Credit unions still riding wave of big-bank backlash

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Ent Federal Credit Union opened this full-service center last year in Woodland Park, further expanding its regional presence.

It has been a good year for Colorado credit unions.

Billed as the alternative to traditional banks, credit unions gained 40,000 members across the state in 2012 and grabbed 26.6 percent of the market.

One national survey released this week says credit unions are riding a wave of customer satisfaction and reached record-high membership in 2012. At the same time, credit unions are working a legislative angle that would allow them to grow even more in small-business lending.

New products and accessibility are some of the reasons for the uptick in membership. But there is no denying that credit unions still are benefiting from a big-bank backlash that started in 2011 over rising fees.

“As more and more people continue to see bank fees increase, more and more will join credit unions,” said Austin De Bey, Mountain West Credit Union Association vice president of legislative affairs.

Credit unions, which are member-owned financial cooperatives, have been around for decades. But last year, the nonprofit financial institutions gained momentum from a nationwide campaign dubbed “Bank Transfer Day,” which called on consumers to move their accounts from commercial banks to credit unions.

The hard feelings toward banks began after Bank of America announced it planned to charge a $5 monthly debit card fee. The bank dropped the fee idea after a roar of customer outrage; other major banks, including JPMorgan Chase & Co. and Wells Fargo & Co., canceled similar plans.

“People got frustrated, they started researching things, and good for them,” said Karin Kovalovsky, Aventa Credit Union director of marketing and corporate communications. “And that’s where we stepped up.”

Credit unions compete

Credit unions are part of a network that allows members to use any credit union’s ATM machine with no fee. And those fees matter, according to the Dec. 11 American Customer Satisfaction Index. In 2011, consumers were charged $30 billion in bank overdraft fees.

“When everything came crashing down with the economy, people losing jobs and having to watch their dollars, they decided, ‘I need to see where my money is going,’” Kovalovsky said.

While credit unions are popular in Colorado, they account for just 6.6 percent of the market share in the country with about $972 billion in assets compared to banks, which have 93 percent market share and $13.8 trillion in assets.

This year, banks saw a 2.7 percent increase in customer satisfaction regarding savings, checking and loan services, according to the ACSI survey. The report suggested the rating went up because dissatisfied customers left the banks.

But the report also noted that as membership in credit unions grew in 2012, their customer satisfaction dipped by 5.7 percent, which might suggest credit unions are growing too fast, the ACSI report said.

Ent Federal Credit Union, which has grown membership by 5 percent so far this year, is not worried about growth, said Cathy Grossman, vice president of corporate communications and development.

“The growth rate has been a good growth rate — we don’t want to grow for growth’s sake,” Grossman said. “We are growing to meet the needs of the community — and there is going to be continued growth.”

Today, more than 1.5 million Coloradans are credit union members, according to the Mountain West Credit Union Association. Credit unions serve a variety of memberships. For example, Aventa has 20,000 members, primarily city, police, fire and utilities employees. Ent is a community credit union and its 221,307 members only have to live within their chartered service area — El Paso, Teller, Pueblo counties and a few areas in Denver.

Credit unions are organized differently from banks, part of the reason for their nonprofit status. Though exempt from federal income tax, credit unions are responsible for paying property and sales taxes.

No doubt credit unions are being noticed now because of the negative feelings over banking fees, Grossman said. But it’s a good time for credit unions to tout their services — business and personal finances. Credit unions have invested in mobile apps and online banking services to keep up with the modern times, but also pride themselves on providing education and seminars for members.

Small business products

Bank Transfer Day 2011 put a spotlight on credit unions and showed consumers that credit unions are not just for military members, De Bey said. Credit unions, for example, have a history of making business loans. Over the years, consumers didn’t think of credit unions as their go-to business loan lender, he said.

“Then credit markets dried up for them, so credit unions have been an alternative — we’ve been seeing a huge influx of small-business loan growth,” De Bey said.

Nationwide, small-business loans by credit unions are up 45 percent in 2012 over 2011, he said.

The average size of a credit union small-business loan in Colorado is $246,000. Not all credit unions offer small-business loans, but De Bey hopes the U.S. Senate will vote by year’s end on a proposal to lift caps on credit unions’ small-business loans and free up as much as $260 million in Colorado.

In Colorado there are 98 credit unions with about $15.8 billion in assets. Sen. Mark Udall (D-Colo.) is calling for Congress to raise the lending cap for credit unions from 12.25 percent to 27.5 percent of assets. Credit unions across the country are projecting that, if approved, the bill could provide $10 to $12 billion in additional loans to small businesses.

“I think there is no question that members of Congress know helping small business is critical,” De Bey said. “There is no better time for that.”

But the controversial bill is opposed by some credit unions and by the American Bankers Association, which calls it a move by tax-exempt institutions to “cherry-pick existing loans from taxpaying community banks.” The legislation also is opposed by state groups including the Colorado Bankers Association.

Despite banks’ opposition to the legislation, De Bey believes membership in credit unions will continue to rise. Consumers like the idea of ownership, he says. In January, Ent distributed $10 million in dividends to its members — each member received from $25 to $1,000 depending on use of Ent’s products and services in 2011.

“The philosophy toward banking is changing,” De Bey said. “It now allows for healthy competition.”

One Response to Credit unions still riding wave of big-bank backlash

  1. Great article Monica. Thank you for the numbers and information. I will be reading more articles from this business journal now!

    Donald Huish
    December 14, 2012 at 12:15 pm