“The competitive pressure exerted by credit unions on the banking industry in North Carolina is substantial.”
— Thad Woodard, N.C. Bankers Association
Once referred to as “the poor man’s bank,” credit unions today have become major financial institutions that increasingly are muscling in on territory once dominated by commercial banks.
As CEO Jim Blaine of N.C. State Employees Credit Union is fond of saying, “Bank, by the way, is a four-letter word.” And it’s that kind of attitude, along with a whole lot of drive, that has made SECU what it is today: the second-largest credit union in the nation, with nearly $13 billion in assets, and a financial powerhouse in a state that headquarters many of the nation’s largest commercial banks.
But even while credit union membership has grown over the past decade, most people still may not realize they’re eligible to join such an institution. In fact, only one in eight people who are eligible for membership here and nationally realize it, according to the Credit Union National Association. That’s because until recent years, membership had been limited by law for the most part to groups who shared a “common bond” — typically employees of certain companies and members of various associations. But with passage of the Credit Union Membership Access Act (CUMAA) in 1998, walls that had confined federally chartered credit unions began to crumble, opening up membership to millions more consumers.
In WNC, where there are more than a dozen local full-service credit unions, reforms at both the state and federal level have led to increased membership and rapid asset growth, says CEO Randy Crawford of the state-chartered, $57 million WNC Community Credit Union in Waynesville.
After it lost its sole sponsor, Crawford’s state-chartered credit union was allowed — under state law — to adopt a much broader and less restrictive community-based membership in 1997, before CUMAA was passed. The factory that Crawford’s credit union served, the now defunct Dayco Productions plant in Waynesville, closed, which would have meant the virtual death of the credit union. Today, with the ability to serve anyone living or working in Haywood or Jackson counties, the credit union boasts more than 5,000 members, up from about 1,000 in the early 1990s prior to Dayco’s demise.
“We’ve experienced substantial growth,” Crawford says, simply because they have a larger pool to draw from. It also helps that the credit union does not charge any fees except for returned checks — an unbanklike practice that many credit unions, especially smaller ones, still adhere to.
Lack of fees, higher rates on deposits, lower loan rates and a community charter have also bolstered Ecusta Credit Union in Pisgah Forest, says manager Susan Holliday, whose credit union boasts 7,400 members and $44 million in assets. Her credit union serves 35 local employers and people who live, work or worship in Henderson and Transylvania counties, operating under a community charter the institution received from the state in 2002.
The majority of Ecusta’s new business, since switching to a community charter, has come through referrals to family and friends by existing members, a sign that the credit union is doing something right, Holliday says.
“Every credit union’s motto is pretty much, ‘Not for profit, not for charity, but for service.’ We have a new little motto that we’ve used since we went to a community charter that’s ‘Just like family.’ We’re a very relaxed atmosphere; we’re not three-piece suit people. We’re just down to earth,” says Holliday.
“When I came to the credit union 26 years ago, I had never heard of one. Now, I wouldn’t leave it. I was a banker prior to this, for eight and a half years, and came to a credit union not knowing [what they were]. But I wanted a way out and I found it, and I wouldn’t go back. I enjoy what we do and I believe in our philosophy of ‘people helping people.’ We want to keep this a small-town institution.”
Banks cry foul
“We’re a very relaxed atmosphere; we’re not three-piece suit people. We’re just down to earth.”
— Ecusta Credit Union Manager Susan Holliday
But while the growth in credit union membership and asset size has gone relatively unnoticed by a considerable swath of the general public, the banking industry has surely noticed.
Credit union reforms may have opened up the industry, but several commonalities remain. Chief among them is that credit unions are member-owned nonprofits. While credit unions must make a profit to remain solvent, the vast majority of profits are plowed back into the credit union, resulting in fewer fees, lower rates on loans and higher rates on deposits.
In some instances, credit unions pay direct cash dividends back to members, treating them much like stockholders. Plus, credit unions still must adhere to restrictions on their business that commercial banks do not — such as caps on some sorts of loans and the inability to raise capital other than through earnings.
As a result, Congress exempted federally chartered credit unions from paying income taxes in the 1930s. Similarly, most state-chartered credit unions also are not required under state laws to pay state income taxes, which is the case in North Carolina.
That tax advantage, coupled with expanded membership rules and the explosion of products and services now commonly offered by credit unions — everything from mortgages and business loans to trust services and real estate title insurance — gives credit unions an unfair advantage, bankers contend.
“[Credit unions] have gotten away from their traditional role,” says Ed Aycock, senior vice president and regulatory counsel for the N.C. Bankers Association. “Basically, if you’re breathing you can be a member. I hate to sound so jaded about it, but it’s kind of frustrating.”
But it’s the tax issue that remains most irksome.
“The competitive pressure exerted by credit unions on the banking industry in North Carolina is substantial,” said N.C. Bankers Association President Thad Woodard in written testimony to the House Ways and Means Committee last year during consideration of a proposed credit-union reform bill that so far remains in congressional limbo.
“While North Carolina banks and savings institutions welcome fair competition, the tax-advantaged status enjoyed by credit unions has increasingly resulted in competitive inequalities,” Woodard testified. “The problem can be traced to a new breed of credit unions which has emerged. These large, bank-like credit unions have abandoned their mandate of serving persons of modest means who share a ‘common bond.’ Instead, they now compete directly with banks for business and consumer customers and use their tax exempt status to fuel their rapid expansion.”
Aycock admits that members typically love their credit unions and are quite willing to descend upon Washington and state capitals whenever bankers attempt to rein in their upstart cousins. Aycock says he understands that, for many, the lure of credit union membership is the focus on customer service rather than the pursuit of profit. And the facts seem to bear that out.
According to the N.C. Credit Union League, the industry serves 2.8 million North Carolina consumers through 133 institutions, and manages more than $22 billion in member assets. A UNC-Chapel Hill study commissioned by the league in 2003 found that credit unions saved their members more than $336 million with lower rates on loans ($119.5 million), higher rates on deposits ($91 million) and lower fees on checking accounts and first mortgage closing costs ($125.4 million).
The study, by University of North Carolina Associate Professor William Jackson also cited real-dollar benefits to bank customers as well, with credit union competition resulting in lower loan rates at banks, saving bank customers $25.4 million. And, nonmembers who used “CashPoints,” the statewide surcharge-free, credit-union ATM network, saved more than $34 million, the study found.
Taken together, all those savings amount to nearly $400 million for both credit union and bank customers.
“I don’t really understand where the threat is,” says Holliday. “I guess the biggest thing for me is we’ll still do a $50 loan if somebody’s got an emergency. I don’t know anybody else that’ll do that type of thing. We’ll still do a $500 loan — a lot of places won’t do that.”
While credit unions have made tremendous strides in the banking world, they still are a mere trifle in terms of asset size. If you were to add up all the assets of all the credit unions in the nation, they still would not equal the size of North Carolina-based Bank of America, which has $1.38 trillion in assets and is the nation’s second-largest bank, behind CitiGroup.
Even WNC’s small community banks — Asheville Savings Bank, Bank of Asheville, HomeTrust Bank, and Blue Ridge Savings Bank — dwarf the asset size of locally based credit unions.
Show me the money
While it’s easy to find stalwart defenders of credit unions, the experience of one prodigal member may be illuminating.
Martin — who asked Xpress not to divulge his credit union and only use his first name — said he first became a credit union member more than five years ago.
“At first, I was like all adamant that banks were evil and stuff. So I joined a credit union,” said Martin, who works as a carpenter and house painter. “They were all nice and efficient as long as I was cashing my checks or making withdrawals. They called me by name when I walked in. It was nice — it kind of made you feel rich. But if I had to do anything else, like get a loan, or just ask about a loan, they would freak. They would have to run and go get the loan officer or the manager, just to answer a simple question.
“I guess you’d say the sophistication level is what made me a little sketchy,” Martin adds. “Their online banking was lame, too, and they had no bill-pay service, either, which I really missed from my bank. And whenever I would deposit a check, they’d make me write my Social Security number under my name when I endorsed it on the back. That just seemed stupid and dangerous, with all the identity theft going on — I don’t know of any bank that does something like that. It made me a little nervous. It seemed like a play bank in a lot of ways. So I went back to a real bank.
But after two years of “getting shafted on fees,” Martin said, “I got fed up and just said ‘to hell with it.’ So I went and found another credit union I was able to join. This one is professional but still real nice. The tellers treat me like their brother whenever I come in, and they pretty much have all the services that my last bank had — at least all the ones I need, and they keep adding stuff all the time, it seems. And I don’t pay [any] fees — to me, that’s the best part. That’s the real difference. Not all credit unions do that, I guess, but I don’t know of any bank anywhere that doesn’t charge a lot of different fees — and most of them you don’t even know about until it’s too damn late.”