Monday

Banks and Credit Unions Fighting for Your Money

Their fight will cost you money.
It's been brewing for years and now it's about to boil over.

Banks have complained for years about credit unions and their ability to offer lower interest rates and better loan terms. Up to recently Banks have been glad many folks just didn't know much about credit unions but it's changing.

Credit unions have been going after the bank's bread and butter by taking bank customers away with offers of no and low fees for practically all the same financial services that banks have "owned" for over a hundred years. And that did it. Banks are fighting back. And it could cost you big money.

When it came to car loans, it used to be that car dealers offered bank financing. Then finance companies worked their way into the lucrative market and car dealers offered both, but quickly realized that they could make more money for themselves with the higher kickback that finance companies would give them. Never mind the fact that the consumer's interest rate on their dealer-arranged loans started getting higher than bank rates too - after all, that extra dealer kickback profit had to come from somewhere, right? It did. It came right out of the customer's pocket in ways few customers knew was happening.

Then along came the credit unions.

Credit unions always had a historically slow and cautious growth in the financial services marketplace, restricted by policies and rules that limited their membership abilities. You had to work at the same place. You had to have a relative who worked there. You had to live in their membership area. Most of that has gone away and you can pretty much join any credit you want to in these times, within some remaining limits.

And that meant that the credit unions had more money to play with. So they looked around and decided there was one place where they could offer lower interest rates and where the financial profits were pretty good for the picking. Car dealers. So they aggressively went after the market, offering to let car dealers sign up new members for them at the same time the car dealer was setting up their purchase loans which, of course, also went through the credit union. Some car dealers even even fronted the credit union's usually $5 joining fee.

Credit unions used their low rates to push loans and new membership partly because they knew that once a new member was "in" the credit union, they frequently started using the credit union for all their financial needs. Checking accounts, small loans, savings accounts, and in some cases even mortgage loans to buy a home or make home improvements.

The Bank's share of the financial services market started eroding more than they could stand. So the banks have been complaining to Congress. Lobbying is more correctly what it's called. And few business have as much money to spend on lobbying as the banks do.

Credit unions have long had the financial advantage of a tax exemption that banks don't have - and banks don't like it. So they are pushing Congress and the White House to end the credit union tax break. They claim that it will help raise tax revenue and make it easier to balance the federal budget. But don't let that fool you. They are after your money and they see a chance to get it back by forcing the credit unions, membership-owned entities, to give up the only advantage they have. Bottom line? The banks want to get rid of the competition or at least "even" it up.

It's easy to make lending mistakes
when you don't know who you are loaning money to.
And what would it mean for you? Money. Big money. Estimates are that the tax exemption enables the credit unions to save over $1.6 billion a year.

There is a fundamental difference between credit unions and banks - credit unions can not legally raise money the same way that banks do. That's because banks are big corporations and the bigger they are the more they gobble up the smaller banks. That's a lesson we saw over the last twenty years, as the local small town banks disappeared as they were taken over, bought out, or just went out of business, one after another. And now we are left with a handful of banks that pretty much run the banking system of the entire country. Does "too big to fail' remind you of the multi-billion dollar Wall Street bailout mess of a few years ago?

And it affects politics too. As the number of banks dwindled during the last 20 years, the political donations from the financial sector increased ten fold.

If the banks have their way, credit unions will disappear. They will have no choice but to technically become banks. Interest rates will raise, local offices likely will shutter their doors.
Little fish always look mighty tasty to bigger fish

And the big fish will once again swallow up all the little fishes that suddenly are turned loose in their financial pond.

What the banks want to do is increase their hold on your money. It was competition that forced many banks to reduce or drop their services fees on checking accounts and overdrafts - which were some of the most profitable parts of their business scheme.

If you want to keep your interest rates low, if you want to be able to go to a financial institution and actually deal face to face with the people who will make the lending decision for you and your family, you better act soon. Tell your US representative and Senator and the White House that you want the credit unions left alone.

Why? Because credit unions are the only alternative financial source you have left. Credits unions work. They save people money.

Burdge Law Office
Helping people help themselves, everyday.