It’s a Philosophical difference.

Banks make money for the investors
CU's make money for the members (customers)

The reason CU execs get agitated about increasing profits via fees is because the money made will from members, who are just going to demand to get it back. So what’s the point? When CU's look to increase profits they look for ways to get money from outside sources, and not the membership.

Some CU's do very well "profit" wise but excess money gets throw in for increased member services, lower loan rates, higher dividend, more branches, employee benefits...etc. No one gets to keep the excess cash.

Overall I think CU's are "better" in the fact that the goals and success of the org means a cooperative improvement. When a CU's does well everyone gets the benefit. The CU, employees, and the members.

There are many positives to the idea of a CU, and the only negative is that the Top few don’t get excessively rich.

IMHO...Banks and CU's should be separated more. Recently the NCUA has tried to expand the ability of CU's to admit members. The ABA is aggressively fighting this, and I think that they have a valid argument.


-Kevin

Mack stole my duck analogy

I work for a mutual association and a lot of this discussion sounds like my bank. "Forget about fee income, we take care of our shareholders." "Charge overdraft fees for each check - no way." Fortunately, our board is interested in the bank and have become very involved, or anyway, since I've come to work for them.

Overall I think CU's are "better"

I'm aware of the CU philosophy, but you got me with the "better" comment. What do you mean by "better?" Yes, they, in theory, share the profits generated, but the sharing is not equal, e.g. members with the highest balances get a bigger portion of the pot and the pot is big due to the fact that no tax is paid. Therefore, it's a duck and should be taxed like it's a duck and on an equal playing field with banks.

CU's were formed to provide banking to worker bees that did not have ready access to banking services. Now CU's are proactively after what they call SEG's (selected employer groups) like attorney's, fire and city workers, county workers and practically anyone else in the middle class. Therefore, generally poor people need not apply for membership. It's a free ride on the back of the banking industry and, yes, you can be "better" when there is no tax to pay and your original mandate has conveniently disappeared.

I mean "better" in the sense of ideology. “Share the wealth” so to speak. Besides just the money side, CU’s are owned by the members, they all have votes in the direction in which a CU goes, what it goals and strategies will be. Sometimes that bad, sometimes its good.

The reason they shouldn’t get taxed is because no “entity” is making profit. Higher dividends are taxed on each individual’s annual taxes. Interest and fees are only charged to continue providing member’s services, cover overhead and expand the CU (if the members wish it). The members pool their resources for the betterment of themselves as a whole.

Bigger well-run CU’s are able to provide services almost identical to a bank, but with less cost because there are no investors to satisfy with profit margins.

I have an account at a credit union. They have each depositor sign a proxy statement when the account is opened. Management has your vote not the individual members. I do not receive any return of profit directly. It ??supposedly? plowed back to keep costs down.

They do not know about funds availability and put 5 day holds on everything. Although, no one in the branch knows why they do that.

It seems the people with banking experience do not last long. Employees that stay are very young, and very inexperienced, but very smiley and cheerful.

CU beter tha a bank because "It shares things with the little guy" not this one.

Why am I there --Its across the street.

HAHAHA yep thats a CU and thats why banks have nothing to fear.

Are you employed by a CU?

Anyway, here's the deal: I was in that world for a short time and one of the projects I participated in was to determine what SEG's to go after. There were two factors that CU's include in this type of analysis that are very disturbing; (1) number of employees in management level positions; (2) level of turnover, meaning that CU's proactively go after employer groups with the highest level of salaried employees and groups with the lowest level of turnover. For example, I recommended a new SEG - a producer of burritos (300,000 per day) with 200 employees in a not so good part of town - in other words an unskilled labor group that probably could benefit, e.g. auto loans, etc. The response was, and I think this is standard in the industry at this time, that there were way too many low paid employees and the turnover was way too high, so no membership.

Perhaps I'm wasting space and time telling you about this, but your idyllic CU world, for the people, needs to be exposed for what it is.

Exactly why they lobby so hard to stay exempt from CRA.

Your example is more the exception than the rule. CU's target under-served areas for the specific reason that banks often neglect them.

Now, I’m not a fan of CU's over banks. I think of them as institutions with different goals. Banks are businesses. CU's are cooperatives. Both have different objectives.

In the sprit of a good debate, I would say that banks are hostile towards CU's because CU's can take a piece of their market share, which hurts business, which hurts profits. Banks exist in an environment of competition created by business/capitalism. CU's operate in an environment of sharing and service (socialism?).

Since CU’s are privately owned banks see them as a direct competitor that doesn’t have to play by the same rules. But think of them as almost “government” entities. It’s like the relationship UPS and USPS. UPS does business, USPS does mail.

CU’s since they are always community based automatically give back to the community. Only locals can apply for membership, only locals get home/consumer loans for property bought and sold locally. So any type of madated CRA would be redundant.

CU’s since they are always community based automatically give back to the community. Only locals can apply for membership, only locals get home/consumer loans for property bought and sold locally. So any type of madated CRA would be redundant.

NCUA Approves More Community Charters
ALEXANDRIA, Va. (07/25/00) -- NCUA said it approved another six conversions to community charter last month, making a total of 40 for the first six months of the year. The conversions granted included a request by tiny ($900,000) South End FCU, Boston, to encompass 280,000 residents of the city, almost half the city, to its FOM. Also approved last month were requests by: SJB FCU, Fall River, Mass, to include 105,000 residents of four Massachusetts and one Rhode Island county; Hoodview FCU, Killeen, Texas, to cover 270,000 residents in Bell and Coryell counties, Texas; Ypsilanti Area, FCU, Ypslianti, Mich., to encompass 10,5000 residents of the city of Ypsilanti; and Wayne County FCU, Smithville, Ohio, to include 110,000 residents of Wayne County, Ohio.

Local? Madated CRA would be redundant? Wake Up!

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Hoodview FCU, Killeen, Texas, to cover 270,000 residents in Bell and Coryell counties, Texas

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Now you are hitting home. This thread has gotten way off topic. But I need to add my two cents. CUs have a purpose. Yes, they can cut into the market banks are after. But the purpose of CUs was to serve a group of people with a common bond. They don't have to pay taxes for that reason. But when the common bond is that you have ever lived an XXX mile geographic region, its to common. If a bank wanted to limit its market to a similar segment, it can't get out of taxes. There are not many other differences as the public sees us.

This isn't a CUs fault. They just follow the rules and expand them as much as they can. Things won't change as long as those in the House and Senate have CU memberships and protect their own interests.

The point is that CU's (Fed/State, FOM or Community) don't generate a profit for "outside" investors.

Your common bond approach works for me, but the missing piece as far as CU's are concerned at this point in time is that they are not going after the underserved population, they are going after the same segments as banks, in fact, they are literally avoiding the underserved as that group cannot support the free flow of services.

In establishing credit unions in the 1930's with the passage of the Federal Credit Union Act ("FCUA"), Congress intended to promote the development of independent institutions to serve small discrete groups of individuals. The underlying premise was to ensure that like-situated individuals of modest means had access to financial resources through pooled assets.

As you stated, underlying the formation of credit unions is the notion of the common bond. The common bond is now distorted and blurred, in effect, encouraging the creation of large credit unions, discouraging the formation of smaller credit unions. Down the road there may be an impact on the safety and soundness of the credit union and financial services industry if credit unions are allowed to saturate the market. In the long run, a distorted common bond does a disservice to the credit union movement as originally envisioned.

That is why I said from the public's perspective. They don't know or care about that.

FACT: CUs were created to serve a lower economic segment of the population. CUs members now have a higher per capita income that bank customers.

FACT: CUs will continue to expand membership and permissible services so long as their members continue to deliver votes in Washington DC. And that is regardless of whether the legislator agrees or disagrees with the CU--deliver votes and I will protect you.

FACT: CUs will begin to fail if they continue to expand the services they perform without better regulatory supervision and internal processes. They could become the twenty-first century's answer to the savings & loan crisis of the 80s.

Agreed--if they expand their business lending limits without proper oversight, we will end up bailing them out.

Thanks for chiming in and you sure have your facts right on the money. Once again, my short tour of the CU world included looking at making business loans (to members) as a new product, but the CU could not find a lender to work for them. It's scary out there in CU land, whether they know it or not.

CU’s are now the biggest buying group: member share (deposit) insurance coverage over $100,000 ($100,000-$250,000) – they can easily pay the premium through the tax advantage. How is that reconciled with the mandate of providing banking services to low income employee groups?

The chickens are going to come home to roost some day, and they are going to be huge, mad chickens.

Banks could pay the premiums also, if they were willing to cut their profit margins.

If we want to degrade this thread to "I'm better than you" then we should also mention, that Consumer Protection Laws emerged from Banking/Lender Abuses. CU’s as a majority (not all) seek out underserved areas that banks forsake. CU’s are audited just as frequently as banks on safety and soundness, and insolvent CU’s are merged or liquidated. CU’s offer banking services at less cost than Banks (gasp!) That’s a good thing for the consumer. Now as far as government protection, NCUA encounters the greatest resistance from the very powerfull lobbying of the ABA.

I will concede the US is a business driven free market, and banks have a legitimate complaint CU’s encroach on bank’s “turf”. But that doesn’t mean CU’s should go away or should be limited. CU’s goals are excellent service, investment in local communities, low-cost banking, and high dividend rates. How can that be a bad thing?

Its not a bad thing if they did that, and it can be said that banks do the same thing, the difference is banks are required to prove it.

What I don't see is any proof that CU's do serve the worker or lower income individual. I can only look at locations of CU offices here in San Diego and see that they are located in some of the most affluent areas in the county and US for that matter.

What CU's were originally formed for is no longer what they do. All bankers are saying is, Hey! if you want to compete come on and do so, but do so with the same set of rules they are required to adhere to.

The reason for CU tax exemption is long gone based on the very broad membership requirements now being used. The San Diego Federal Credit Union only requires a member to live in San Diego. Now thats about a 3 million people potential membership base.

Ok now I have to put my 2 cents in!

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Your example is more the exception than the rule. CU's target under-served areas for the specific reason that banks often neglect them.

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The two major credit unions in my state are open to a specific group of people...well they say specific. You have to have lived in Alaska, know someone who lives in Alaska, know of a person who vacationed in Alaska, or know how to spell Alaska. And I'm not kidding. I've shopped them both. It's some major BS in my opinion!

They are the number one consumer financial institutions (banking oriented) in the state, and yet they fall FAR short of my insituttion in the number of HMDA loans to low and moderate income peoples and geographies. Their market share leans towards the HIGH income people and geographies.

I am the number one small business bank in the state in both number of deals and dollars loaned, many years running. Yet I also lead in low income HMDA loans, a side line product for the bank. The top HMDA lenders are Wells Fargo and the credit unions (local tops). I rank in the 6 to 8th spot in all HMDA fields for loans except those to low income.

I visit the petroleum club (a private club for bankers) where both credit union presidents are members and frequent guests. Their target....OIL MONEY! They aren't on the plane to the villages with me...I guarantee it. While I watch credit union management shrug off their minks as they enter the club, I think...not for profit? They all take retreats out of the state and sometimes out of the country to avoid the profit issues. They have jets.....

Credit Unions who operate as is being claimed here are becoming fewer and fewer. Ours just opened trust services and investment services. Remember they are the NUMBER ONE consumer institutions in the state. They don't even need to bother with CRA. We make good money...but heck we'd make better money if we didn't have to do what we do to report our CRA efforts and go out of the way to fulfil the regulation.

If it walks like a duck....etc...it should take it's share of the load, and have it regulated by the government. CRA is a good thing. It inspires (or pushes) financial institutions to do their part for all. Credit Unions are somehow exempt from doing their part. In my pond...this duck needs to either get with the rest of the ducks...or be fried up for dinner!

No personal attacks intended! I just hate to hear the angels of credit unions claim their wonderful services when I'm the big bad profit bank....doing the ONLY loans out in the some of the poorest census tracts in the nation.

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FACT: CUs will begin to fail if they continue to expand the services they perform without better regulatory supervision and internal processes. They could become the twenty-first century's answer to the savings & loan crisis of the 80s.

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Thank you! It's reassuring that I'm not the only one who sees a very scary similarity between the CU's of today and the S&L's of the 80's.

In reading this thread, however, one ominous chorus seems to be: "If the regulators stay off your back about troublesome things like COMPLYING with a regulation, then the customer is happier, the employees are happier, management is happier, and everyone makes money."

Why do I find that thought disturbing?

And why does it bug me to know that CU's seem to be able to process transactions however they see fit, and their primary regulator apparently does nothing about it?

Do you think CU's could have an issue with Anti-Money Laundering initiatives? Is anyone looking at them for that?

The CU that I'm looking at is a "community" charter and works much like your described. You can become a member if you live, work or worship in Harford County, MD. But, don't sweat it if this doesn't apply to you. If you have any family member that lives, works, or worships in Harford County you can become a member, even if that person is not a member. When I first looked at the requirements I joked with someone that if "you've ever driven through Harford County you can become a member".

Thanks to everyone for the lively discussion. It was certainly more than I bargained for but interesting nonetheless.

Now I'm just hoping that you are playing the devil's advocate on this issue. Your points seem to come from CU support material that’s posted all over the web. Hopefully, you don’t actually believe that stuff that you are posting.

Anyway, the bottomline, is that bank’s are directly competing with CU for core business, e.g. upper and middle class accounts with the bank’s naturally or encouraged through regulations to serve lower income segments. On the other hand CU’s were formed to serve lower income segments, but are not encouraged through regulations, like CRA, to serve that segment, so they have generally decided not to serve that segment.

I am playing devil's advocate. If pressed (as I am) I couldn't defend CU's very long. However, I don't think CU's will become the next S&L becuase the bigger CU's operate very much like banks ie Compliance/Safety & Soundness is of an upmost concerns.

I work for a CPA and consulting firm providing internal audit and consulting services to West Coast community Banks and Credit Unions under $500 million in assets. Regulations are similar in both types of institutions, however, the Regulatory focus is much different. The NCUA and State regulatory agencies do not generally focus much on regulatory compliance and focus more on saftey and soundness. The NCUA Rules and Regulations on the NCUA.gov website as well as the NCUA Examiner's Handbook (both in PDF format) provide guidance for most regulations. I'd recommend you download them.

Also, the Regulations are obviously not "lettered" as they are with the Federal Reserve and FDIC and, instead, are referred to by NCUA Rules sections, but the overall intention of the Regulators, I believe were consistent with Banks. Of course the "big" difference is Credit Unions are not subject to CRA requirements.

We've also been hearing discussion amongst representatives of State Regulatory agencies on the West coast that they intend to start devoting more time to Regulatory compliance in Credit Unions.

Hope this helps...