Brand Appropriation

The term ‘federal credit union’ dilutes the brand of BC credit unions (and other Canadian credit unions) and will likely confuse the public. The use of the term ‘federal credit union’ in the Bank Act was pursued for this very reason.

One definition of branding is this, “the process of creating a relationship between a company’s product and an emotional perception of the customer for the purpose of building loyalty among customers.” In a private conversation last year, Martin Reid at the CCUA confirmed to me that credit union ‘brand awareness’ is strong in western Canada, and less so as you go east. Indeed, generations of credit union pioneers and advocates built credible institutions, and ‘brand equity’, in the four western provinces.

The term ‘brand equity’ means the strength of consumers’ attachment to a brand; the favourable associations and beliefs the consumer has about the brand. Aspiring federal credit unions wanted to make use of that brand equity. But let’s be clear, federal credit unions are now direct competitors to provincial credit unions, and they want to use that ‘brand equity’ for their national projects.

In effect, the ‘brand equity’ of provincial credit unions has been appropriated. Coast Capital and others going federal likely saw
benefit by simply appropriating the existing terminology or ‘brand’, as opposed to having to establish a new kind of financial institution designation.

However, that course may not be in the best interests of provincial credit unions. The adoption of the term ‘federal credit union’ in the Bank Act probably should have had more serious debate. (Should provincial credit unions have compensation?)

A Cooperative Bank

So now, the credit union ‘brand’ has lost some of its meaning. Two distinctly different kinds of corporate entities are called ‘credit unions’; similar but different ownership structures, different legislation, different regulators, and different deposit insurance coverage. All credit unions in BC are not alike.

It must be emphasized that federal credit unions are ‘stand-alone’ financial institutions – like banks. Provincial credit unions are networked and effectively cross-guarantee each other through co-operative second tier arrangements.

Another option exists, the new federal entity could be called a ‘cooperative bank’. In fact, the Bank Act defines a federal credit union as “a bank that is organized and carries on business on a cooperative basis “. The designation ‘cooperative bank’ would more clearly identify the institution as a federal bank. This would reduce the potential for consumer confusion.

Indeed, consumer confusion may give us the best reason to call for an amendment to the Bank Act. Do ordinary people really know the difference between a federal credit union and a local credit union? Do they know who to go to if they have a dispute? Do they understand their deposit insurance coverage? Does the Bank Act terminology contribute to consumer distress or puzzlement?

In my view, provincial credit unions would be better served, and so would consumers, if these federal entities were called ‘cooperative banks’. Provincial credit unions might yet press the Canadian Credit Union Association (CCUA) for such an amendment to the Bank Act while provincial credit unions still effectively control the CCUA.

4 thoughts on “Brand Appropriation

  1. Ross, you are correct that “credit union” is an improper way to describe these federal entities. But describing them as “co-operative” is just as improper.
    The “co-operative” nature of provincial credit unions stems from the co-equal ownership by the members, and from the co-operation between the various provincial credit unions to form a single system to achieve economies of scale and mitigation of risk while still maintaining local governance. There are decades of tradition (often in the form of contractual arrangements) behind this co-operative structure.
    In contrast, federal “co-operation” is defined in section 12.1 of the the Bank Act and expresses little more than principle of one-member/one-vote. There is no sense in which a federal credit union is expected to be part of a larger system, and it is logically impossible for them not to be competitors with locally-owned provincial credit unions.
    Coast Capital Savings, as a provincial credit union, did not have any written constitution worth speaking of. Any governing principles relating to its co-operative nature would have been been developed through tradition and common law. This history has been stripped bare by the Bank Act’s definition of co-operative behavior. They can claim to be co-operative with no history to back them up, and with no non-trivial theory of what co-operation means. Federal credit unions (like Coast Capital Savings now) will behave like banks except that they will be unaccountable to their impotent members instead of being (arguably) accountable to shareholders. Federal credit unions are hijacking the term “co-operative” just as they are hijacking the term “credit union.”
    So perhaps call them member-owned banks, not co-operative banks.

    • I agree, at this scale the basic ‘co-operative’ ownership model does not function. Hijacking is a provocative word to use, but not inaccurate.

  2. Some irony here – the federal credit union is organized under the Bank Act, but did I not read recently that credit unions were forbidden to use the term “banking” to describe their activities? Is that injunction still in place?

    • The federal regulator did propose to more actively enforce the use of ‘bank’ language two years ago, but a concerted campaign caused the Minister to intervene. Credit unions are able to use the term ‘banking’ and similar terms pursuant to a decision from OSFI in August 2018.

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