The big credit union crunch
With new services and wider reach, they're drawing fire from the banks
The burgers in buttered buns at the two Culver's restaurants in Eau Claire, Wis., may be yummy, but the borrowing practices of the eateries' owner, Bob Parsons, leave a sour taste in the mouths of many bankers. When he has needed money for equipment and other expenses, Parsons has gone to one of the city's nonprofit member-owned credit unions, borrowing about $1.5 million over the past 10 years. "The rates are better than at banks, and the credit union people were very willing to work with us," he says. To bankers, however, this is an example of expansion-hungry credit unions parlaying their tax-exempt status to undercut banks. Bankers are in the midst of trying to rally congressional and regulatory support to stop them.
Critics complain that the credit unions' push into commercial loans and other financial services warps their historic mission of facilitating small personal loans and savings among a limited group of affiliated members. Offered to many of today's 84 million members are credit cards, mortgages, home equity loans, business lending, checking accounts, use of global ATM networks, and even access to mutual funds, insurance, and other financial services--not to mention low-cost auto and personal loans and federally insured savings accounts that typically pay more than at banks.
Big is better. Forget that tiny credit union in the corner of a plant or office. It still exists, but big, diverse institutions now dominate. Deposits at the largest can top $1 billion, and even at smaller ones membership may be open to almost anyone. Three Rivers Federal Credit Union in Fort Wayne, Ind., for example, won approval from regulators this year to accept as members anyone living, working, worshiping, volunteering, or attending school in the area's seven counties. "The larger the membership, the more stable we can be, and the more services we can provide," says President Jeff Meyer.
Credit union officials say such fast-spreading community charters are vital for survival. Three Rivers, for example, was formed in 1935 to serve local International Harvester workers. But as Harvester curtailed operations, Three Rivers began to recruit members at an array of employers. "Had we not done so, we would no longer be in existence," says Meyer.
Even credit unions that haven't suffered a setback are broadening. Membership in CorePlus Federal Credit Union in Norwich, Conn., begun almost 70 years ago with 27 teachers, has grown to 18,500, including teachers from several districts, hospital workers, and telephone employees. Now, with a new community charter, President Warren Scholl says CorePlus will no longer have to turn away other potential members.
Credit unions still account for only 6.3 percent of overall banking industry assets and fewer than 3 percent of credit cards, 2 percent of home mortgages, and 18 percent of auto loans, according to consultant Callahan & Associates. Only about 2 percent of loans are to businesses, and these average a modest $120,000, say credit union officials. Even though credit unions have grown, banks have grown faster, says Callahan President Chip Filson.
And growth can be elusive. Clients at the New World Federal Credit Union in Lafayette, Calif., fell from almost 4,000 to about 1,400 following the shutdown of Carnation Milk facilities it serviced. It now has a community charter to sign up members from five towns, but it is struggling. "We don't have money to advertise much, so nobody knows we are here," says President Pat Wagner.
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