After feeling devalued as a customer in a large bank ten years ago, Rachel Bouchard, co-owner of Core Pilates Studio in Saint Paul, switched to Affinity Plus Federal Credit Union. Though a Wells Fargo branch is within walking distance of her Macalester-Groveland studio, she believes Affinity is worth the four-mile drive. For Bouchard, some things are more important than proximity.
“I choose to bank at a credit union because they are more interested in helping their members,” said Bouchard. “They give back to the community.”
Her decision was reaffirmed when the financial crisis erupted in 2008. While many individuals and small business owners were concerned about their assets in the “too big to fail” banks, Bouchard felt her money was in good hands at Affinity.
|What are credit unions?
Credit unions are sometimes referred to as “the best kept secret” in the financial industry. Credit unions are member-owned, not-for-profit financial cooperatives designed to serve the needs of people from the same profession, religious or civic organization or geographical area. Members pool their money together. Credit unions operate democratically; each member receives a vote. Revenues received are returned to the members in the form of fewer fees, lower loan rates and higher interest rates on savings accounts. Credit unions offer the same services as banks with substantially lower fees.
Members believe credit unions are very responsive to their needs and have a strong commitment to the community. According to MnCUN’s website, their “top priority is to improve services for members, not improve profits for stockholders.” Like bank deposits, credit union deposits are insured up to $250,000 by the federal government under NCUSIF (National Credit Union Share Insurance Fund). Visit www.mncun.org for more information about Minnesota credit unions.
“I felt more comfortable having my money there than tied up in that large infrastructure,” said Bouchard.
Now, as the dust settles, two things have become apparent. First, the bailed out mega-banks are even larger now than before the crisis. Second, hoping to gain the same security Bouchard has found, consumers are turning to localized banking, especially credit unions.
Big banks have only gotten bigger
Last November, the New Yorker published an article by James Surowiecki titled Why Banks Stay Big. In it, Surowiecki reveals the four largest banks-Citigroup, Bank of America, JP Morgan Chase and Wells Fargo-have actually gotten larger since the financial crisis and subsequent government bailout. Collectively they now control nearly 40 percent of total banking deposits as well as half of all mortgages and two thirds of credit cards. Surowiecki believes banks continue to grow because, “once banks get a consumer, he’s pretty much theirs for good.” The reason is, with direct deposit, automatic bill pay and home loans, switching banks is difficult and sometimes costly. He concludes, “Unless consumers rise up en masse to move their money to credit unions, the market isn’t going to deal with this problem.”
The following month, the Huffington Post’s Arianna Huffington co-authored an article advocating that people take their money out of the mega banks. Huffington stressed the “need to return to the stable, reliable people-oriented approach of America’s community banks.” She and others launched a grassroots campaign to send a message to the “too big to fail” banks. At www.moveyourmoney.info, everyday citizens are pledging to move their money. (Curiously, this website does not offer connections to Twin Cities credit unions, and does two dozen TCF branches.)
In January of this year, the Wall Street Journal reported that among financial institutions, Americans give credit unions the highest approval rating at 58 percent and a close second are local banks at 53 percent. National banks and government-rescued banks have the lowest approval ratings of 31 percent and 21 percent respectively.
These approval ratings translate into money. Forbes.com’s March 4 article indicated 14 percent of all adults surveyed moved some of their banking from a large national bank to either a community bank or credit union. Of that, nine percent admitted doing so as a protest against big banks.
|What are community banks?
Community banks are independently owned banks. According to reports, 97 percent of all banks in the country are community banks, having less than $10 billion in assets. They have strong ties in their community and generally focus on small business and farmers. They offer the same services as the mega banks usually with lower fees. Community banks have strong ties to their communities and are often more willing to loan money to small, start up businesses. However, they are for-profit institutions, thus stockholders make the decisions. All deposits up to $250.000 are insured by the federal government through FDIC (Federal Deposit Insurance Corporation). For more information about community banks visit the Independent Community Bankers of America’s website www.icba.org
Minnesotans are flocking to local credit unions
According to Minnesota Credit Union Network, 154 credit unions serving 1.52 million members statewide collectively saw more than a nine percent increase in deposits in 2009. Mark Cummins, MnCUN President and CEO, attributes this increase to concerns stemming from the financial crisis.
“The nature of the volatile market has compelled many consumers to reconsider where they have their money,” said Cummins. “Members of credit unions know that the credit union is operating in their best interest, and this fact has become appealing to consumers within the last year.”
Minnesota credit unions have remained stable. According to NCUSIF (National Credit Union Share Insurance Fund), no Minnesota credit unions have closed in the last year. Cummins believes their stability derives from their egalitarian principles. Credit unions are not-for-profit financial institutions. Members co-own the credit union, giving them an equal voice and vote in the management of the credit union. Profits come back to the members, not stockholders.
“Credit unions are democratic organizations owned and controlled by their members,” Cummins said. “Each member receives one vote regardless of whether the have $1 or $100,000 on deposit at the credit union.”
Knowing she has an equal voice is one of the reasons Bouchard is a credit union member. “For me, it’s about empowerment. I actually know what’s happening with my money.”
Credit unions offer the same services banks offer, such as ATMs, automatic bill pay, credit cards and personal loans; however, generally with lower fees than those of commercial banks. They also usually offer higher interest on savings accounts than banks.
“Consumers benefit on both sides of the balance sheet by using a credit union,” Cummins said. “Credit union deposit rates on average are higher than at banks and loan rates on average are lower in almost every category. Coupled with lower fees typically found at credit unions, that translates into consumer savings of about $9 billion a year, or about $200 per credit union family.”
Credit unions have also found a way to meet the needs of members on the road with their unique shared branching program. Nationally, credit unions have formed a network that allows members from one credit union to conveniently conduct financial transactions in another.
“Shared branching offers nearly 4000 locations across the country, including 31 in Minnesota,” Cummins said. “More than 250,000 transactions were conducted last year in Minnesota shared branching locations alone.”
Moving Your Money
What about community banks?
According to ICBA, (Independent Community Bankers of America), “community banks are the primary source of lending for small business and farms.”
Barbara Draper, a retired community bank president, has banked at the same small bank for the past 26 years. She understands the special connection small banks have with small business owners.
“Small businesses don’t fit conveniently into a pattern that’s easily describable,” said Draper. “It takes a small bank to know the person, know the business, know the community and look at financial statement that aren’t necessarily quite true to form as big companies would have. I think there’s a flexibility and openness to the uniqueness that let’s them bank in a slightly different way.”
Community banks were hard hit during the financial crisis. According to FDIC, since January 2009, more than 160 banks have closed, including nine small banks in Minnesota. Most recently, First American Bank of Minnesota in Hancock, closed on February 5.
In spite of some closures, most of the nearly 8,000 community banks nationwide are still quite sound.
George Bailey versus Potter
The Move Your Money program posted a video on YouTube comparing our current financial predicament to the George Bailey versus Potter battle in the movie classic “It’s A Wonderful Life.” The video has had nearly 500,000 views. George Baileys everywhere are responding by moving either some or all of their money out of the mega-banks and into credit unions and community banks.
The Potter-type large banks may be trying to woo consumers back. Huffington Post’s Stacy Mitchell points out in her article, Big Banks Want You Back, that big banks are now using words like “local” and “community” in advertising. Mitchell believes the large banks are using these key words to connect with disaffected consumers.
However, Mitchell stresses not to be fooled. She believes their loyalties still lie more with Wall Street than Main Street.
3/18/2010 – Spelling correction: Mark Cummins, MnCUN President and CEO