Report
242
Number
Jul 18 2011

Credit Union and Cooperative Patronage Refunds

Patronage refunds are a unique tool credit unions and other cooperatives can use to manage capital levels, return value to member- shareholders, and tie members more closely to the company.

Credit Union and Cooperative Patronage Refunds seeks to illuminate patronage refunds, a unique tool credit unions and other cooperatives can use to manage capital levels, return value to member- shareholders, and tie members more closely to the company. The report examines the details of common refund practices outside the credit union system and weighs the pros and cons of increasing the practice among credit unions.

Credit unions, of course, pay member dividends every month in the form of ordinary interest. Very few, however, offer a consistent extraordinary dividend. Standard reasons for not paying one include the following: Earnings are already tight, so it’s unaffordable; paying an extraordinary dividend once could lead members to expect one every year and be frustrated without one; and any potential excess is already reflected in the credit union’s attractive savings and loan rates.

These reasons are all valid, but they are the same reasons any publicly traded firm with excess capital might use. Nevertheless, the boards of those publicly traded companies constantly remind themselves that their shareholders expect real value and can easily take their money elsewhere. Nothing—not good feelings, not good intentions—says “please stay” like cash.

Report Number 242