The exchange for the debt economy
I’m a financial regulation expert researching nonprofit credit unions that are overly reliant on fees charged to lower-income people, at the same time they are spending on perks such as stadium naming tights.
I also grew up a massive Washington football fan, back when the team was good. Imagine my shock when the Central Intelligence Agency’s employee credit union, Northwest Federal Credit Union, signed a multiyear, multi-million-dollar deal for naming rights to the home stadium for the Washington Commanders, D.C.’s NFL team.
Is this enough for regulators to wake up and make sure credit unions act like the nonprofits they are — and not like big banks?
The difference between credit unions and commercial banks ought to be massive. Credit unions are tax-exempt, nonprofit cooperatives that enjoy substantial preferences in the heavily regulated space of banking. For example, credit unions are exempt from the Community Reinvestment Act’s requirement to meet the needs of the full community they serve, including low- and moderate income neighborhoods, a deal that constrained them to serve people who shared “a common bond” such as co-workers or members of the same affinity group.
The common bond, coupled with some legal restrictions on what types of financial products they could offer, worked for a long time and credit unions were generally small, do-gooders in the world of banking.
Then a few credit unions figured out loopholes and now behave like the mega-banks whose names traditionally adorn massive stadiums. Golden One, America’s sixth-largest credit union, defines its community to include anyone who lives in California. Golden One spends $6 million a year for the naming rights to the NBA’s Sacramento Kings stadium. Where does that money come from? My research uncovered that Golden One charged its members $24 million in overdraft and related non-sufficient fund (NSF) fees in 2022. Taking money from people living paycheck to paycheck to brand an NBA stadium: Bank or nonprofit?
If you consider yourself a “friend of space,” you can join NASA’s credit union.
The National Credit Union Administration (NCUA), regulates and insures credit unions for Uncle Sam. For a long time it was more of a cheerleader than a regulator, allowing credit unions to warp the meaning of “common bond.” For example, if you consider yourself a “friend of space,” you can join NASA’s credit union.
I’ve learned that when regulators are not acting, public attention and scandal can still make a difference. After my research was published, Golden One lowered its overdraft fee to $20 from $30 and eliminated NSF fees. I guess there was room to stop overcharging those living paycheck to paycheck and still afford vanity stadium naming rights.
Some credit unions that focus on their field of membership can still go off the rails. For example, Frontwave credit union targets newly enlisted Marines from nearby Camp Pendelton in Southern California. Frontwave runs these Marines through the overdraft ringer, raking in an astounding $63 in overdraft and NSF fees per each of its 122,550 members (for comparison, Wells Fargo earned about $15 per account holder). Frontwave managed to lose money in 2023 on everything other than overdraft fees, yet still spent $9 million to buy the naming rights for an arena league soccer and entertainment complex.
Frontwave, with close ties to current leadership at Camp Pendleton, received an exclusive contract to sign up new recruits. One former credit union employee described Marinerecruits as “just an income stream now” for Frontwave. This got the attention of an unlikely duo in Washington, Senators Elizabeth Warren (D-MA) and JD Vance (R-OH) jointly wrote to Frontwave’s CEO seeking “an explanation for your predatory overdraft practices and urge you to change your unconscionable overdraft and other fee policies.” Frontwave has yet to publicly respond, possibly because there is no response to these abusive practices.
This led me to investigate Northwest Federal’s overdraft fee income. Northwest Federal is not an overdraft predator by any means; it averages less than $5 per member. That’s fairly responsible, although it still could eliminate NSF fees as most of the largest banks have.
Then I checked who could join Northwest Federal: was it a credit union offering membership to anyone? That’s what the largest D.C.-area credit union, Pentagon Federal Credit Union (PenFed), does. Hearing PenFed’s advertising slogan “great rates for everyone” on my favorite local radio show, The Sports Junkies, sent me down a path to document how PenFed went from being the U.S. War Department’s credit union to a national credit union open to anyone who “supports the troops.”
Federally chartered credit unions can keep executive compensation private.
I questioned PenFed’s executive compensation package, as unlike all other nonprofits and mega-banks whose CEO compensation is required to be public, federally chartered credit unions can keep executive compensation private. This earned me the scorn of the powerful credit union lobby, although I did learn that PenFed bought a private jet for the CEO and other employees to fly in luxury (to be fair, PenFed has a reputation for not saddling their members with overdraft and related fees). While no one knows what PenFed’s CEO makes, he has grown the credit union to be the third-largest in America and adorned the PenFed logo on the outfield wall at Nationals Park, home of the Washington Nationals baseball team.
As for Northwest Federal, its main field of membership are employees of the CIA, along with a handful of related government agencies, mostly local community organizations, and a set of government contractors.
Northwest Federal is quite small, America’s 91st largest credit union. Two years ago it spent a total of $2 million on advertising. But in August, it secured naming rights to the Commanders home stadium — now Northwest Stadium. According to news reports, the deal runs eight years at a higher cost than the roughly $7.5 million a year that previous rights-holder FedEx paid.
How is this a safe and sound decision in the best interest of Northwest Federal’s members? Why would CIA employees want their credit union’s name on a football stadium? How can one argue that money is better spent on the side of a building than on serving the needs of Northwest’s members, particularly those living paycheck to paycheck?
I asked the nation’s top credit union regulator, NCUA Chairman Todd Harper, about credit unions buying stadium naming rights. His response was spot on: “If I were on a credit union board, I would be advocating that rather than spending that money necessarily on naming rights, I’d be pointing in the direction of what can we do to lower the prices of our loans and increase the service to our members”.
I hope Northwest Federal’s board members have an answer for Harper. Meanwhile, members of Congress and the American public should ask why a small credit union is spending millions of dollars to act like a big bank with their name in bright lights. If this is the new norm, then shouldn’t credit unions that act like big banks be regulated like big banks?
Aaron Klein is the Miriam K. Carliner Chair and senior fellow in economic studies at the Brookings Institution, and a former season ticket holder at what is now called Northwest Stadium.
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The exchange for the debt economy