UPDATE: Read our follow-up report about the outcome of the election.
North Carolina’s State Employees’ Credit Union is the second-largest credit union in the country, serving 2.7 million current and former state employees, teachers, and their families. It’s also one of the purest examples of the form: In its 86 years providing loans and other financial services, the credit union prized treating members equitably and with an unusual degree of personalized care.
Guided by the motto “Do the right thing,” its leaders proudly bucked financial industry trends that they perceived as exploitative or discriminatory. They charged low fees, paid high rates on deposits, and cultivated an expansive network of volunteers to advise the institution. Until last year, volunteers could review and even overturn some decisions by loan officers.
Jim Blaine Sr., the CEO from 1979 to 2016, endorsed SECU’s approach with a bravado that made him an industry legend. He loved to emphasize how credit unions were different from banks, once likening the latter to brothels: “You know it’s going to cost an awful lot of money, and you know you’re going to get screwed.”
He promoted “Send us your mama” as a slogan for SECU—a folksy way of saying, “You can trust us to treat her right.”
The institution that serves roughly a quarter of North Carolinians is now in a heated debate over its future. Its current CEO and board of directors are engaged in a modernization campaign they say is urgently needed to survive competition from banks and fintech companies.
The credit union has continued to operate like a small cooperative, they say, lagging behind industry standards, especially in regards to technology and the variety of services offered, even as it holds $50 billion in assets—as much as some regional banks.
But some of the credit union’s most devoted and longstanding members worry recent policy changes blur the distinction from banks that Blaine and his successor, Mike Lord, steadfastly guarded. Capital will flow out of the state, they say, and what made SECU special—its dogged, even contrarian focus on helping people with modest incomes—will be lost.
Now a high-stakes election is bringing that internal conflict to the fore. Three of the board’s 11 members are up for reelection to another three-year term, and the incumbents face challengers who have the backing of Blaine and dozens of other former SECU executives. All of SECU’s members over age 16 are eligible to vote, and can do so online through October 3; members who attend the October 10 annual meeting in Greensboro have the option of voting there.
The election, said industry analyst Chip Filson, is perhaps “the most significant board election in the history of the credit union system.”
Credit unions are set up as not-for-profit cooperatives where every member, no matter their account balance, is an equal part-owner.
That ownership share is the reason members get a say in who’s on the board. It’s also part of what makes them different from banks, which are for-profit and owned by investors.
Historically, most members didn’t participate in SECU’s board elections. Only the most involved members would attend the annual meeting and vote—maybe 1,000 total, said Chris Ayers, the board’s current chairman. Members could nominate a candidate at the meeting, but the vast majority of candidates came with an endorsement from a nominating committee made up of mostly current board members. The number of candidates typically matched the number of open seats, and there weren’t many surprises. This is the first year online voting is even an option.
In August, the nominating committee endorsed three current board members: Alice Garland, a retired lottery executive; Thomas Parrish, deputy chief information officer for the state Department of Public Safety; and Jo Anne Sanford, an attorney who worked for many years in the N.C. Department of Justice and was later chair of the state Utilities Commission.
The three additional names that appear on this year’s ballot also applied for committee consideration, but were rejected. To be eligible to run, they had to collect signatures from at least 500 credit union member by August 21, 10 days after they learned of the rejection.
Those candidates, who have branded themselves “member-nominated,” are Michael Clements, a retired public health worker; Barbara Perkins, a now-inactive certified public accountant who retired from the Office of the State Controller; and Chuck Stone, who retired from the State Employees Association of North Carolina (SEANC). Each serves on an advisory board at their local branch and is critical of key parts of the strategic plan the board released last December.
The rival slate’s main grievance is the plan’s move toward pricing loans based on credit score, rather than offering all members the same rate, as was tradition at SECU. But they also say the credit union’s longtime focus on customer service is fading, along with the transparency that they think helped make members so loyal. They each said they were surprised to hear first from Blaine, rather than current SECU leaders, about some of the changes afoot.
Filson, the industry analyst, is encouraged that a large credit union would hold a contested election at all, where members have a meaningful choice between candidates who offer contrasting visions. Most credit unions run their board elections in a way that “compromises the principle of democratic governance,” he said, but SECU “brings a breath of opportunity.”
Last October, retired CEO Blaine sat among hundreds of other SECU members at the annual member meeeting in Greensboro to hear about the organization’s past and future. Now 74, he hadn’t been in one of those meetings in years.
He watched as Jim Hayes, the former chief financial officer of Western Corporate Federal Credit Union, a corporate credit union that went bust in 2012, walked to the podium to give the CEO’s report. Blaine recalled that WesCorp’s failure, due to heavy investment in risky mortgage-backed securities, had cost SECU $120 million.
Hayes, who was named SECU’s CEO just more than a year before, acknowledged he was the first top SECU executive who did not rise through the organization’s ranks. “It’s tough, right?” he said to the audience.
He thanked employees and volunteers for their warm welcome, then ticked through some of the SECU’s recent achievements: Forbes had named it the best credit union in the state. The SECU Foundation had made $235 million in charitable giving since its establishment in 2004. Strong growth in members and assets. Over 1 million members were now using the mobile app.
Then he turned to the future. “We’re going to be making some pivots, mostly around digital and technology and trying to modernize the way we do business,” Hayes said. He assured the crowd that SECU would not sideline its motto of “people helping people,” nor close any of the 273 branch offices spread across all 100 of North Carolina’s counties. The latter was a rumor, “something that was made up and grew legs,” Hayes said, and one of several floating around.
Blaine had heard those rumors. Six years into retirement, he was hearing a lot more from his former colleagues. At first, he said, he wrote off the calls and emails as the type of gripes that always accompany new leadership. But as he heard from an increasing number of people in senior management and from CEOs of other credit unions, Blaine said, he came to see the new program of change as a threat to SECU’s core identity.
His wife, Jean, a former teacher and community activist, encouraged Blaine to do something about it. She was particularly moved by an email she had seen that a senior financial services officer sent to Hayes, expressing fear that his technology-focused agenda would dilute the historical focus on listening to members’ stories and offering personal service. Jean Blaine said she told her husband, “If you don’t go to the annual meeting and say something, I will, and I won’t be very nice.”
When the board chairman asked if any members had new business, Jim Blaine rose to speak. “By the way, before anyone gets real tense and caught up, it’s going to be real respectful and polite, I assure you,” he said. The people sitting nearby laughed, likely acquainted with Blaine’s characteristic bluntness.
Blaine started with a quick history of SECU, then ran through a list of recent changes, as well as rumored ones, that he thought had received insufficient transparency. “How will this benefit current members?” he asked about each item, which included the now-confirmed end to a low-cost tax preparation program and the planned launch of a program to offer loans to businesses, which is generally banks’ bailiwick.
Blaine’s sharpest critique was for a shift in loan pricing. All SECU members have historically paid the same interest rate for the same type of loan. Across the banking and the credit union industries, this approach has become vanishingly rare. At most lending institutions, credit scores now dictate the interest rate a borrower pays. This policy, called risk- or tier-based lending, means that people with superb credit ratings pay less while people with blemished records pay more.
Blaine warned that risk-based lending would mean many members pay more—people like prison guards, teachers, young people. “And you have one of the lowest loan-loss rates, despite lending to those high-risk people,” he said. “Something doesn’t compute.”
He proposed two resolutions: That the board discuss his questions with staff and advisory board members and make the results of those discussions available to all members, and that the board write an updated strategic plan and post it online.
The members voted, which is the right of any member in attendance at these meetings. Both resolutions passed.
Soon after the meeting, Michael Clements wrote to board chair Chris Ayers.
He laid out his credentials—he had been a member for 45 years, currently serves on the local advisory board, and was previously on the SECU Foundation board and a loan review committee—and said he was appalled by the board’s adoption of risk-based lending. “This policy clearly signifies that all our members are NOT equal,” he wrote in the letter, which Blaine later posted on his blog.
Clements later spoke with Hayes, whom he says told him that the changes “were necessary for our survival.” Clements said the response bothered him enough that he decided to run for the board.
Others were skeptical too. Mike Lord, who served as CEO between Blaine and Hayes, calls the move to risk-based pricing “unconscionable.” Credit scores can punish people harshly for bad luck like a car accident or sick kid, he said, and the effects can linger for years. He also doubts that the loans to members with low credit scores are a substantial drag on a balance sheet, given his very recent tenure as CEO.
“The terrible unkept secret about credit score pricing,” he said, is that most borrowers that have to pay that extra penalty “are going to pay the loan back.” Why punish the majority for the few who don’t make the payment? Lord said he was also worried about the discriminatory impact of relying heavily on credit scores. A recent study from a credit card processing firm found that white Americans had an average credit score of 744, while Black Americans averaged 677. Young people and low-income people also tend to have lower scores. And research is building to show that credit score algorithms perpetuate racial bias.
“The simple solution,” he said, “if you want to make more loans—and to folks that have higher credit scores, which is what they’re talking about—is to simply lower the interest rate for everybody.”
Opposition to SECU adopting risk-based lending and other new policies coalesced around a blog Blaine soon launched. The page features a purple duck—a reference to leaders “ducking” responsibility—and a picture of a mule, a nod to Blaine’s stubbornness. All of this is cast upon a background of orange flames.
Nearly every day, Blaine posted a new update, with plentiful underlining, highlighting, and red text. He posted documents, including financial breakdowns presented to the board and a request from SEANC that the credit union rescind its new lending policy. There was a seven-part series about risk-based lending and, more recently, endorsements for the challenger slate.
Blaine’s commentary can be fiery and personal. His critics call it bullying.
Emily Hollis, the CEO of ALM First, a firm that offers financial advisory services to major banks and credit unions, views the blog as part of a pattern of intimidating behavior that goes back a long time.
When Blaine was CEO, he hired her firm to prepare reports that evaluated SECU’s risk. Around 2010, he was dissatisfied when a report showed SECU failed a risk test, and tried to convince her to change it, she said—even flying out to Las Vegas, where she was giving a presentation, to talk in person. Hollis thought the alterations Blaine wanted were inappropriate and refused. Blaine then sent her a spray of funeral flowers she remembers as being 5 or 6 feet tall.
Later, Blaine left her a voicemail, referring to the flowers as a provocation. “You should know that the provocation is much milder than what I really wanted to try,” he said in the recording, which Hollis provided to The Assembly. “I had called a slaughterhouse and tried to get a horse head sent to you, but they would not ship it interstate.”
Blaine said he didn’t remember the incident, but that it was possible he would have done something like that as a joke. He thought Hollis may have been motivated to tell the story now because he blogged about SECU hiring her firm to oversee investments, and Jim Hayes had joined the advisory board of her company.
Board chair Ayers and fellow board member McKinley Wooten say that contrary to some portrayals, the board approached the question of changing the lending policy with great deliberation.
One factor that pushed them toward change was data showing that SECU’s share of total member borrowing had fallen to only 15 percent. Members with top-tier credit were especially likely to borrow from other lenders, most of which offered risk-based lending. SECU employees had always encouraged members to evaluate their options and go where they could get the best rate. It seemed fewer of them were coming back to SECU.
Another factor, Wooten said, was persistent questioning by regulators about the diversity of the loan portfolio. “We had regulators that were always concerned that we had all of our lending in one bucket,” he said. “We had all of these mortgage loans, and they were in this bucket where most of the folk were in, you know, this middle tier or lower.”
Then COVID changed consumer behavior, and more customers expected better online services. Companies like Rocket Mortgage, which makes it easy to apply for a mortgage online, took another bite out of SECU’s lending. The board’s decision last year to change the lending policy came only after several meetings and markups of multiple staff proposals, the members said.
“There was a lot of discussion about, you know, what are these tiers? How are they defined? How broad are they?” said Ayers.
“We spent a lot of time around those folks in the lowest tier,” Wooten said. “The last thing that we wanted to do was to close the door on those folks who had, you know, the worst credit scores and this had been the only place that they could come in.”
For that reason, SECU opted for a more compressed pricing structure than most other lenders use, said Leigh Brady, the current CEO and 35-year veteran of SECU. She was named to the job in June, when Hayes left to lead the northern Virginia-based State Department Federal Credit Union, an institution with assets 5 percent of the size of SECU’s.
SECU launched risk-based lending for car loans in March, with a 4.5 percent spread between what a borrower in the lowest credit tier pays compared to a borrower in the top tier, Brady said. And the credit union’s core members—state employees and retirees—get a 0.5 percent discount.
From Brady’s perspective, the policy is working. More members are opting for car loans from SECU, and a greater share of those borrowers have credit scores in the top tier—18 percent in March 2022, and 28 percent a year later, according to data Brady provided.
SECU is still willing to lend to people with low credit scores, she said. “There are lenders that just absolutely will not lend to anyone below a 660 credit score,” said Brady. “We do. We lend below 540.” The board has also discussed ways to get members to refinance if their credit score improves, Brady said. SECU doesn’t charge fees for refinancing or paying off a loan early. It offers counseling and online resources to help members improve their credit.
She thinks the new loan policy is actually fairer than the old one.
Brady said she came to recognize the “harsh reality” that SECU had been overcharging its members with the best credit.
“I think maybe the only reason they came to us was because they trust the organization,” she said. “They just wanted to do business with State Employees’ Credit Union, but they could have gone down the street and gotten a better deal.”
It’s unclear which vision will win members’ approval in the board election, or how many people will seize the chance to have a say.
Two large associations representing people likely to be SECU members made opposite endorsements. The North Carolina Retired Governmental Employees’ Association backed the incumbent candidates, while SEANC, representing current and retired state workers, has supported the challengers.
Blaine says his blog has gotten more than 1 million views since February. There’s even a parody site.
But industry analyst Filson said campaigning has been quieter than he expected.
He wonders whether the controversy contributed to the 8 percent, or $4 billion, decrease in member deposits that SECU experienced between June 2022 and June 2023. SECU’s peer group of large credit unions saw member deposits grow over the same period, he said.
Brady said she didn’t believe the election had anything to do with the downward trend, noting that deposits went up slightly when the contested election was announced in August. She cited the end of COVID stimulus funds, attractive rates at other financial institutions and SECU’s inability to meet those rates due to a low loan-to-deposit ratio and investment in low-earning treasury securities as factors that did contribute.
What is more certain is that there will be no surprise resolutions at this year’s annual meeting. The board revised the bylaws to give themselves more control over the agenda.
Wooten said the change was part of the board’s campaign to bring SECU’s practices in line with similar institutions. The year’s meeting will have an hour-long public comment period, Wooten said, but no “free for all.”
The agenda item traditionally set aside for “new business”—the one Blaine used to force debate on risk-based lending last year—has been struck. Blaine still plans to attend.
Carli Brosseau is a reporter at The Assembly. She joined us from The News & Observer, where she was an investigative reporter. Her work has been honored by the Online News Association and Investigative Reporters and Editors, and published by ProPublica and The New York Times.