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8 Frequently Asked Questions About Credit Unions

Marcia Frellick

December 22, 2011

Love for credit unions took a big leap in 2011, tripling their popularity over big banks in just one year, according to a national poll of consumers.

The American Customer Satisfaction Index (ACSI) found that customers are more satisfied than ever before with credit unions. The industry’s score improved 8.7 percent to 87 (on a scale of 0 to 100). It was the highest score ever reached by any of ACSI’s 47 industries. The ACSI is a national economic indicator based on 70,000 customer evaluations of products and services available in the United States.Th_credit-union-front

Lower scores for banks follow a year of foreclosures, increased regulations and wildly unpopular fees. Among the four big banks, Wells Fargo again topped the list, but a 6 percent improvement for Citigroup tied it for first at 73. JPMorgan Chase, improved 4 percent to 70 and beat Bank of America at 68.

ACSI Founder Claes Fornell said in a press release: “While it is too early to quantify just how much business the big banks have lost to smaller competitors, the new ACSI data suggest credit unions and smaller banks now have become an even more attractive alternative for consumers.”

Debit fee debacle helped credit unions
This fall saw a flurry of change in the bank/credit union relationship. Bank of America set off a firestorm with its plan to charge customers $5 a month to use their debit cards. Several other big banks tested the waters. The outrage took on a life of its own and by November banks were dropping the debit card fees. Fed-up consumers staged a Bank Transfer Day for Nov. 5 urging people to put their faith in credit unions and smaller banks instead.

Some people started to entertain other options. Amy Stanton, assistant vice president of marketing for Connex Credit Union in North Haven, Conn., says in the last two to three months since the increased media attention they have opened about 100 new checking accounts over the monthly average for the past few years, which represents an increase of about 60 percent for the credit union.

But still, many people are unfamiliar with what credit unions are and how they work. As their popularity surges, it’s time to demystify the concept for those considering switching. Here are eight frequently asked questions about credit unions:

1. What are they?
Credit unions are nonprofit cooperative financial institutions owned by their members and operated for the benefit of their members.

2. How do they work?
They provide many of the same services as banks — checking, savings, mortgages, auto loans, etc. The biggest difference is they’re nonprofit. They can often offer fewer fees and better rates than banks. They generally are exempt from the taxes banks pay and board members are volunteers elected by the membership.

“Instead of paying a board of directors or shareholders, our profits get turned back into the rates we offer which are traditionally better than banks’,” Stanton says.

3. Who can join?
You have to be a member of the group represented. This could be a geographic community, the place where you work, a religion or other group. Connex is a geographically based credit union with seven locations, but the lines blur a bit for membership. For instance, you can be eligible if you don’t live in the three-county surrounding area but work there, or attend school or church there for instance, Stanton says. Credit unions go through the same process as banks of checking your credit to see whether your payment history qualifies you for opening accounts.

4. What’s the difference in approaches?
Credit unions often are able to take a more personal approach, industry experts say. “We will sit down with you and look at your credit report and look at the accounts you have elsewhere and find where we can best help you,” Stanton says.

5. What’s the downside?
Credit unions may not have as many ATMs in your area so it may be harder to get your hands on instant cash. Check this out before you join, says Lauren Saunders, managing attorney for the National Consumer Law Center (NCLC).

Also ask if they are part of a network that allows you to use any ATM in the network without surcharges, Stanton says.

6. Do they charge the same fees as banks?
One thing to watch is overdraft fees, which can be costly just as they are with banks, says Saunders. “A lot of credit unions are dependent on overdraft fee revenues,” she says and there are ways to avoid those fees. The best forms are transfers from your savings account or a traditional interest-based line of credit — the kind you’re not charged a fee for, you just pay an annual percentage rate (APR) and pay it off over time.

“A link to a credit card is better than overdraft fees,” Saunders says.

She says that while most credit unions offer better rates than banks, there are some that offer the equivalent of payday loans — short-term loans with exorbitant interest rates that are meant for people who can’t pay their bills between paychecks but are often described as predatory lending.

The NCLC reported in September that “at least 25 credit unions across the nation are still involved in payday lending, including 14 federal credit unions that are profiting from loans at annual rates ranging from 146 percent to 876 percent, flouting the credit unions’ 18 percent legal interest rate cap.”

7. Are they insured?
Most are, but some are not. Check to make sure they are insured by the National Credit Union Share Insurance Fund, which is similar to the Federal Deposit Insurance Corporation, which covers banks and means your deposits are backed by the full faith and credit of the U.S. government.

8. How should you compare them?
Take advantage of that personal service, Stanton says, and ask them if they can beat the rates on loans you already have. “Say here’s what I’m looking for and what do you have that meets my needs?” she says. “Have them do the heavy lifting.”