Want
To Stick It To The Banks? Join A Credit Union - Doing It
American Way
18 December 2009
By Dave Lindorff
A few months ago, like many struggling Americans, I
had my credit line frozen at my local bank. I hadn’t
done anything wrong, and have always paid my monthly
installment payment on time, but I learned from a bank
employee at the institution, which had once been a
small family-owned operation but had earlier this year
been acquired by a regional bank, that most of the
bank’s home-equity lines of credit were being
similarly frozen and “reviewed” because the bank had
lent a lot of money to a housing development that was
underwater and facing bankruptcy. I was told I could
simply apply for a new credit line, and pay off the
old one, but there was a hitch: I’d be paying almost
3% more per month in interest than with the old loan.
More recently, I went in to the bank with a check I
had just received, a bit late, from a magazine for
which I write regularly. Because the payment was late,
so were some of my bills, so I asked a bank officer,
as I had occasionally done over the years, to okay the
check for immediate credit as a courtesy, which would
allow me to pay those bills. I was turned down. “We
don’t offer that service anymore,” he said. “Your
check has to clear, which could take two days.” When I
pointed out that what I wanted to pay was my mortgage,
which was owed to the same bank, and that the money,
in any case, would be in the bank’s hands either way,
he said, “Sorry, that’s our policy.” The final blow
came when I learned that some company in China had
accessed my account, pulling out first a few pennies
in two trial electronic transactions, and then
hundreds of dollars. The bank put a stop to the
problem when I notified them, but it took a month for
them to refund me my money, even though the fraud
should have been spotted by them right away, and it
was the bank’s fault, not mine.
Fed up with all these rip-offs, I went looking for an
alternative, and happily found one: a local credit
union, in this case one called Freedom Credit Union.
Walk into Freedom Credit Union’s office and you
immediately sense that something’s different. The
staff members are relaxed. There’s a friendly play
area full of toys for little kids. There are also
lavatories right off the lobby (when is the last time
you saw a bank that had rest rooms for its
customers?).
Signing up for several accounts, my wife and I were
told that we could have savings/checking accounts
which, with one account number, allowed us to
instantly transfer money within the account from one
classification—savings, which carries a higher
interest rate—to free and interest-paying checking, in
order to cover payments, while specifying that any
auto-deposits go directly into savings to earn the
higher interest rate. Overdraft protection from other
accounts was free (versus $15 per covered transaction
at my bank). We were provided with large boxes of
checks for our accounts at no charge, too.
We were also issued debit cards, and told that they
would be free at any credit union ATM in the
country—not just Freedom’s ATMs, but any credit
union’s ATM. (Many credit unions also refund any
charges if you use a bank ATM and get socked with a
charge.)
We didn’t have to be part of any particular
organization to join Freedom Credit Union. Like many
credit unions, membership (and when you join a credit
union, you become a part owner) is open to all. And
our deposits are insured, as at a bank, for up to
$250,000 per account, by the National Credit Union
Agency, a government body.
Then we asked about getting a credit line. Here we got
a particularly pleasant surprise, given of what our
bank has been doing, and because of what I’ve been
reading about how banks are pulling back on lending,
even refusing to allow people to refinance mortgages
at current lower rates, and generally being grudging
about making loans. Apparently not so at credit
unions. The loan office at Freedom Credit Union sent
out an appraiser to look at our house within days of
receiving our initial loan application, and has
already called twice to ask if I was having any
problem filling out the full application.
President Obama recently had to call bankers to the
White House to plead with them to start lending
(unsuccessfully, it appears), but here’s my credit
union begging me to finish filling out my loan
application, and this for a loan that will be at a
rate more than 1% lower than what my bank was
offering!
No wonder the banks have been trying, ever since
President Franklin Roosevelt signed into law the
Credit Union Act of 1934, to crush credit unions,
claiming that their tax exempt status (credit unions
are all non-for-profit institutions) gives them an
“unfair” advantage. Happily, so far they’ve failed in
this unrelenting effort. Meanwhile, it’s not really
the tax break that explains why banks had to be bailed
out, like savings & loan institutions before them,
while credit unions have never been put in such a
situation: Credit unions never got caught up in the
sub-prime scandal, or got involved in trading in CDOs.
(Well, two corporate credit unions that handle short
term cash on hand for ordinary member-owned credit
unions did get burned by sub-prime investments, but
didn’t need any federal bailout money.) Furthermore,
as membership institutions, even in hard times they
have tended to put their members first. Here is what a
report by CUNA advised its member credit unions at the
onset of the financial crisis: “Credit unions should
not find it necessary to penalize members with higher
loan rates, more and higher fees, lower dividend
rates, service cutbacks or layoffs just to keep net
income from falling for a year or two.” Try to find a
bank or bank organization urging the same kind of
action on behalf of bank customers. Instead, they’ve
famously been jacking loan rates, raising fees and
inventing new ones, and cutting service. Pat Keefe, a
credit union industry spokesman notes that credit
unions have been experiencing a “huge inflow” of
savings from members since the crisis began, and says
loans have fallen off, not because credit unions have
pulled back on lending, but because demand is down as
people try to reduce debt. Interestingly, demand for
business loans is up, but credit unions are limited by
statute to no more than 12.5 % of lending going to
businesses—a cap that the industry is trying, against
stiff resistance from the banking lobby, to have
Congress raise to 25%.
And no wonder 90 million Americans are already using
credit unions. At a time when the interest rate on a
30-year mortgage at a typical bank is 5.58%, it’s
5.44% at credit unions. At a time that bank interest
on savings accounts is averaging .44%, it’s .68% at
credit unions. At a time that bank CDs are paying an
average of .62%, credit unions are paying 1.22%, or
almost double. And at a time used car loans at a bank
cost 7.5%, credit unions are charging 5.72%. Credit
card interest is generally about 1% lower, too, with
no fees, and most credit unions don’t hit you with a
penalty for just one late payment on a card balance
(compare that to bank credit cards which can charge
late payment fees of $25-50, plus finance charges on
the overdue balance, and often will also substantially
jack your future interest rate on balances to usurious
levels). Clearly, the number of credit union members
should be a lot higher than it is, especially these
days, but I guess it’s hard for credit unions to
compete with the advertising budgets of the banks.
Either that or Americans are just financial
masochists.
My advice, though, is to stop grumbling about your
bank, and about all those obscene fees, charges and
the bad service you get, and just do a little research
and switch to a local credit union. It’s not just that
you’ll save money, be happier (and be able to relieve
yourself if the need arises while you’re doing your
financial business), but in a small way, you’ll be
doing your part to stick it to the banks.
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