll do events on campus, we'll do education sessions on campus. Uh, but, you know, Merck's a great partner. They let us do the right thing by the members. They give us space, they give us time. So, uh, it's great.

Speaker C: Now, you mentioned Ed lending. We met 15 years ago. You were my first business partner. Right. When you were the president of the Jersey Credit Union League. And we went out and recruited, I think, in the beginning, over 24 New Jersey credit unions into Ed Lending. And then about five months ago, you called me and said, hey, I think we've got a concern here about Merck. Talk to us about that. Because with the big, beautiful bill, there's a lot going on now, right? Ed Lending is coming up more and more and more, um, curious about the thought process, the conversations with the board. And you went through your first lending season. So what, you know, were you spot on as far as the pain point, and what's been the reception like to the employees?

Speaker A: I think it's exciting. We've had a lot of student loan activity, even though we just got in around July, which was. Right. The next funding season. Right. Um, we're doing very well, I think. You know what? We have this. In this corporate membership, we have a lot of parents that are sending their kids to school, but we also have a lot of people that have graduated with multiple degrees. And when we see them come in for auto loans or home loans, you'll see eight student loans on the, um, credit report. And we've heard over the years, hey, what could I do to get this payment down? Is there anything you guys offer? And, you know, home equity is always the thing you talk about with somebody consolidating, but that doesn't work in all cases. So we thought it was important to get a product that could kind of meet this need. Uh, we did one last week, which I think is a great example. This was a younger member, 25 years old. She's been a member of the credit union only three years. Works, uh, at Merck. And she had, I think, 12 student loans. Um, and one was at, uh, 10.8%. I mean, a bulk of them were at about 10.8%. Another bulk were about 7.9%. And I think we refinanced her, all of it for about 6.4%. So she not only simplified her life, she got a better rate, and she's very, very happy. And she's also doing an auto loan with us. So, you know, we just want to be able to meet demand and have something for everybody. So student loans are great. I'm a big believer in it. I don't think people are going to stop going to college because of AI. Um, you know, in fact, maybe the other side might actually be more people going to college. So we just want to be there for them in that phase of their life.

Speaker C: Yeah, we should back up, Paul, for our listeners. I mean, a large percentage of your, your, your members, they have advanced degrees. So these are Merck employees, many of them with PhDs and MD. So they are graduating with significant student loan debt.

Speaker A: Yep, absolutely. Absolutely. And, um, you know, we find PhDs, scientists all over the campus. This is who we're serving. Um, and they're brilliant people. I don't necessarily think they want to spend a lot of time on their finances in terms of. They want it simple. Um, they're such smart people. They want to go to a source and say, hey, what's the best thing for me? Um, because they're not, you know, they're dedicated to their craft. So we try to make it very easy for them and have things packaged up Nicely. And being able to say, hey, you can refinance all those great degrees you have here at the credit union. I think it's powerful now.

Speaker C: It is. It is. Now, Paul, we've talked about the membership. It is somewhat unique. Does it change? So the way you look at them from an underwriting perspective, does it change the way you lend to them? I mean, they all sound like they would be great, right, to lend to. But do you do something special in underwriting because of this unique sort of workforce that's highly educated, very stable with this employer?

Speaker A: I don't think so, Vince. I think what we try to be is a very friendly lender. Um, I mean, outside here, I know somebody just came in from the campus to sit with one of our loan people to talk about refinancing their auto loan. I know everything's online and technology, but we also want to be that person where you can come in and talk to us about loans. So we're very, very hands on and friendly, um, with these folks. Um, I don't think we treat them any differently from an underwriting perspective. Um, they're great candidates. We, uh, were in a few cusos, and, you know, it's not uncommon for us to hear that our pool of loans are some of the most high quality, um, that they see, you know, even Cusos with 2, 300 credit unions, because of the membership that we serve. So, yeah, nothing special, though. We just treat them all great.

Speaker B: Hello, I'm Vicki Roscoe Erickson, senior Vice president and Chief Marketing Officer at, uh, Topline Financial Credit Union in Minnesota. We've been working with Lens Key and member student lending since 2010 to offer private student loans and student loan refinancing to our members. As the cost of higher education continues to rise, students and families are seeking new financing solutions. And that's where our partnership comes in. It provides us the opportunity to assist members and their families with affordable education loan options. So far, we've been able to help nearly 800 members with over 1500 loans totaling over $2 million. This is an amazing opportunity to support our members at the beginning of their financial and education journeys.

Speaker C: So really loyal SEG base. But that also means that you're kind of gated in the way you can grow. So how does it affect you in the way you look at the business? And how do you stay relevant?

Speaker A: I don't know. I think some of that, Vince, is the roots of the crediting system. This is our seg. This is who we serve. Why do we have to go out and Form a charity so we can let other people in. Why do we have to add five more segs if we're doing great as a credit union and we're serving our base? I think that's some of the debate in the crediting system today. If it's all just grow, grow, grow 100%, 24 hours a day, I mean, we could all find ways to do that. But we look at just serving our base as good as we possibly can. And we think growth will come. It'll just be slower than a community credit. And that could reach, you know, hundreds of thousands of people at any time or somebody with multi, multi, you know, SEG groups. I think we stick to our mission. That's why I said we're pretty traditional credit union. We're here to serve Merck. And, um, we want them to feel good about the credit unions. So we're not going to diverge off and add a bunch of groups. Just not who we are.

Speaker C: And Paul, is that what you think most segs should be doing? You know, it is sort of like, look, when I first started working, uh, my first job was at IBM as an engineer. And the IBM Federal Credit union was on campus. Right. Just like it reminded me so much of being at Rahway at your credit union. And I got my first auto loan there. I had direct deposit there. Um, and, and they were a very, they were a direct shop. Right. They did no indirect lending. Do you think that's sort of. When you say that's the heart of the system, is that where SEG should be focused in saying, like, you know, growth should be, you serve your member, you serve this seg?

Speaker A: Yeah, I do. I mean, if you look, there's some very big or big companies in America that have credit unions. And the credit unions are not very big. They have not penetrated those segs over the years. Mhm. So I think if you have a very healthy SEG and they're willing to work with you, I mean, I think that's what you should be doing. It, uh, doesn't mean you shouldn't grow and expand. But if you're not serving your SEG the best you can, I think that's where we're going to have some challenges. Right. So, um, yeah. You know, obviously if a SEG that's not cooperating or the SEG has issues or they're merging, then that's all different. Right.

Speaker C: But, but what makes Merck unique? I mean, this is one of the largest pharmaceutical companies in the world. I mean, if they wanted banking services Right. They probably get any bank to come in there, Right. And, and create some type of affinity relationship with them. But they are really, I mean, I got a chance to talk to your board. They are very engaged right, in that credit union, what it does for its members. Is there, is it specific to Merck or is it. Hey, this has been a tradition at the credit union. Like I, we certainly serve other credit unions that are SEG based and as you said, they do not penetrate at the level like I look at the executives in some of these credit unions. Some of them are, are sitting on campuses with hospitals, pretty large hospital chains. They don't serve the doctors, they serve all the other employees. And even there they don't have the kind of penetration that you have.

Speaker A: Yeah, well, I don't think it's easy. I do think the credit union here is a tradition. I think it's very much a tradition and we keep it that way by doing old school things. We have our in person annual meeting right on campus. Uh, obviously make the corporation, uh, executives, um, you know, part of the, part of the process. So I don't know, I think, I think the old school way of really just staying true to who you are and staying true to your knitting and just serving that group. I think, I think companies like that, if you do it well. You know, as far as big banks though, Ben. Yeah, sure. Just like campuses. I mean you go on some of the college campuses in New Jersey, you see bank of America, Wells Fargo and all that. I think anybody could do that. But I think people who understand banking know there is a difference to having a group that's dedicated just to you. And bank of America will never be just to any one institution. Right. So that goes back to your question earlier about the SEG difference. And that's how credit unions were founded and that's what makes us unique. You serve your SEG group, so.

Speaker C: Yep, well put, well put. So I was looking at your 5300 report, Paul, and it's kind of enviable. Um, you're 60, 63% loan to shares. So you've got significant opportun out there, right, for that balance sheet, 14% net worth, um, on a $1.8 billion institution. So it's pretty far above the industry average at 14%. What's behind that? Is it just making smart decisions on lending? You know, I mean, obviously, you know, cost of funds is a big issue.

Speaker A: Yeah, uh, you mentioned a loan to share. We'll, we'll lend as much as possible. We, if, if you look at us say they don't want to lend. That's not true. We'll, we'll do. We're really looking at lending. So everything we could possibly do to lend, we do. Um, you can't force it on people. We have a lot of people that are well off and they're not necessarily going to borrow. Right. Our, uh, loan to share ratio is lower because as you know, we have a high dollar balance. So you're never going to get to 90% when you have a dollar balance like that. Um, but no, we're very dedicated to lending. That's why we launched student loans. Uh, we expanded our home equity programs recently. Uh, we do a lot on the first mortgage side, so we'll do whatever we possibly can on that capital though. I will say, Vince, we do like capital here. We do like to be seen as a very healthy credit union with our capital reserve. Um, and you know, we would deploy capital if we see correct opportunities. I mean, I'll be honest, I'm a very big believer in some of the things going on with stablecoins. I think stablecoins, uh, are going to change how we pay for things in the country, how our payment systems work. And I'm really looking forward to a credit union group coming up with something on stablecoins. That's something we would think about putting capital to work with. Right. Getting involved in there. Uh, we like capital for technology. I do think technology is changing rapidly, so we want to have capital for that. So it's kind of deliberate. We want to be very strong.

Speaker C: So headline for the future. Paul, you've been in the system for a long time. Um, and let's kind of revisit when you started. So you said, you know, most experience you got or best experience was as a journalist. So it's January 2030. What's the top credit union headline on the CU Times?

Speaker A: 2030.

Speaker C: Yeah, 2030.

Speaker A: Oh, boy. I don't know, Vince. I would say hopefully it's good headlines. Hopefully credit unions are still not for profit financial cooperatives. Hopefully we're still growing. Uh, I would think it would be a lot different on, like I said, the payments world. I think the way we interact with payments with our members is going to be very different. I know we've talked about that for years, but I think it's really finally starting to change. I think people are going to get tired of the, the same old rails to make transactions. Right. It's very heavy on fraud. It's very clunky. Um, I think that whole scene is going to change and are we going to adapt quick enough? Right. If Amazon makes a stable coin and you just. They just say, hey, load up your stablecoin in Amazon. Everything you buy could be an Amazon stable coin. You know, where credit unions. What do we look like? Um, I really think that's how it's going to be in the world in the future. So I don't know what that headline looks like, but I hope we're in it and I hope we're very involved because I think it's what our pay, our members are going to be doing.

Speaker C: No, it's a. It's probably the biggest disintermediator that's out there on the horizon when you think about it. And certainly your NCUA chair talks about it whenever he can. Right. So it's kind of good to see that credit unions are really talking about it. You're talking about it. We're hearing it as we go to conferences.

Speaker A: Yeah. I think we diverged from bitcoin versus Stablecoin. Two very different things. Right. Stablecoins, a conveyance to moving money, transactions. You know, Bitcoin, you could, you could talk about that a lot of different ways. Gold, etc. But I think we're talking about the right way with, with stablecoins as a vehicle to fund loans like you, like you guys do. Right? To fund loans, to make purchases, make payments. So that's where I think the world's going.

Speaker C: No, great, Great. Well, uh, Paul, this has been fantastic. It's been a great conversation. It's great to reconnect with you. We've known each other for a long time. Um, I just want to say thank you for joining us and also just thank you for everything I know you've done for the credit union movement. You know, I followed your career and had a chance to work with you every stop of the way. So great job there and great job what you're doing at Merck. Yeah, thanks so much.

Speaker A: Always appreciate it, Vince. And we certainly enjoy the student lending that we're doing with you guys. We think it's very important strategically. So thank you for what you guys do as well.

Speaker C: No, I appreciate that. And thanks for the partnership and to our listeners, thanks for tuning in and be sure to subscribe so you don't miss an episode. We'll see you next time at 22 minutes in lending. Thanks again, Paul.

Speaker B: Thank you for listening to the 22 Minutes in Lending podcast. We hope you enjoyed today's episode. You'll find links to any resources mentioned in the show, notes if you're enjoying our show, please be sure to subscribe and leave us a five star review.