Credit Unions Face The Future & Ride Out The Current Economic Storm

Beginning in November, credit unions across the nation will launch a celebration marking 100 years of their not-for-profit, cooperatively owned financial institutions operating in the United States.

Arizona Business Magazine, September 2008What may be surprising for some about that 100-year mark is a realization that credit unions have just lately — maybe within the past 20 years or so — become more visible within their communities. That’s largely because of the growth they have experienced, with more and more consumers becoming convinced that credit unions offer a superior, straight deal for themselves and their families.

With more than 90-million members nationwide, and about $825 billion in assets, credit unions have become much more prevalent within the working population of the nation as a source of loans, a safe harbor for their savings, and an innovative financial institution that meets the needs of their member/owners.

But, make no mistake — much has changed in 100 years, particularly in terms of how products and services are delivered, as well as expectations by consumers of services from their credit unions. ATMs, debit cards, online banking, credit cards — all are items credit union members of 100 years ago could scarcely have imagined.

Today, nearly all credit unions offer at least some of these services to better assist their members and to meet their high expectations.

What hasn’t changed at credit unions, however, is their philosophy and structure — a key difference between credit unions and other types of financial institutions, particularly banks.

For one thing, banks are owned by investors, either privately or as stock-held organizations. Credit unions are entirely owned by their members, cooperatively.

Secondly, banks exist to maximize profits for their investor/owners. Credit unions exist solely to maximize financial services to their members.

To put that difference into context, consider the subprime mortgage crisis that has ravaged our economy, locally and nationwide. By their very nature, credit unions largely avoided the crisis. Credit unions, which largely hold on to their mortgage loans rather than sell them off (70 percent of credit unions nationwide do exactly that), made loans to members that they could pay back — especially taking into consideration a member’s ability to pay back the loan.

It is no secret that in the current economic downturn, many individuals have found themselves backed into a corner from the subprime mortgage crisis and a wide variety of other unfriendly designer loan products. Fortunately, credit unions have honestly established their presence for serving their members. Remaining removed from other lending institutions has only worked for the best interest of their members.

This isn’t to say that credit unions across the country have not faced some “collateral damage” from the subprime crisis. Members are having trouble making payments on credit union loans because of an expensive subprime mortgage obtained from other lenders, or because some members are losing their jobs in today’s weak economy. But credit unions went into this with very strong balance sheets, and will still be in very strong shape when it’s all over.

Further, consumers can be assured that their money is safe when it is saved in a credit union. Just as the Federal Deposit Insurance Corp. (FDIC) does for banks, the National Credit Union Administration (NCUA), an agency of the federal government) insures a person’s savings to at least $100,000, with higher total insurance coverage available if the member has a combination of individual, joint, trust, payable-on-death and other types of accounts. In addition, there is separate insurance coverage of up to $250,000 for individual retirement accounts.

Today, credit unions offer a wide range of financial services, either because their members expressed an interest in having those services or because the credit union identified services that would best serve their memberships.

Yet, there are limits on what a credit union can do. In fact, credit unions are among the most highly regulated of all financial institutions.

But the changing realities of their members’ lives require credit unions to be as flexible as possible in the services they offer. Credit unions don’t yet have the complete flexibility they need, but are working with the Congress and state legislatures to allow them to be more limber in providing services to members.

One area in particular is business lending. Even though a number of credit unions came into being in the early 20th century, specifically to provide business loans to their members (fishermen, farmers, cab drivers and others), credit unions today are tightly regulated in this area.

Nevertheless, business lending is becoming for some credit unions an important part of their lending portfolio.

Much of the business lending at credit unions is driven by the members themselves. They know and appreciate the solid programs credit unions have offered on auto and home loans. Further, before the present economic slowdown, small businesses were already having trouble finding credit from traditional sources.

A 2004 research study by the Small Business Administration found that credit access for small business had been significantly reduced from traditional sources, and that non-bank sources of funding are becoming increasingly important, especially in areas dominated by banking institutions that have “consolidated,” that is, large banks merging with or buying up smaller banks.

What further attracts members interested in business lending and consumer financial services is that credit unions have a mission of serving “people from all walks of life.” In fact, today just about anybody is eligible to join a credit union somewhere (but not everyone can join just any credit union — you must fall within its “field of membership”). That’s important for credit unions, because, as cooperatives, they need members from all income segments: Those who have funds to save in order to bring deposits into the credit union, and those with a need to borrow funds to finance their needs in life.

It is this cooperative structure, and our mission to maximize financial services, that compels credit unions to offer a better deal on savings and loans. In fact, the Credit Union National Association’s Web site reports each day just how much of a better deal credit unions offer at

For their first century in America, credit unions have seen a great deal of change, particularly in how consumers expect to obtain and receive their financial services.Arizona Business Magazine, September 2008

But what has not changed in the last 100 years is the cooperative structure, spirit and philosophy of credit unions — “people helping people.” We hope to keep celebrating that spirit for the next 100 years.

Steve Earl is president and CEO, and Joy Audet is political communications coordinator for the Arizona Credit Union League, which represents credit unions operating in the state. For more information, visit