Shawn Gilfedder and credit unions go way back. Born in Manhattan, Gilfedder grew up in north Jersey, where his father was a systems analyst for AT&T and his mother was a nurse. With AT&T came a family membership to the company’s credit union, and Gilfedder turned to it for a loan when he bought a 1976 Camaro to commute to college.
Today Gilfedder is the CEO of McGraw-Hill Federal Credit Union, the Windsor Center Drive-based nonprofit that was founded in 1935 to serve employees of McGraw-Hill, the publishing company, and today draws its membership from about 120 business organizations.
McGraw-Hill FCU recently merged with Education Affiliates FCU, a New York-based credit union that serves about 3,779 members, with assets of $50 million. The combined company now has 24,000 members and $353 million in assets, Gilfedder says.
When asked about the merger, Gilfedder used the opportunity to talk about one of the core missions of McGraw-Hill, which is promoting financial wellness. In addition to providing loans and savings accounts like most credit unions do, McGraw-Hill also offers free financial literacy seminars to members at its East Windsor headquarters, and often gives seminars at member companies.
In a press release, Gilfedder said the merger was a good fit because both companies have “supporting our members’ financial health and wellness” as part of their reason for existing.
But there is more to the merger than just financial education. Gilfedder says his credit union had been looking for ways to expand, and Education Affiliates proved to be a good fit. “As we entered strategic conversations, one of our focuses was `how do we increase scale and share the message of financial wellness in the financial marketplace?’” he says.
Some of the same market conditions that are driving commercial banks to merge are also making credit union mergers more attractive. “The low interest rate environment has compressed the margin on a lot of spread-based products,” Gilfedder says.
Traditionally credit unions, like banks, work by borrowing money at a certain rate and lending it out at a higher rate. To a bank, that difference is a profit, and at a nonprofit credit union, the money goes to running the business and benefiting members. But with the federal reserve keeping interest rates low in an ongoing attempt to revive the economy, banks and credit unions can only offer paltry returns on savings accounts — far less than 1 percent.
The low interest rates have put financial pressure on credit unions and banks, cutting into the money they make on interest charges. “Where commercial institutions make that up is in fee income,” Gilfedder says. Overdraft fees, ATM fees, inactivity fees, excess activity fees, low balance fees, and other penalties, have become a major source of income for banks. According to the Wall Street Journal, American banks made $31 billion last year from overdraft fees alone.
Gilfedder says trapping customers into paying fees goes against McGraw-Hill’s mission, so he had to think of a different strategy. What made the most sense was something that banks have also done: merging with another institution. “Our goal is not to increase fees, but to really focus on how we can share services, gain efficiencies, and gain operational scale,” he says. “Those are the key drivers to the conversation form a fundamental perspective. It’s really a pooling of assets and equity.”
Furthermore, the CEO of Education Affiliates had announced his retirement. “In addition to that, it’s culture. There’s an alignment of the charters and in membership population,” Gilfedder says.
Gilfedder says the charter of McGraw-Hill makes the “financial wellness” of its members a top priority, and the credit union has tried to help its members improve their financial literacy. Before becoming president of McGraw-Hill eight years ago, Gilfedder worked in both private banking and another credit union.
After graduating from Fairleigh Dickinson with an MBA, Gilfedder became an analyst for Valley National Bank in Wayne, and then United Jersey Bank. Having gained experience in the private sector, he became a director of operations at a trade labor credit union. He continued in commercial banking by becoming vice president and strategist for Royal Bank of Canada in its mid-markets institutional group.
Gilfedder says that while working at the first credit union, he often tried to help members who had managed their finances badly. “Probably the most profound experience to me was helping somebody manage how they wanted to live their lives, and recognizing that the person sitting across from me was twice my age,” he says. He saw members who had not planned well for their goals, whether it was buying a home, saving for college, or retiring. “That was profound, because I had this assumption that if someone was twice my age, they should have a better understanding of money. I was shocked to see how life happens, how people’s goals have to change, and how those goals may not be attainable.”
The experience reinforced something that Gilfedder had always believed, which was the importance of good money management. He says he read the Wednesday Wall Street Journal from a young age, at the advice of a financially savvy uncle. In college he had his own painting business.
Gilfedder found that credit unions were uniquely suited to helping people manage their money. “Life has its ups and downs, and many large financial institutions are happy to work with you on the upswing, but are not always there in downward markets,” he says. “When life throws unexpected curve balls at you, you need good financial counsel and an institution that knows you and is willing to work with you.”
There are certain things that Gilfedder says everyone should do regardless of their situation. McGraw-Hill’s representatives emphasize these points when making presentations to employees at companies. One is that employees should always maximize their contributions to 401k accounts, especially if employers match contributions. “You have to pay yourself first,” Gilfedder says. “The average amount that somebody has going into retirement in their 401k nationally is about $140,000,” he says. “That’s not nearly enough to retire comfortably. Our advice for people is that the last thing you want is to be 72 years old and polishing up your resume to re-enter the workforce. That’s a scary thought for a lot of folks.”
Another is to be careful of those fees. The overdraft fees that have kept commercial banks going through the low interest rate years can be financially devastating for an unwary consumer. Gilfedder described them as “traps.” If a customer pays $20 a month in fees on a checking account that has a balance of $1,500, they have paid 12 percent interest to the bank. “No one would even fathom doing that, but there are people who pay those fees all the time,” Gilfedder says.
Gilfedder says he hopes to make more customers financially savvy through his credit union’s education programs “I think it’s a progressive organization that’s true to the mission of credit unions, which is improving the financial lives of their members through cooperative principles,” he says. “That’s what brought me to this business.”
McGraw-Hill Employees Federal Credit Union, 120 Windsor Center Drive, East Windsor 08520-1412; 609-426-6514; fax, 609-490-0454. Shawn Gilfedder, president. www.mcgrawhillcfcu.org.