Credit unions make a hard charge at banks
Competitive rates, eased restrictions, and customer service win a new wave of customers
For Cherie McCombs, a mortgage processor in Roanoke, Va., being turned down last fall for a car loan by her bank was the last straw. Although she had a six-year history of unblemished credit, Ms. McCombs had already seen her requests for a credit card and even for overdraft protection denied.Skip to next paragraph
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Fed up, she eventually obtained the loan through a finance company.
But frustrated by the way she had been treated, McCombs decided to move her banking elsewhere, and began researching other banks.
McCombs had been a credit union member in the late '80s and early '90s in another state, and recalled having had only positive experiences in dealing with it. When she found out a few months ago that she was eligible to join a credit union through her daughter's workplace, she jumped at the chance. Within days, she was rewarded.
"The credit union called me to ask if it could have the car loan," she says. "It even lowered the rate. That's what banking should be about." McCombs promptly transferred the loan.
In the hotly competitive banking industry, credit unions are proving themselves to be significant challengers in the battle to lure customers.
Nonprofit, tax-exempt financial institutions, they provide services to member-owners who share a common bond, such as workplace or location.
Credit-union membership has grown from 63.8 million members in 1992 to 82.6 million members in 2002, said a report last month from the Credit Union National Association (CUNA).
Household savings held in credit unions grew from 7.3 percent of the national market in 1992 to 9.2 percent in 2002. Comparable accounts held in banks fell from 77.5 percent in 1992 to 68.9 percent this year.
Credit-union-issued consumer loans grew from 16.1 percent share of the national market in 1992 to 17.1 percent in 2002. Loans issued by banks (including savings and loans) fell from 49.6 percent in 1992 to 39.3 percent in 2002.
Some in the banking community say credit unions' tax-exempt status unfairly enables them to consistently offer lower rates on loans and higher rates of interest on deposits than do banks.
"Once, members of a credit union knew each other and pooled their resources to provide credit for their co-workers or neighbors," says the American Banking Association on its website. Today, it points out, geographically based credit unions can serve entire states. "Despite this departure from their original mission, these credit unions continue to be afforded special treatment," says the ABA, "including exemption from federal taxation and from the regulatory responsibilities that apply to commercial banks."
There are many other reasons for the rise of credit-unions. Congress passed a Credit Union Membership Act in 1998, which eased expansion. Credit unions also marketed themselves heavily, and many expanded or added eligibility categories. Those changes boosted the industry's profile.
"I've seen more people coming in with a greater understanding of what we do," says Paul Economy, vice president and branch manager of Member One Federal Credit Union, in Roanoke, Va. The credit union has 49,000 members and assets of about $180 million.