When I started researching tonight's story back in February, I put in calls to a number of local credit unions. I wanted to see what they had to say, since south Florida is one of the nation's most foreclosure-prone regions. One call I made at the time was to Eastern Financial Florida Credit Union, one of the largest credit unions in the country, but no one there ever returned my call. A few months later, I found out why: Eastern Financial became insolvent and had to be rescued by state and federal regulators in April.
Then, in late June, the Credit Union Times broke a story about the exposure of credit unions to the so-called "exotic" mortgages that have gotten so many homeowners into foreclosure trouble. It turns out Eastern Financial made that unfortunate list too, having written $156 million in exotic mortgages to members.
I'm not trying to pick on Eastern Financial, but its story does illustrate the extent to which the nation's real-estate woes have penetrated our financial institutions. Credit unions are, by definition, non-profit institutions. Unlike banks, credit unions are supposed to be insulated from the pressures of deriving ever-higher profits. Profit-pressure is what drove so many banks to lower their lending standards and persuade thousands of Americans to sign up for mortgages on homes which are now in foreclosure. Yet it turns out that being non-profit was not enough to keep credit unions from venturing into the same dangerous territory.
So far, the damage - in terms of outright failures - is low. Only three credit unions have had to be rescued in 2009 (besides Eastern Financial, the other two were US Central Federal Credit Union and Western Corporate Credit Union. The rescues were performed by the National Credit Union Administration, an independent federal agency). By comparison, 45 banks have failed and needed rescue by the Federal Deposit Insurance Corporation, or FDIC.
Still, some will argue that, given their non-profit nature, credit unions shouldn't be suffering any failures. That thought leads to a final question: Should credit unions be subject to stiffer federal oversight, like the nation's banks? That will be a fight played out in the halls of Congress for some time to come.
Comments
I wonder if my local credit union of Denver had any issues.
Credit unions are non-profit??? How do you think they get the funds to pay dividends to their depositers/shareholders? While they may be exempt from paying income tax the only way they can generate funds to pay dividends is by having income exceed expenses. So they're really not much different from for-profit banking institutions in that regard.
Where they are different is in the fact that their depositer/shareholders are considered "members." That means there's more pressure on them to provide equal to or better than market returns and rates. If they can't the member goes elsewhere.
So there shouldn't be any surprise that credit unions have the same problems as regular banks. In fact we should expect that their problems are greater because they operate on lower volume and tighter margins.
I've belonged to 2 local credit unions. I feel that their service has declined in the last few years and that is a shame. It looks like they are following the banks by choosing to nickel and dime their customer/members. Two years ago, the one that held my mortgage made a grave mistake on my account. No one would take responsibility. I wrote a detailed letter to the board but they would not take any action to hold the manager accountable. She had succeeded an excellent person. It took me a while but I left that one. The other one I deal with has made numerous mistakes, all minor but they add up. Now they have decided to nickel and dime the members, I have given notice that I will be moving away. But it is something that takes considerable time and effort. In general, the idea of credit unions is good but they seem to have moved away from their charters. Being a member doesn't seem to mean much anymore. And I could find no central place to complain to. If you know of such a place, please post that.
How are Credit Unions more regulated than banks?
Do they pay taxes?
The one I deal with service is poor!
Credit Unions are not-for-profit and serve a vital role in our nation’s economy. The credit union industry’s 150-year standing motto of “people helping people” is as true today as it was generations ago. While historically focused on the ‘less fortunate’ and ‘under served’, credit unions are owned not by wealthy share holders who may or may not conduct any business with the financial institution, but instead are owned by the people who do business with and have money invested in the financial institution through shares (checking accounts), loans and certificates – what a novel idea! Since credit unions are owned by their members, they are not concerned with squeezing every last bit of profit from their customers through excessive fees, higher rates and selective business practices. They are concerned with helping every member gain and prosper equally from the financial institution’s success. Who better to gain from a financial institution’s success than those who enable the financial institution to succeed? The few credit union failures that have unfortunately occurred are not due to credit union mistakes or greed, but are due to the under regulated financial services industry (e.g. derivatives) which sent the entire world into an economic tailspin that has seen trillions of dollars evaporate. The industry doesn’t need to tax credit unions; the industry needs proper oversight and strict regulations to help protect everyone from those whose only purpose in life is to make as much money as humanly possible, no matter consequence or risk.