I belong to a Credit Union. I belong to a very good Credit Union. Maybe I'm a little biased because in 1951 my Grandfather founded my Credit Union. Maybe it's just because it's a great deal based on a great concept.
The concept of a Credit Union is "People Helping People." They are non-profit, co-operative financial institutions. Because of their non-profit status, and co-operative form, Credit Unions have been declared tax exempt by the Congress of the United States. This allows them to provide services at a lower cost for those people who have historically been denied similar services by banks.
In fact, the entire purpose of the Federal Credit Union Act was to promote these co-operative partnerships. In order to make it easier for people to form Credit Unions, the Act provided for any group of people "sharing a common bond" to start one. It also assured that Credit Unions would not be in competition with each other. They would be able to cooperate and work together in competing with the bigger, more traditional financial institutions. Let me repeat that in another way - Credit Unions were designed solely as an alternative, or competition, to traditional banks.
Unfortunately, the very phrase used to promote the concept and ease of starting a Credit Union is now being used by banks and S&L's to try to destroy their competition. The American Bankers Association, which claims to be a pro-consumer organization, is one of the plaintiffs in a lawsuit against the National Credit Union Administration which was designed to stifle any real competition between Credit Unions and Banks. You should definitely read about that case - First National Bank and Trust Co., et al. v. NCUA, et al. - here.
The fight is about two things: taxation and Insurance Funds. The banks have to pay taxes before sending out big, fat dividend checks to their stockholders which, of course, happens before returning any money to their customers in the form of interest payments. Credit Unions don't pay these taxes because their stockholders are their customers. Nobody is making money off of Credit Union deposits except Credit Union members. That's why, in a Credit Union, deposits are called Shares and customers are called Members. You have to "buy into" a Credit Union and become an owner in order to use its services. It's exactly the same as any other co-operative you can think of - farming co-ops, housing co-ops, even Internet Provider co-ops. All function in the same member-owned, democratic manner and all are tax-exempt non-profits.
The banks are calling for a "level playing field." Fine. I have no problem with that. The banks should buy back all of their stock, and return all of the gains to their customers. They should cut their CEO salaries.They should eliminate salaries for their Board of Directors. They should do away with their high fees and low rates. They should go out of their way to help people. Then we'll have a level playing field. If they want Credit Unions to start concentrating on profits instead of people, then they're in for a fight!
Insurance Funds are the other issue. Just about everyone has heard of the FDIC. It's the Federal corporation that insures bank deposits. Not as many people know about the NCUSIF - the National Credit Union Share Insurance Fund. Click on that link and read about it. I think the most important two points about the NCUSIF are that no member has ever lost money insured by the NCUSIF and that no federal tax dollars have ever been placed into this credit union financed fund.
Did you know that the FDIC runs two funds? They manage the Bank Insurance Fund (known as the "BIF") and the Savings Association Insurance Fund (known as the "SAIF"). In a speech given by FDIC Chairman Ricki Helfer before the Directors Roundtable of California in Los Angeles on September 20, 1996 Chairman Helfer stated that "the savings association fund is nearly $5 billion short of the required capitalization and is structurally flawed ..." I'm glad the FDIC doesn't insure my money! Is it any wonder that the banks are jealous of Credit Unions' better funded and stronger fund?
The banks have taken it upon themselves to stir up quite a few rumors about Credit Unions. Here are some examples of things that have been set forth by the banks, as well as some answers:
Myth: Credit Unions don't face the same regulatory burden that banks do.
Fact: Like all Federally Insured institutions, Federal Credit Unions are subject to annual reviews of management and Directors, financial stability, and investment portfolios by Federal examiners.
Myth: Credit unions’ tax-exempt status was based on the idea of the members’ common bond.
Fact: The tax exemption, codified in 1934, was granted to credit unions for their work in providing low-cost, convenient financial services and being not-for-profit, cooperatively owned financial institutions.
Myth: The average annual growth rate for credit unions has been 11.3 percent; banks have grown 4.7 percent.
Fact: Credit union growth has slowed, and bank growth has picked up. Bank growth has outpaced that of credit unions for the past two years. Additionally, the size of the banking industry continues to dwarf the credit union community. In 1995, banks added $300 billion in assets--just $6 billion less than all of the assets held in federally insured credit unions!
Myth: There are fewer, but larger, credit unions with those over $50 million in assets controlling 71 percent of all credit union assets.
Fact: The vast majority of the nation’s credit unions (about 90 percent) have less than $50 million in assets. As for banks, the vast majority of bank assets are concentrated in large institutions. Banks with more than $1 billion in assets control 77 percent of all bank assets. In fact, banks with more than $100 million in assets control 93 percent of all bank assets!
As a result of the decision in the lawsuit I wrote about above, Credit Unions are being forced to turn away potential members. These Credit Unions have done nothing illegal. They have merely expanded in order to provide more and better services for their members. All of these expansions have been approved by the NCUA - an agency created by Congress for the explicit purpose of regulating Federal Credit Unions.
This is a bad thing. Credit Unions use member deposits to make loans - loans that banks don't want to make. If nobody is able to make any more deposits, then the Credit Unions won't be able to make any more loans. This is exactly what the banks want - to have the American consumer over a barrel and forced to pay any interest rates the banks feel like charging. Without competition from Credit Unions, banks can only get worse in providing services, charging fees, and raping consumers with outrageous interest rates.
Whether our relief comes in the courts, through regulatory change, or through legislative action, Credit Unions need to win this fight. The American consumer deserves it.
by James J. Miller, Jr.
November 20, 1996