Credit Union 101
Credit Unions 101 by Mark Hawkins, President/CEO, Altura Credit Union
The credit union concept is simple: people should be able to help one another when they need it. They should be able to pool their money together and make loans to each other at reasonable costs.
Credit unions are limited to the people and areas they may serve. We cannot open our doors in just any community and invite people to become members. There must be some common thread among them, and it must be approved by the Department of Financial Institutions. Altura’s membership is limited to those who live, work, worship or attend school in Riverside and San Diego counties and parts of Orange and San Bernardino counties.
Credit unions are cooperative organizations and we exist to meet the financial needs of our members — not to make a profit from them. It is for this reason that Congress has granted credit unions the “not-for-profit” status we enjoy today.
Our profits are returned to members in the form of lower loan rates, higher savings rates, new and improved products and services and improved safety and soundness. We strive to offer services to our members that are not only convenient, but also more cost efficient, such as online account services, including e-statements and instant approval on loan applications.
The tax-exempt status for credit unions is well documented and well deserved. Congress has regularly addressed this question over the years, beginning in the 1930s and continuing to this day. However, banks have not been happy with these decisions and are spending millions of their customers’ dollars to stop our growth and development.
Also, it is important to remember that credit unions are not entirely tax-exempt. We do pay sales taxes, property taxes and employment taxes. Because of our tax exemption, we do not have the ability to write off our community contributions. Therefore, the money and time we contribute annually to non-profit agencies and community events are made in the true spirit of giving back to the community.
Banks argue, “Unfair competition!” Banks argue that the playing field is not level. Yet the total assets of all credit unions combined do not total even the assets of the single largest bank in the US.
The differences between the two types of institutions are evident. Here are some examples:
- Bank Board Members are compensated for their service; sometimes quite handsomely.
- Credit Union Board Members are volunteers; it is illegal for us to compensate them for their service. (The responsibilities and the liabilities however, are the same as those for board members of banks.)
Safety and Soundness (Capital)
- Banks, by legislative right, have ready availability to capital markets through stock sales. (This permits them to grow and expand rapidly.)
- Credit Unions have only one available source of capital — retained earnings. The money we make on loans and fees goes into our growth.
Safety and Soundness (Deposit Insurance)
- Banks – The FDIC (Federal Deposit Insurance Corporation) is a federal program that provides safety to millions of American consumers. (NOTE: The cost of this insurance program to the American taxpayer over the years is measured in the BILLIONS of dollars!)
- Credit Unions – The NCUSIF (National Credit Union Share Insurance Fund) is supported by the combined capital of all insured credit unions. Only if the capital of all insured credit unions was depleted would the federal government be asked to step in. (NOTE: In the entire history of the credit union movement, NOT ONE CENT of taxpayer money has ever been used to bail out a credit union.)
- On both consumer loans and business loans, banks have no meaningful limitations.
- Credit unions have no meaningful limitations on member consumer loans, but are rigidly limited when it comes to business loans. Altura’s business lending is limited to a maximum of 12.25% of total credit union assets.
Mergers and Acquisitions
- Banks are bought and sold all the time.
- Credit Unions CAN’T be bought OR sold. They are owned by their members.
The world is changing at a rapid pace – and peoples’ financial needs and expectations are changing right along with it. If control of the financial world were left in the hands of banks, consumers would be left with no choices.