‘CREDIT UNIONS ARE BECKONING WITH OPEN ARMS, ‘ by Ron Leiber in the “Your Money” column in the N. Y. Times.

In Uncategorized on June 19, 2010 at 14:45


Credit Unions Are Beckoning With Open Arms


Published: June 18, 2010

This turns out to be a source of much confusion for consumers looking for a better checking account, a more generous credit card or a cheaper auto or home loan. By their very name, credit unions suggest exclusivity. After all, unions are something you have to join, and it isn’t always clear from walking by a credit union or running across one on the Web whether everyone is welcome.

But over the years, some of the biggest credit unions with some of the best deals have quietly opened up membership to everybody. This infuriates bankers, who must compete with them while also paying income taxes that the nonprofit credit unions do not owe. Consumers, however, ought to rejoice and take a closer look at some of the more aggressive credit unions, since there may be big savings for the taking once you realize you are eligible.

Bankers’ irritation is rooted in part in history and their contention that many of today’s credit unions barely resemble the institutions of old.

Credit unions got that tax break early on, when they formed to serve customers the banks wouldn’t touch (the “small people” in BP speak).

Today, credit unions often (but not always) offer lower interest rates on credit cards and better deals on auto and other loans than most banks, though online banks often (but not always) offer checking accounts that earn more interest and charge fewer fees than many credit unions do.

Eligibility for credit union membership has evolved , though in every case members are supposed to have what is known as a “common bond.”

One way to become a member is through occupational classification, where credit union members work for the same employer or perform the same job. The second is a community credit union, where members must live in the same “well-defined” region.

Things get murky with the third type, what is known as the “multiple common bond” credit union, which can pull in many different groups of eligible members as long as they are within reasonable proximity of the credit union. In the early 1980s, members of associations were allowed to join credit unions as part of an effort to include populations the banks were not reaching. “The idea was to get credit union service to people who wanted it from people who wanted to give it to them,” said Wendell A. Sebastian, who worked for the federal credit union industry regulatory body at the time.

In practice, this ended up opening credit union membership to anyone in the United States. About 10 years ago, the Pentagon Federal Credit Union approached the National Military Family Association and offered to let its members join the credit union. What PenFed really got out of the deal, however, was the ability to say on its Web site that if prospective members didn’t meet other eligibility requirements (like working for the Defense Department), they could join the military family association for $20 and become eligible that way.

In the years since, membership in the association has risen to 45,000, from under 10,000. How many of them joined just to slip through the side door into the credit union? “Probably most of them,” said Joyce Raezer, the association’s executive director. “It was a win-win for both of us, and it’s enabled us to do a lot more for military families.” The new members won, too, because they got access to products like PenFed’s excellent Visa Platinum Cashback Rewards credit card.

This is perfectly legal, though members’ common bond may only be a shared lust for credit card rebates.

What representatives of the American Bankers Association find particularly objectionable, though, are the big credit unions that have their own associations for what appears to be the express purpose of signing up people and then making them eligible for credit union membership.

Take USA Fed in San Diego, for instance, which adopted that name in 2008 to show, according to its Web site, that “membership is easy and anyone can join.” People who don’t meet the normal eligibility requirements can join something called the Prime Meridian Association.

The association offers financial seminars and discounts to members, and just so happens to be based at USA Fed’s headquarters. “It appears that all they’ve done is create a phantom association for the purpose of allowing people to join their credit union,” said Keith Leggett, vice president and senior economist at the American Bankers Association.

Mary Cunningham, president and chief executive of USA Fed, said Prime Meridian was a legitimate nonprofit organization and noted that with under 700 members it hardly contributed the bulk of USA Fed’s new members each year. “It’s not a phantom organization by any stretch,” she said.

If the bankers’ association is so exercised about this, why not sic the credit union regulator, the National Credit Union Administration, on USA Fed? Because the association doesn’t think the regulator does a very good job. “The bottom line is that the N.C.U.A. doesn’t enforce the common bond rules,” said Ed Yingling, the association president and chief executive.

John J. McKechnie III, a spokesman for the regulator, defended its work. “We cannot determine intent as to why a particular association or group exists but do monitor compliance with the statutory and regulatory requirements to be granted an associational field of membership,” he said in an e-mail message. He added that he was not aware of any information that would make USA Fed’s inclusion of Prime Meridian members invalid.

This jockeying for members is an amusing spectator sport — until a credit union blows up, that is. In 2008, the credit union regulator liquidated Norlarco Credit Union, based in Fort Collins, Colo., after it had helped to organize and underwrite a Florida real estate lending binge. In an autopsy performed by the credit union administration’s Office of Inspector General, auditors noted that about 43 percent of the borrowers lived in the Miami-Dade County area of Florida.



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