The Art of Business
Alternative Banking: Credit Unions

"Not for profit, not for charity, but for service." Not something you normally expect to hear from a financial institution. But, if you bank at a credit union, that's a motto you're likely to see somewhere. And it seems that credit unions are doing a pretty impressive job of providing service: They have been rated number one in customer satisfaction at financial institutions for the last 10 years, according to an annual survey conducted by Gallup for American Banker, a financial services newspaper.

What exactly is a credit union anyway?
These days, most people who use credit unions think of them as "the bank." Credit unions generally provide a full range of financial services from savings accounts to mortgages, with some of them even venturing into insurance and brokering. The main difference is described in the motto: they're non-profit and they are cooperatives, not corporations. What that means is that everyone who deposits money at a credit union owns a share of it. It also means that any profits earned by the credit union are used to benefit members, rather than being paid out to stockholders. This practice results in lower loan and credit card rates, higher interest on savings and checking accounts (called shareholder and share draft accounts, respectively), and low or no fees for services.
Credit unions are chartered to serve a defined group (a "Field of Membership"). These groups can be employees of a certain company or trade, or residents of a limited geographic area, or even an ethnic or religious group.

For example, the Self-Reliance New York Federal Credit Union in Kerhonkson serves American Ukrainians who belong to an organization called the Self-Reliance Ukrainian American Association. The Department of Transportation Federal Credit Union serves not only employees of the DOT, but a wide variety of other state workers, such as the NY State Police, NY State Thruway, as well as some local companies.

Two of the largest local credit unions, Hudson Valley Federal and Mid-Hudson Valley Federal, were started by IBM employees but now serve employees of a wide variety of area companies.

There is currently a trend towards broader fields of membership, with many credit unions applying for changes to their charters to allow them to serve members of the geographical community rather than just employee groups. Approximately 60 percent of Americans are eligible to join a credit union (though only two percent of household assets are held by credit unions, according to Federal Reserve data).

Credit unions have paid staff and management, much the same as banks. A key difference is in the board of directors, which is elected from the membership and serves on a volunteer basis. What that means is that every member of a credit union has a chance to be involved in its management. In addition to serving on the board, many credit unions have functional committees, such as a Community Relations Committee, that are also staffed by member-volunteers.

Of the Community, for the Community
Another hallmark of credit unions is community service. Credit unions strive to benefit the communities in which they exist. While many local banks are tremendously active supporters of community businesses and civic and charitable organizations, credit unions have a stated goal that emphasizes volunteerism and service as a key part of what they do.
"We feel we need to give back to all of the communities we're in. Without the communities, we don't exist," says Lil Ackerman, VP of marketing and public relations at TEG Federal Credit Union, based in Poughkeepsie. "We don't go for the single big donation that gets your name in the paper, we give something to each of the towns we're in." Their name says it all: TEG stands for Together Everyone Grows. Among the programs that TEG sponsors are School Savers, which teaches elementary school students to run their own little credit union-taking deposits, stamping and processing, and balancing the end of the day. And TEG is in the process of setting up a virtual credit union at BOCES as part of the accounting academic curriculum.

Nan Greenwood, director of marketing of the Mid-Hudson Valley Federal Credit Union, describes the employees as being deeply involved with the community. "Not only are they given time off for their community service," she says, "they are encouraged to do as much as they can. The staff really gets behind the fundraising efforts-last year, as just one example, they raised over $15,000 for the National Cancer Society Relay for Life."

At the Ulster Federal Credit Union, each of the volunteer board members chooses a local community organization to be affiliated with. Board members serve at such organizations as Kiwanis, Rotary, Girls Scouts, and Gateway Industries. Furthermore, employees actively fund-raise for a wide variety of charitable causes, including Parents for Patients, Juvenile Diabetes Fund, and the Children's Home of Kingston.

Cooperative Heritage
The precursors to modern credit unions began in Germany in the mid-19th century: "societies" founded by people of limited means who were not attractive to banks as customers. Members pooled what capital they had in order to make loans to each other at reasonable rates.

By the early 20th century the credit union movement had made its way across the ocean, with credit unions first being established in Quebec in 1901 and then moving down to New England and New York. By the '20s, state and federal regulatory bodies were being formed to insure standard procedures and good bookkeeping practice were followed.
There are currently about 10,000 credit unions nationwide that represent over 80 million members with deposits of over $500 billion. In New York state alone there are almost 4 million people who bank at credit unions.

Tax Free
Because credit unions are not-for-profit, they also do not pay the same taxes as banks, further reducing their costs. This was less of an issue to banks when eligibility to join credit unions was more limited, but as the definitions of fields of membership have expanded, the efforts to curtail them have become more intense. Banks are waging a battle to level the playing field by subjecting credit unions to the same regulations and taxation that apply to them.

Lil Ackerman, who has experience at both banks and credit unions, believes that it's inevitable that credit unions will be subject to the same taxation as banks. "But," she emphasizes, "as long as credit unions continue to serve their member shareholders instead of stockholders and a paid board of directors, there will still be important differences."

Federally Regulated and Insured
Though these cooperatives are all community based, they are well regulated. Almost all federally-chartered credit unions are members of the Credit Union National Association (CUNA) and a state group, such as the New York State Credit Union League. These organizations serve as trade associations, providing education, information on new products and technology, as well as support and guidance.

The National Credit Union Administration (NCUA) is an independent federal agency that supervises all federal and some state credit unions. Much like the FDIC insures bank accounts, the NCUA insures shareholders in credit unions for up to $100,000.

Buy Yourself a Bank
As they expand their fields of membership and services offered, credit unions are becoming a more popular alternative to banking at mega corporations. So, when someone asks you, "Hey, do you own a bank?" If you bank at a credit union the answer could be…"Why yes, I do."

-Amanda Bader