As banks have increased fees and reduced the number of free checking accounts they offer, credit unions have experienced solid growth in recent years. Since the financial crisis struck in 2008, credit union membership has risen from 88.6 million to 95.2 million, and credit unions now hold more than $1 trillion in assets, according to statistics from the National Association of Federal Credit Unions.
But that growth hasn't prevented credit unions from experiencing many of the same pressures that banks have faced, including a greatly changed regulatory environment and rock-bottom interest rates.
I recently spoke with Dan Berger, president and CEO of the NAFCU, about how credit unions are coping with those challenges. Here are five takeaways.
- Credit unions have largely avoided placing monthly fees on their checking accounts and appear to be sticking to that policy.
"That's kind of what they're known for, is really good consumer products and services, and it's kind of the philosophy that credit unions have," Berger says. "And we really haven't seen a trend amongst our federal credit union members of checking account maintenance fees increasing."
Indeed, in Bankrate's most recent Credit Union Checking Survey, 72 percent of credit union checking accounts were free compared to 39 percent for banks. That's in part because they are owned by credit union members, and that allows them to a take a longer view of member relationships than a member's current account balances, Berger says.
"We have a different philosophy with that," he says. "When they join a credit union, they stay a member of their credit union for their whole life, so they'll start off with a lower-paying job, and we're there for their entire career."
- Credit unions definitely are feeling the squeeze from a long period of low interest rates.
"That affects everything. That affects the credit union members' savings rates and things along those lines, but it does add financial pressures to credit unions," Berger says.
To cope, Berger says many credit unions have had to be more aggressive about growing their lending operations, including mortgages, credit cards and car loans.
- The cost of complying with new regulations is hitting small credit unions hard.
"We're probably losing a credit union a day, and, of course, primarily the smaller ones under $50 million in assets, $100 million in assets," Berger says. "We're just not big banks, we're not Wall Street banks, we don't have dozens of compliance officers. You'd be lucky to have one compliance officer. Sometimes it's the CEO doing it in a three- or four-employee shop. And so the burden's been huge. We've had members trying to add compliance officers. In a low interest-rate environment, you only have so much in earnings out there to dedicate to compliance costs."
- There's a push from banks to remove credit unions' tax-exempt status as nonprofits, but that would have serious consequences for members and businesses who depend on them, says Berger.
"Throughout the crisis, all the banks -- big banks, community banks -- they pulled out and stopped lending when credit unions continued to do so, and that right there is probably the ultimate proof of why credit unions are so valuable to the American consumer," he says.
Losing their nonprofit status would likely result in the end of credit unions as we know them today, potentially making it more difficult for them to play that role in the future.
"They would convert to mutual savings or mutual holding companies. They'd become banks," he says.
- Savers may be getting some relief from low rates soon.
"There seems to be a little bit of an upward tick, but the markets are so volatile right now, it's hard to get a true read on what's occurring right now," Berger says. "I think we're getting a little more indication this year if we can get more clear signs from the (Federal Reserve) on when they're going to start reducing their quantitative easing. There is an uptick, but I just don't know if it's going to hold."
Have you considered switching to a credit union? And if you're already a member, are you satisfied with your credit union?
Follow me on Twitter: @ClaesBell.