Have you ever popped open a bag of potato chips only to be disappointed by the number of crisps in your bag? It's not just you. To avoid raising prices, companies often increase their "nonfunctional slack fill" or the difference between the volume of product and its container. We talk about how food packaging affects your recipe and wallet.
As big banks incur the wrath of protesters across the country,customer-owned financial institutions are thriving. Credit unions have welcomed more new customers in the last two months than they did in all of 2010. We take a look at how credit unions differ from banks, who can join them and what they offer their members.
- Debbie Matz Chairman, National Credit Union Administration
- Joan Goldwasser Senior Reporter; Kiplinger's Personal Finance
- Sarah Snell Cooke Editor-in-Chief, Credit Union Times
- Bill Cheney CEO, Credit Union National Association
MR. KOJO NNAMDIFrom WAMU 88.5 at American University in Washington, welcome to "The Kojo Nnamdi Show," connecting your neighborhood with the world. Americans love options, but when it comes to the safe keeping of our money, they're fairly limited. Savings and loans have largely disappeared, stashing bills under the mattress makes it tough to make payments online and a growing number of customers are frustrated by fees big banks charge leading a slew of people to consider a non-profit cooperative alternative.
MR. KOJO NNAMDICredit Unions, one in three Americans already belongs to one. And if you think you don't qualify to join one, think again. Joining us in studio to discuss credit unions is Joan Goldwasser, senior reporter with Kiplinger's Personal Finance. Joan Goldwasser, thank you for joining us.
MS. JOAN GOLDWASSERI'm delighted to be here.
NNAMDIAlso with us is Bill Cheney, President and CEO of the Credit Union National Association which represents almost 90 percent of the nations credit unions. Bill Cheney, thank you for joining us.
MR. BILL CHENEYThank you for having me, pleasure to be here.
NNAMDIAnd Sarah Snell Cooke is the editor-in-chief of Credit Union Times, an independent magazine that covers the industry. She has covered the industry for over a decade. Sarah Cook, thank you for joining us.
MS. SARAH SNELL COOKEThank you.
NNAMDIAnd if you'd like to join the conversation, call us, 800-433-8850, send email to email@example.com, send us a tweet @kojoshow or go to our website kojoshow.org, join the conversation there with any questions you have to ask about credit unions because now is the time to ask, 800-433-8850. Joan Goldwasser, they are all hold our money for us so what's the main difference between big banks, community banks and here's a blast from the past savings and loans?
GOLDWASSERAs you said, there aren't many savings and loans left anymore. Big banks, as we know, are public corporations who -- that have shareholders and they obviously have to make their shareholders happy and pay dividends to their shareholders and make a profit. And the difference is that credit unions are owned by the shareholders. They, you know, the members are shareholders and the profits go back to the shareholders and community banks are somewhere in-between.
NNAMDIBill Cheney, the name implies a connection to unions, but I understand the more apt comparison may be to a co-op. What's the history of credit unions?
CHENEYWell, credit unions have been in this country just over 100 years. The first credit union was founded in 1909 in the Northeast. Credit unions really took off in the 1930s with the passage of the Federal Credit Union Act. There's really not a connection to labor unions although many labor unions do have credit unions. But they're -- a credit union is a financial cooperative. So as Joan said, the members own the credit union, it's a true cooperative structure and that it's one member, one vote and the institution is operated for the benefit of the members.
CHENEYThe difference between that and a bank is, a bank by its nature and its structure is operated for the benefit of its shareholders. Well, at a credit union, the shareholders are the members and you have one focus, if you run a credit union, you can focus solely on your members, your depositors, your owners.
NNAMDISarah Cooke, anyone can walk into a traditional bank and open an account, but you have to qualify to open an account with a credit union. How exclusive are credit unions?
COOKEWell, in recent years, they have expanded their fields of membership is what this called and many have been able to adopt a community charter so they can serve an entire county or a group of counties that have a singular hub for their -- the citizens to come in and do their shopping or whatever. They also, as previously before 1998, credit unions were primarily associated with select employee groups or their employers is how you joined a credit union. And that's still available as well as what's called, now, multiple SEG credit unions. So the restrictions on field of membership have greatly been relieved by there are still some there, definitely.
NNAMDIJoan Goldwasser, Bill Cheney, anything you'd like to add to that?
GOLDWASSERWell, that's true. I mean, generally speaking if you go online to one of the websites that the credit union organizations have established, asmarterchoice.org, or culookup.com, you are probably going to be able to find a credit union that you qualify for. I mean, there’s several credit unions that have even let you join by becoming a member of an organization. If you pay the membership fee you then qualify to join that credit union. So you can live anywhere.
CHENEYYes, every credit union has a field of membership, absolutely, but just about everyone’s eligible to join a credit union, just not the same credit union and asmarterchoice.org is one way to find a credit union you’re eligible to join. The difference between that site and some of the others is it doesn’t just give you a list of credit unions in your area, but if you enter a little information about yourself, it will actually give you a list of credit unions that you’re eligible to join. So, you know, the first step is taken for you. Now, you can look at those credit unions and see which one is right for you.
NNAMDI800-433-8850, if you’re a member of a credit union, we’d like to know what made you join. Call us at 800-433-8850. More people joined credit unions in the last two months than in all of 2010. Joan, to what do you attribute that?
GOLDWASSERWell, part of that has to do with the fact that Bank of America announced that it was going to charge a monthly fee if you used your debit card.
NNAMDIThat started the stampede.
GOLDWASSERRight. And that produced more antagonism and more uproar than I think I’ve ever heard from, you know, a single action by a bank. And Bank of America wasn’t the only bank that was doing. Other banks had done this a little bit more quietly. They were testing in various, you know, states or for various account holders but they didn’t get the reaction that the Bank of America announcement did.
NNAMDIMore in the last two months than in all of last year, Sarah Cooke?
COOKEYes, I think those numbers are really amazing and I think a part of it is attributed to -- also following the $5 fee there was a bank transfer day organized on November 5th. I mean, (word?) giving data that 650 million -- or 650,000, excuse me, you wish, 650,000 new members signed up in the month running up to that and credit unions are reporting increases of 100, 200 percent new account openings still.
NNAMDIYou think that's going to last?
COOKEI hope so, you know, I think -- I really enjoy the credit union industry. I love following all the news that they make. At the same time, before I started covering the credit union industry, I didn't know what it was. I didn't know what a credit union was and so one of the things that credit unions really have had to work on in the last, well, forever, is their public awareness and I think you mentioned the credit union is also kind of confusing to some people.
COOKESo one of the things that I think that this has helped credit unions do is create a public awareness that came from outside the industry itself, which really that third party validation of their goodness, if you will, their value, is really important for credit unions and hopefully they'll be able to keep the momentum going.
NNAMDIBill, your group I guess has benefited from the stumbles, if you will, of the big banks.
CHENEYWell, credit unions have benefited and it has really shown a light on the fact that, excuse me, credit unions are a better deal. I mean, for consumers, because of their cooperative structure, because they can focus on their members and not shareholders, you get a better deal at a credit union and if you can look online at various sources, you can do -- you can rate shop. There's a number of different ways to do that. Credit unions are a better deal so it's not just the $5 fee.
CHENEYYes, that upset people. It sort of started this grass-roots social media movement towards credit unions. But what people are finding when they go to the credit union is, the promise is answered. You know, credit unions deliver on this value promise and so I think one of the reasons we've seen this growth continue, it was astonishing leading up to November 5th but we've seen it continue because people are joining credit unions and they're finding out they're a better deal and now they're using those social media tools to tell their friends and neighbors about it and so more people are looking at credit unions as an option.
NNAMDIA young Californian woman sparked what was known as bank transfer day. She had no relationship to the occupy movement, but clearly there were a whole lot of people upset with banks. Let's go to the telephones. We will start with Laurie in Laurel, Md. Laurie, you're on the air. Go ahead, please.
LAURIEGood afternoon Kojo, thank you for taking my call. I was just calling to say I joined a credit union about a year ago. I'd been in one years before, but it wasn't convenient anymore and I rejoined so that I could refinance my mortgage and everything else has really worked out well, as well as being able to conduct that transaction. And I also think that people are joining because there are really so few concrete ways to sort of vote with your fee and express your distaste at the financial services industry and their naughty behavior. So it's nice that there is, in fact, one way to do that.
NNAMDIAnd you said you joined about a year ago, Laurie?
LAURIEWe switched -- yes, we joined about a year ago.
NNAMDIOkay. And the experience has been good for you. Thank you very much for your call. If on the other hand you're a longtime credit union member, you can tell us what makes you stay with it. Call us at 800-433-8850 or send us a tweet at kojoshow. Bill, is there such a thing as a typical credit union customer?
CHENEYA typical credit union...
NNAMDISuch a person?
CHENEYWell, it's a great question. You know, the members span every aspect of American life but I think when we talk about a typical credit union member we talk about working families. Credit unions do a great job of servicing ordinary people and I think that's what you'll find in most credit unions. It does vary by field of membership. Before I became a trade association person I was with, for nine years, with what was then Xerox Federal Credit Union. We served primarily Xerox employees so our typical member was a young to middle age Xerox employee, working family, but working for that company. But it really varies nationwide, except to say, working families, ordinary people.
NNAMDIOn to the telephones again. Here is Kay, in Rockville, Md. Kay, you're on the air. Go ahead, please.
KAYHi, Kojo, thank you for taking my call.
KAYMy question is why do the credit unions' saving rate not differ much from the big banks? It's one thing that the credit unions do good in not charging me for having my money, but yet they do not compensate me for keeping my money.
CHENEYYes, well, this is a very low rate environment. So if you look at the survey information, and this isn't our information, it's independent information. Credit unions' savings rates are higher than bank rates but all rates are so low right now and that's a reflection of whether credit unions can invest the dollars that you deposit at the credit union. So for example, if you look at a 12 month CD, this is information from Informer Research Services, which is a third-party. A 12-month CD right now at a credit union is yielding .6 percent. It's hard to get excited about .6 percent, but the bank average is .45, so the credit union rates are better. It's just hard when rates are so low, but you're going to get a better deal for sure.
NNAMDIJoan Goldwasser, you're not going to make much anyplace these days because...
NNAMDI...rates are generally low, right?
GOLDWASSERThat is true. I mean, if you want to ensure that your money is safe, you know, treasury bills are even lower. I think 12-month treasury bills are somewhere around .26 or in that neighborhood. So if safety is paramount you're just going to have to accept the fact that rates are extremely low right now and sort of wait it out. You can let, you know, create a CD ladder and get a little bit more money but there's really, there are very few alternatives at this point.
NNAMDIWe got an email from Tim in Dundock (sp?) who says, "Is there a difference in getting a credit card from a credit union as opposed to a bank and you get a better rate? Sarah Cooke?
COOKEYou know, there are definitely -- the previous caller talked share rates, but also the loan side is where credit unions often shine and credit cards is one of those areas. And in general, yes, the surveys have shown that credit union rates are -- or excuse me, credit union credit card rates are better, often far better, maybe 200 bases points better than banks. Bill, do you have any data on that or...
CHENEYAbsolutely. Yeah, you're right. It's two percentage points to three percentage points better deal at a credit union. Not only are the rates better, but the fees are lower, too. And...
COOKEAnd less of them.
CHENEYFewer fees and lower fees, yeah, absolutely.
NNAMDIAnd my first experience when I was first employed at my first fulltime job and needed a loan, that is how I became a member of a credit union and have been one ever since. Full disclosure here. Got to take a short break. When we come back, we will continue this conversation about credit unions. Still taking your calls at 800-433-8850. Have you weighed your options and decided against joining a credit union? If so, why? Call us, 800-433-8850 or send email to firstname.lastname@example.org or send us a Tweet at kojoshow. I'm Kojo Nnamdi.
NNAMDIWelcome back to our conversation on credit unions. We're talking with Sarah Snell Cooke, Editor-in-Chief of the Credit Union Times. That's an independent magazine that covers the industry. And Sarah has covered the industry for over a decade. Joan Goldwasser is a senior reporter with Kiplinger's Personal Finance. And Bill Cheney is the president and CEO of the Credit Union National Association. It represents almost 90 percent of the nation's credit unions. Bill, credit unions are nonprofits, but they still do make money. What happens to their profits I guess?
CHENEYWell, the profits that are generated by credit unions -- and credit unions are not for profit. They are financial cooperatives. The profits that are generated are either reinvested in services to members, distributed to the members in the form of dividends on their savings products or they're reinvested in the credit union itself. One of the distinctions of credit unions as cooperatives, at least at this point, is that the only way most credit unions can generate capital is through retained earnings. And so they do have to retain some earnings in order to support building their capital to support their growth.
NNAMDIBack to the telephones. Here now is Rachel in northwest Washington. Rachel, you're on the air. Go ahead, please.
RACHELHi, Kojo. Thanks for taking my call. I'm a few years out of college and since graduating, I've had several different jobs and move around a lot. I actually chose Bank of America because I knew it would enable me to find a bank in any city. Are there any credit unions with the same kind of ubiquity or would they all be tied to one place?
GOLDWASSERWell, most credit unions have only a few branches. However, they do -- many credit unions belong to one of the networks that would give you access to, you know, thousands of ATMs. So if an ATM is what you're concerned with, you do have that access. And many of the credit unions now offer online banking. So if you're willing to bank remotely, it shouldn't be an issue. And they also -- some credit unions also have what is called shared branches. So if you -- if your credit union participates in this service, you can go into another credit union's branch and bank as if it were your own credit union.
COOKEYou know what's interesting. I've been talking to a lot of credit union CEOs lately about their bank transfer day. Some were opening extra hours on Saturday, some not. And a lot of the ones that said they weren't was because they get 90 percent of their membership applications online. It's really interesting the technology that credit unions have been able to adapt and use.
CHENEYYes. Well, Joan's absolutely right. It's -- there aren't any credit unions the size of Bank of America. In fact, the entire credit union movement combined is smaller than Bank of America. However, because they work together they do offer that convenience, whether it's online banking or the ATM networks. One in particular, Co-Op Financial Services has over 28,000 ATMs nationwide. If it has a Co-Op logo on it and you're a member of a credit union that's part of that network you can use your card surcharge free at any one of those 28,000 ATMs. And the share branches, there're over 3,000. And so that's a great option for convenience as well.
NNAMDIRachel, will that work for you?
RACHELIt would. I actually have one problem, though. I lose my debit card. Not a lot, but every now and then and I need a bank to help me get a new one, the physical bank. Would -- I don't know if credit unions could offer that kind of service?
CHENEYAbsolutely. Well, credit unions offer debit cards -- over 80 percent of credit unions offer debit cards. And if you lose your card, absolutely, your credit union can replace it for you. You can go into one of the share branches and do that or you can just contact the credit union or use their online services to replace your card.
NNAMDIRachel, thank you very much for your call.
NNAMDIJoan, banks are not necessarily all bad and we certainly don't want to give the impression that they are. Where do banks hold an edge over credit unions for consumers?
GOLDWASSERWell, obviously, you know, the big banks do have thousands of branches. And if you move from city to city you can often, you know, just move your account with you seamlessly. And in some cases -- Citicorp obviously has branches overseas, so if you travel abroad, you can withdraw money from a Citibank ATM without paying a surcharge.
GOLDWASSERAnd if you happen to be fairly affluent, you might be -- you know, you could get a brokerage account through your bank possibly or invest in mutual funds. They have wealth management services. They do this kind of very sophisticated banking. So if you need those kinds of services, you are less likely to be able to get them at a credit union.
NNAMDISarah, big banks may in fact cry foul on credit unions saying they have an unfair advantage because of their tax exempt status. Any truth in that?
COOKEYes, but so what? I mean, the purpose of credit unions is they were created as not-for-profit cooperatives and so they are not subject to the corporate income tax, which makes complete sense given their social mission to serve people who are of modest means, working people, as Bill said. So they do things to earn their tax exemption like offering higher rates on savings, as pitiful as they are, or lower rates on loans. Many credit unions this time of year it's time for them to unload some dividends back to their members as well. They actually pay out to either their borrowers or their depositors or both.
CHENEYWell, banks like to say that credit unions are nothing more than tax exempt banks but nothing could be further from the truth. As we said before, credit union are fundamentally different institutions structurally, the way they're managed, their focus on their members and serving the people who are members of credit unions. You know, if -- banks like to say there's an unfair advantage. Well, the banks are doing quite well notwithstanding the financial crisis. The banks are making record profits again. And I don't see credit unions as unfair competition at all. I think credit unions are a vital competition.
CHENEYJust imagine a world where you didn't have credit unions. And what would banks' rates and fees be like if there wasn't a cooperative option? Credit unions receive their tax exemption because they are not-for-profit cooperative enterprises. If banks feel like there's an unfair advantage then they should be converting in droves to be credit unions. They certainly have that option. But that's not happening either. So we don't see it as an unfair advantage.
CHENEYAnd we actually think -- we know from our own research that the credit unions return the value of their exemption multiple, multiple times over in terms of value to consumers. In fact, in the last 12 months, American consumers saved over $6 billion by doing business with credit unions as a better value than doing business with banks. And that's multiple times more than the cost, if you will, of the credit union tax exemption.
NNAMDIOn to Barbara in Coleville, Md. Barbara, your turn.
BARBARAHi. I just wanted to get some information on the difference between a federal credit union and a state credit union. And how are the funds insured. Like in conventional banking we've got all the FDIC insurance. And I can take my answer offline. Okay?
NNAMDIOkay. Thank you very much for your call.
NNAMDICare to respond to that, Sarah?
COOKESure, yeah. The credit unions are regulated by the National Credit Union Administration at the federal level or various states. Most states have a state regulator at that level if they decide they want to be a state-chartered institution for various business purposes. There are different chartering abilities, different authorities that are provided to state -- some states versus the federal charter.
COOKEMost credit unions -- most all credit unions are insured by the NCUA's National Credit Union Share Insurance Fund, which is equivalent to the FDIC, $250,000...
NNAMDILater in the broadcast, we'll be talking with the chairperson of the NCUA, but go ahead.
COOKERight -- 250,000 per account and there is -- there are some -- very few -- maybe a couple hundred credit unions that are insured by a private share insurance company called American Share Insurance. So again, the bulk of credit unions, probably 99 percent, 98 percent are covered by federal insurance.
NNAMDIOkay. Thank you very much for your call. We will move on to Will in Silver Spring, Md. Will, you're on the air. Go ahead, please.
WILLYeah, hello, Kojo and hello to the panel. Yeah, I used to be involved with credit unions and it's been a while back, probably about ten years ago. And my credit was 750 at the time. Still I went to the credit union to, you know, borrow enough money to be able to buy a used vehicle. They turned me down flat. I mean, you know, I never did know why they turned me down but I really got ticked off with the credit union. So I tried to go through (unintelligible) a bank. But I went to the bank and went through the same process. No problem. I got the car that I wanted. And since then, I mean, I've been a happy camper.
WILLBut I know that all these bank fees are a problem and I'm thinking about maybe trying to come back to the credit union. I'll take my (unintelligible) .
NNAMDIJoan Goldwasser, care to respond to that, because I'm not sure what interest rate Will got in the loan from the bank.
GOLDWASSERI don't know.
GOLDWASSERI mean, obviously his -- I assume he was talking about his credit score and that sounds like a very, you know, good credit score. So I have no idea why that particular credit union turned him down.
NNAMDIHe was turned down.
GOLDWASSERObviously in, you know, harder financial times, you need a better score to get accepted for a loan or a credit card. Of if you do get accepted, if your score is lower, you will pay, you know, a slightly higher rate.
NNAMDIThe -- there are laws limiting the amount of small business lending, for instance, that credit unions can do. But it's my understanding, Sarah, that there's legislation pending that would change that.
COOKEYes. Currently credit unions are capped at 12.25 percent of their assets that they're allowed to make in small business loans to their members -- their business members. There is legislation in congress that would increase that to 27.5 percent for well-capitalized credit unions.
NNAMDIBill, credit unions have not in the past been generally associated with business lending. But it's my understanding they're trying to get that legislation passed, is now one of your top priorities. Why?
CHENEYIt is absolutely. What we've got in the House HR1418, in the Senate senate bill 509 that would raise the cap as Sarah suggested. Actually, you know, there's -- one of the misconceptions or perceptions of credit unions is that they haven't been involved in small business lending. But I mentioned the earliest credit unions in the early 1900s actually -- many of those first credit unions were set up specifically to do business lending. And credit unions have been lending to small businesses since inception.
CHENEYAnd in fact, until 1998 there was no restriction on business lending. This cap -- this 12.25 percent cap was imposed in 1998. We've been trying to raise it ever since. The Federal Credit Union Act that first authorized credit unions at the federal level, federal charter said that the purpose of credit unions was to promote thrift and to make loans for provident purposes. Well, what's more provident than a small business loan? So there really shouldn't be any cap at all. That's not feasible. So what we're trying to do is have a reasonable increase from 12.25 to 27.5.
CHENEYThe interesting thing about that in this economy is everyone's looking for ways to create jobs. Now we estimate that if we can get this legislation passed, it will free up $13 billion in capital for small business in the first year, allowing small businesses to create 140,000 jobs, most importantly at no cost to the taxpayer. Our lead sponsor in the senate is Senator Mark Udall from Colorado and he said on the floor of the senate, this is a no brainer. It's a no-cost way to help small businesses create jobs, and we agree.
NNAMDIThe cap was put on in the first place, you mentioned, in 1998. What was the consideration at the time that the cap was put on? Was the memory of what happens with the S&Ls still fresh in minds of members of Congress?
CHENEYWell, it may well have been. It may well have been. But it was part of the discussion of expanding to fill the membership of credit unions. There had been a Supreme Court ruling earlier in 1998 that said that credit unions, based on the Supreme Court ruling, could only serve a group. They couldn't serve multiple groups. So the legislation clarified the intent of congress in the 1930s that credit unions could serve multiple groups. And as part of the implementation of that legislation the cap was imposed.
CHENEYSince then the Treasury Department, the Administration and others have determined that the cap was set too low and that it should be higher and that credit unions should be able to do more to help small businesses.
NNAMDIOn now to Juan in Tacoma Park, Md. Juan, you're on the air. Go ahead, please.
JUANHi, Kojo. It's a very interesting conversation and I'm very happy and very glad that you're discussing on this subject. I've been a customer -- a client with a credit union for ten -- over ten years now. I used to be with (unintelligible) until one day they charged me a ridiculous fee for -- because of an ATM (unintelligible) was overcharged. I changed -- that day I was so offended I felt violated this way and I switched to my credit union.
JUANAnd since then I couldn't be happier. I'm delighted with them. There is a sense of ownership. I feel like I own part of that credit union. The people working there know me. They know what kind of a client I am. And also they -- I was listening to a gentleman speaking before about a car loan.
JUANFor my first car loan I went to buy my car and I wanted to get a loan from the seller and he gave me the dirty look because my credit was so bad. I had a very, very short limited credit. I went to my credit union. They gave me the loan right away. I was able to go back to the dealer with a check and purchase my car. And, you know, they always gave me the best services ever. And even in the crisis -- in the 2008 crises -- financial crises we went to our credit union and said, hey guys, how are we doing? I mean, is this gonna affect us? And they said, absolutely not. We are not that kind of bank. We make responsible investments so you can rest assured you're not gonna run into any peril in terms of your money being safe.
JUANSo I think big banks (unintelligible) ...
NNAMDIYou raise -- you raise...
JUAN...have a lot to learn from their sister institutions.
NNAMDIJuan, you raise to issues that I'd like to raise with our panelists. The first I'll raise with Joan. A lot of people like Juan rave about the personal connection they have with their credit union. But others do have some complaints. Some credit unions still keep bankers hours and they close before their customers can get there. Others don't offer online banking. Are credit unions trying to become more accessible?
GOLDWASSERYes. I think they definitely are. I mean, you see more and more credit unions offering online banking, offering mobile banking. You know, some credit unions will let you deposit checks remotely. You know, if you have a scanner on your computer you can deposit a check. So the fact that the bank is closed doesn't really affect you. You don't have to go into the branch anymore. But they are trying to, you know, enter the modern era too. They're obviously not as large so they don't have the financial resources that, you know, a huge corporation has. So they have to pick and choose, you know, what they do first and may be a little bit slower.
COOKEThat's one of the key differences between credit unions and banks, too, is that credit unions are very limited in the capital -- how they can raise capital as opposed to banks. They can't go to the markets to raise capital to provide more branching, to provide marketing, to, you know, promote their branches. So that's definitely a key difference and issue for credit unions. And they're working on that as well, legislatively.
NNAMDIThe other issue raised by Juan's call is what happened during the mortgage crisis, did credit unions, Bill, largely weather the mortgage crisis, or were they battered as well?
CHENEYWell, the crisis hurt everyone, individuals, small businesses, corporations, banks, credit unions. Clearly credit unions did not cause the financial crisis, Juan is right. Credit unions were very responsible in the way that they invested their members' funds. So they weren't -- very few credit unions were directly impacted by what happened in the mortgage market, but many were indirectly impacted. Any time you have a state like California, Nevada, Florida, Michigan, with over 12 percent unemployment, with home values down as much as 50 percent in some areas, everyone's gonna be impacted.
CHENEYBut I will say that credit unions weathered the storm extremely well. There was some tense moments during the crisis, and we had some issues with our wholesale credit unions that serve credit unions, not consumers. But overall, credit unions weathered the storm extremely well, and they're doing much, much better now, coming out of the crisis.
NNAMDIGot to take a short break. When we come back, as I mentioned earlier, we'll be talking with the chairperson of the National Credit Union Administration, continuing our conversation on credit unions. If you have called, stay on the line. If the lines are busy, shoot us an email at email@example.com, or simply go to our website, kojoshow.org, and join the conversation there. I'm Kojo Nnamdi.
NNAMDIWelcome back to our conversation on credit unions. We're talking with Joan Goldwasser, senior reporter with Kiplinger's Personal Finance, Bill Cheney, president and CEO of the Credit Union National Association, and Sarah Snell Cooke, editor and chief of Credit Union Times which covers the industry. She's been covering the industry for more than a decade, and joining us now by telephone from Alexandria, Va. is Debbie Metz, chairman of the National Credit Union Administration. That's the independent federal agency that regulates charters and supervises credit unions. Debbie Matz, thank you for joining us.
MS. DEBBIE MATZThank you, it's my pleasure to be on your show.
NNAMDIWe've learned a little bit about your agency's role when it comes to insuring money held at credit unions. What else do you do?
MATZWell, as you said, we are to credit unions what FDIC is to banks, so we ensure deposits up to $250,000 per account, and I should add that no one who has ever -- no one has ever lost a dime at an account ensured by NCUA. But we also regulate and examine credit unions, so we have a force of about 1,000 examiners who go into every credit union every 12 months to make sure that they're operating safely and soundly and that they are following our regs and meeting the statutory guidelines.
NNAMDIThere's a new sheriff in town as well. Will the new Consumer Financial Protection Bureau have any effect on what you do when it comes to oversight and regulation?
MATZNot really, because we examine credit unions to make sure that they comply with consumer regulations, whether they're written by us or by the Federal Reserve Board or any other agency. And so when CFPB begins writing their consumer regs, we'll continue to examine the credit unions to make sure that they comply with the new consumer regulations. So it really won't be much of a change for us, or for the credit unions that we supervise.
NNAMDIYou also act as a sort of watchdog on behalf of credit unions, and you've been working to recover mortgage losses totaling almost $400 million; is that correct?
MATZYes, that is. As the liquidating agent for failed credit unions, it's our authority to seek maximum recoveries of any credit union losses. So after the economic decline of 2008, we found that some of the sellers, some of the issuers and underwriters of the securities that were purchased by five large failed credit unions had made material misrepresentations about the quality of the underlying assets. So, so far we have filed five suits, one of which was just filed yesterday against Wachovia, alleging violations of federal and state security laws, and misrepresentations in the sale of securities.
MATZAnd most recently, just a week or two ago, we had two big settlements, one with Deutsche Bank for $145 million, and one with Citibank for $20.5 million. So we do everything we can to pursue recoveries when there are credit union failings.
NNAMDIBill Cheney, one field where credit unions are not able to offer a real competitive edge is the mortgage market. Why is that?
CHENEYWell, especially as it relates to first mortgage loans on residential real estate, mortgage rates are really set by the secondary market, and so the pricing is pretty restrained there. The difference you're gonna find in getting a mortgage from a credit union is in the fees. So your rate is gonna be competitive, set by the secondary market primarily, but your fees are definitely gonna be lower at most credit unions.
NNAMDIAnd we got an email question from Jonathan. "Why do credit unions have eligibility requirements? One with no requirements perhaps started by a social entrepreneur organization would solve many problems." Are there any such as far as you know, Sarah Cooke?
COOKENo. The law is pretty clear that credit unions have to have a -- credit union members have to have some sort of connection through the select employee group, or through a community they live in. So starting a technical credit union to serve everybody, unless they're just -- the connection is that they live in the United States or something, really not possible under the laws currently.
NNAMDIYou would agree with that, Debbie Matz?
MATZUm, well, it's -- historically, credit unions have operated in a particular field of membership and the statute was written that they would have these fields of memberships, and in turn they would also be cooperative and not for profit and tax exempt. So it all goes hand in hand.
NNAMDIHere is Patricia in Washington, D.C. Patricia, your turn.
PATRICIAThank you for taking my call. I have a couple of points I wanted to make. I worked for the third largest credit union in the nation back in the '80s, the Municipal Credit Union, and also was a -- well, they sent me to management school, and I also was a manager part-time for a credit union that was part of the National Association of Community Developed credit unions, but when I changed careers in the '90s, I still maintained my account even until today, with the credit, and I had encouraged all my friends at the time, whoever was to become members to do so.
PATRICIAAnd, you know, the credit union industry does provide, you know, opportunities for people who -- because like for some time if you didn't have a certain amount of money, you could open an account and it was a wonderful opportunity for people who really didn't have access to, you know, financial -- hello?
PATRICIAFinancial institutions to in fact gain assets. And lastly I wanted to add, you know, a few years -- about a year ago I was able to open an annuity through CUNA Mutual, which was the institution that handled the pensions for at least Municipal Credit Union and some of the other larger credit unions. So you can acquire a brokerage account, not necessarily through your credit union, but through CUNA Mutual, if that's something that people are interested in.
PATRICIAAnd also, there are credit unions that do provide mortgages. I think I heard someone said that -- oh, no, this is the other point. I don't pay any ATM fees, and my -- Municipal is in New York City. I live in Washington D.C., and I pay no ATM fees, and that's one of the things I wanted to add.
NNAMDIOkay. And one of the things you wanted to ask was what?
PATRICIANo. I said that was the last thing I wanted to add.
NNAMDIWanted to add as opposed to ask. Okay. Patricia...
PATRICIAYeah. Someone was mentioning about paying...
PATRICIA...they had online banking, and I don't pay any ATM fee.
NNAMDIThank you very much for your call, Patricia. We got an email from Kate in Petworth who says, "I'm not a supporter of big banks, but I also wonder whether, just because a credit union is a credit union, it necessarily avoids the evils of big banks. Are credit unions investing in the same stocks at big banks? What are some of the questions I should ask at the credit union before I join to ensure I'm not signing up for the same rigmarole as a big bank?" Joan Goldwasser?
GOLDWASSERWell, obviously, your credit union will tell you sort of where its money is invested. In general, you know, what it's doing is making mortgages, you know, making personal loans, making auto loans. I mean, it invests in the community in terms of getting money in in that respect. In general, smaller credit unions are not going to be investing in, you know, those awful collateralized mortgage obligations that, you know, were so terrible and fell apart in the financial crisis.
GOLDWASSERAnd you can -- but you can ask, you know, the credit union sort of where, you know, do you invest the funds that we -- that I deposit. What happens to my money?
NNAMDIAnd, of course, we have on our website, links to all of the places we can go where you can find the credit union that may be closer to you, a credit union that might be convenient for you, and all of the information you may need. Bill, you mentioned earlier that working people are most likely to be credit union members. Are you also trying to reach out to low income and poorer people? It seems like they could benefit from lower fees, but do you try to serve that group?
CHENEYAbsolutely. In fact, there's been a push in the last several years to have credit unions expand into what's known sort of technically as underserved areas, places where typically the people who live there for whatever reason have not had access -- as much access as most people to traditional banking services. And so many credit unions have added underserved areas to their field of membership. That's one way for example, in Washington D.C., people who live in Washington D.C. as I do, have access to a number of different credit unions who serve select employee groups as was mentioned earlier, but also served the entire community of D.C. because it is defined as an underserved area.
CHENEYSo yes, the typical credit union member is a working family, but credit unions also -- they look to serve everyone in their field of membership, and as I said, more have added these underserved areas to their fields of membership.
NNAMDIHere is Dennis in Laurel, Md. Dennis, you're on the air. Go ahead, please.
DENNISThanks for taking my call. I just want to say that banking with a credit union is a great idea because we keep giving our money to the Bank of Americas and Wachovias and they become monsters and try to extort money from us, but when you bank with credit unions there are no extra fees. There are all -- there are no hidden fees. And also, I would suggest that they try to do the free ATM thing so that more people can join them because if you have a credit union who doesn't have a lot of branches, you obviously have to use the ATMs, and if you get charged for them, it doesn't encourage you to join a credit union. All I can say is, it's a good idea to join a credit union. Thank you.
NNAMDIThank you very much for your call. This one for you, Sarah Cooke, an email we got from Joseph in Washington. "Are there any fundamental differences between services a bank can offer, and those found at your average credit union, and do they vary from one credit union to another?"
COOKEWell, a lot of the services are very much the same. Credit unions do tend to be smaller institutions as Bill said. The entire industry isn't even as big as Bank of America. So if you're at a credit union that has say $10 million in assets, it may not have, you know, several different auto loan options for you to choose from. They may not offer mortgages. But in general, the credit union industry can offer pretty much any service that -- that banks can offer other than they are capped on their business lending. But in general, yes, they offer most all, if not all the same services.
NNAMDIAnd this email question we got form Nella. (sp?) "As a senior in college, I'm starting out my financial journey, and have been thinking about looking into a credit union. To my understanding, credit unions seem to be only for small businesses or for financing. In what ways can a credit union benefit college students? Should I start looking to develop a relationship with one, or am I pretty much stuck with Bank of America until I graduate?" Joan Goldwasser?
GOLDWASSERNo. Obviously you should have a bank account and a credit union is a perfectly good place to start. Most of the credit unions require a very small deposit, so even if you don't have a lot of money, you can open up your account there, and it's always good to develop a relationship with, you know, the institution where you have your funds. They like it, and you like it because, you know, it might -- it'll make it easier to get a credit card if you don't have a long credit history.
GOLDWASSERIt'll make it easier to get a loan if they've, you know, if you've been doing business with them for several years when you want to buy a car or perhaps make a down payment on your house, that you will have a history. So it always is a good idea to have a relationship with an institution.
COOKEAnd the -- I was gonna say that...
NNAMDIPlease go ahead, Sarah.
COOKE….after the federal -- after the federal backing of the student lending came apart two years ago now, I think, a lot of credit unions made a push to move into student lending, so that's another area. And as Joan said, regarding loans, credit unions are often more willing to look beyond the credit score than a for-profit bank would.
CHENEYAnd if I could just comment too, quickly.
NNAMDIPlease do, Bill.
CHENEYIf you're a college student in the D.C. area, absolutely you are eligible to join a credit union and the credit unions in the area would love to talk to you. They can help you plan for life after college. Credit unions do a fantastic job of financial education, and I would encourage you to check out that website we talked about earlier, asmarterchoice.org. You can find a credit union you're eligible to join, and they would love to work with you.
NNAMDIHere is Roy in Fairfax, Va. Roy, you're on the air. Go ahead, please.
ROYI'm wondering about what type of real concern a credit union might have for their customers. I was -- my mother was part of a credit union in Virginia for over 40, 50 years, and in her last years she had cancer. She died after refinancing her house three years before she died, and I wasn't aware of it, of course, but what happened was, she was -- I don't -- she didn't get any mortgage insurance, and the house was almost paid for. She was in it for over 28 years. What I'm concerned with is how they may have counseled her because she had cancer when she had to refinance.
NNAMDIWell, we're running out of time very quickly, but Debbie Matz,, chairman of the National Credit Union Administration, how would you suggest that somebody like Roy try to find out what happened?
MATZWell, they can check out our website mycreditunion.gov, and we have an ombudsman whose job it is to work with credit union members who have a complaint against their credit union, and they will investigate the matter and attempt to resolve it.
NNAMDIAnd we'll put a link to that website on our website kojoshow.org. Debbie Matz is chairman of the National Credit Union Administration. Joan Goldwasser is a senior reporter with Kiplinger's Personal Finance, Bill Cheney is the President and CEO of the Credit Union National Association, and Sarah Snell Cooke is the editor-in-chief of Credit Union Times, an independent magazine that covers the industry. Thank you all for joining us.
MATZThank you very much.
NNAMDIAnd thank you all for listening. I'm Kojo Nnamdi.
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