Economy

Move Your Money, But Don't Forget About Credit Unions

Banking behemoths don't deserve your business. But your local credit union could be the right financial fit.

Horrific news surrounding the too-big-to-fail banks continues to march onward into absurdity. A rapacious Bank of America forecloseson a house that's already paid for. Goldman Sachs hides Greece's hundreds of billions in debt until the entire country is a toxic asset to the global economy. Henry Paulson baldly admitsthat his tenure as Goldman Sachs' CEO helped him rob American taxpayers of trillions. Media, political and financial hypocrites hilariously continue to insist that homeowners shouldn't walk awayfrom underwater mortgages as banks walk awaywith cash stuffed in their high-end underwear. The frustrated public would laugh, but it'd have to pull the financial gun out of its mouth first.  

So it is with predictable Newtonian blowback that a move-your-money zeitgeist has taken hold, thanks to AlterNet's reality-based effortsas well as those of theHuffington Postand others. Yet those clarion calls for the public to transfer its cash away from grifters like Bank of America have thus far excluded the responsible and productive credit unions that serve our economy on a non-profit basis. Closing your account with a predatory behemoth is good, and there are indeed plenty of for-profit community banks out there (like the bank portrayed in It's a Wonderful Life)that would make a good home for your paychecks. But the right credit unions can provide even more punch to your pocketbook.

"Credit unions have an entirely different motivation than banks for doing business," says Patrick Keefe, spokesperson for the Credit Union National Association. "Banks are in business to maximize profit for their shareholders. Credit unions, on the other hand, are not for profit and owned by their members -- who typically belong to the credit union to obtain financial services, and affordable ones at that. So, credit unions are in business to maximize service to their member owners." 

The blueprint is simple enough. Credit unions pool their resources to offer inviting interest rates and lower fees to their members. As of September 2009, over 78 cents of every $1 credit unions held in savings was out in loans to members. The remaining 22 cents goes into bedrock-safe investments—federally insured deposits and government bonds. Nothing gets pissed away in pointless bonuses, and nothing gets invested in the Wall Street securities casino. As a result, credit unions offer better rates than banks at both ends of the spectrum—deposit accounts that pay more, and loans that cost less.

Unlike conventional banks—which thanks to the Clinton-era repeal of the Glass-Steagall Act, have been allowed to merge their investment arms to more completely fleece customers by skimming cash off the top of every transaction and funneling their money into economically damaging activities—credit unions are cooperative entitiesthat don't hide behind labyrinthine legalese or gotcha fees.

Credit unions enjoy tax breaks as a result of their non-profit status, and those tax breaks come with some strings attached. There are significant restrictions on who can join what credit union. A New Yorker may not be able to join a credit union headquartered in San Francisco. But somewhere in your community, there is a credit union that would welcome you with open arms.

"Long story short, not everybody can join any credit union," Keefe said, "but everybody can join a credit union." 

"You can’t just walk into any credit union, plunk down some coin, and become a member," he added. "All credit unions have membership eligibility requirements, which are typically based on some sort of common bond among the members: Employees of the same organization (or organizations), members of the same social group, parishioners of a church, or residents of a well-defined geographic area, among other things. But all residents of a certain municipality, under community credit union chartering rules, could be eligible for membership in a particular credit union." 

Just about anything is better than getting hosed by the thieves at Bank of America, J.P. Morgan Chase or Wells Fargo. From exorbitant credit and banking fees to financial malfeasance, once-popular banking behemoths have become economic non-starters. They'll never really make you any money, unless you've got enough loot to play at the winners' table, which is littered with inscrutable derivatives, instruments and other Ph.D.-worthy stratagems designed to shake down everyone without an MBA.

"We're not going to endorse or not endorse the move-your-money campaigns, because it's not what we do," the Center for Responsible Lending's Kathleen Day told AlterNet. "But we do think people should ask whether they are happy with the financial services they have, including their overdraft fees, and whether or not they can get a less expensive alternative. They should look at the whole spectrum." 

That spectrum includes credit unions' community-minded instincts. Credit unions' most open membership criteria is municipality, a term in which the citizen and state meet in pursuit of duty and freedom. As the total collapse of the too-big-to-fail banking system proved, the 21st century is no longer a charade about the biggest and the best, but a movement toward reconnecting to the real-time locales we call home. Credit unions are just that type of municipal overmind, with investment as lifeblood. 

Which is probably why credit unions are pushing two congressional billsthat would allow them to more than double the percentage of their assets dedicated to small business loans. Unlike the too-big-to-fail banks, credit unions have spent much of the econopocalypse rescuing small businesses, as well as their members. For nearly all of 2009, credit unions upped small business lending by 11 percent, while their more corrupt competitors pulled back by 15 percent, even as they continued to dole out bonus millions for earnings reports stuffed with billions in losses.  

That's not to say that credit unions are pure, sparkling exceptions without spotted histories of their own. "There are credit unions that have bad practices too," Day said, "because there are bad practices across the spectrum. But they didn't get into derivatives as much, as that's not the pool in which they generally swim. And a lot of community banks didn't either, although some exact overdraft fees just like the big banks." 

About 47 percent of credit unions charge overdraft fees on checking accounts, with an additional 5 percent providing overdraft protection free of charge. That's still a significant source of income for credit unions—nearly 45 percentof the service charges credit unions extracted from their customers in 2008-2009—but not on the same scope as what banks reaped from the practice. Over three-quartersof commercial banks' service charges were overdraft fees. In total, banks yanked the public for almost $40 billionin overdraft charges in 2009, a record high and nearly double the $20 billion it got shanked for credit card fees. To put that number in context, the entire banking industry's combined profit for 2009 was just $12.5 billion.

"People are angry about what happened," Day said. "And if that makes them savvier shoppers, so much the better. The person on the other side of the desk at your financial services organization may not be looking out for your best interest. So if there is a silver lining to all of this, in addition to assessing whether or not financial services providers are looking out for their own best interests, it is that the people are voicing their concerns with elected officials. The banking industry is by far the largest contributor to Congress." 

Knowing where and how its money flows is a critical mission for the citizenry as the financial meltdown continues to unravel in America, Greeceand places yet to be discovered. Until then, revenue should be safely stowed, away from preying hands, prying eyes and a new century that will look nothing at all like the last one. Credit unions are federally insured, highly rated, better capitalized and "well-positioned to deal with times of economic crisis, as they have been doing," said Keefe. Once the convenience the big banks offer more fully metamorphoses into obviously callous harassment and usury, the citizenry could change its mind, and probably its life, by annulling its financial marriage to nowhere.  

"Time will tell," said Keefe. "For many people, it’s a matter of convenience. Credit unions have taken their lumps, but the majority have been doing quite well. Their reserves bolstered them through the toughest times of the collapse. Now, money is flowing in and lending is picking up."

Scott Thill runs the online mag Morphizm.com. His writing has appeared on Salon, XLR8R, All Music Guide, Wired and others.