Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=222648
Story Retrieval Date: 12/22/2014 8:13:52 AM CST
People wary of banks and searching for better interest rates have been moving toward credit unions like Chicago’s First Financial Credit Union. First Financial, mirroring a national trend, has increased deposits, loans, and members over the last five years, right through the recession.
“We never got into the collateralized mortgage obligations,” First Financial Credit Union Chief Executive Officer Patrick Basler said in an interview, referring to the financial instruments that helped crash the nation’s economy in 2008.
FFCU was formed in 1936 as Teletype Employees Credit Union, a financial institution for the employees of AT&T Teletype Corp. It received its charter from the state of Illinois in 1971, becoming First Financial Credit Union in 2000. All deposits up to $250,000 are insured by the National Credit Union Administration; that's the same coverage provided by the Federal Deposit Insurance Corp. for banks and thrift institutions.
FFCU has seven branches in the Chicago metropolitan area. Like all credit unions, its membership is restricted by state and federal laws. Under the Illinois Credit Union Act, a member of FFCU is either someone in the credit union’s select employee groups, or living in the Chicago-suburban zone bounded by Dempster Avenue on the north, Ridge Avenue on the east, Irving Park Road on the south, and Highway 294 on the west; or, a member may be someone who is a blood relative or spouse of a member.
Among eligible company groups are employees of S & C Electric Co. which has units across the U.S. and in Asia, Europe, and Mexico, and employees of Advocate Lutheran General Hospital in suburban Park Ridge.
According to Jordan Modell, chief executive officer of Internet Credit Union in New Jersey, three features make credit unions attractive to consumers and thus competitive with banks. First, credit unions are built around its members, not around investors, and as such are not-for-profit. Second, credit unions have lower overhead costs; since they have fewer branches, they have less upkeep and maintenance. Third, there is “total camaraderie amongst credit unions. . . . We’re the ‘It’s a Wonderful Life’ institution,” Modell said in an interview.
According to Basler, every person who has at least $5 in a savings account at FFCU is a member, and as a member, is eligible to serve on the board of directors and to vote on agenda items at the credit union’s annual meeting.
“You think of a bank structure, and you can have a shareholder who sits on the board of directors making decision on fees, but they don’t have an account at the bank,” Basler suggested.
FFCU continued to increase its deposits and loans in the first quarter of 2013. Deposits grew 5.5 percent to $57.9 million from the year-earlier $54.9 million; its loans increased 18.6 percent to $38.4 million from the 2012 quarter’s $32.4 million.
Ninety percent of FFCU’s deposits are personal, not business, Basler said.
Credit unions deposits and loans have been increasing as well. In the fourth quarter 2012, which are the most recent figures available, credit union members increased by more than 2 million from 2011; total loans approached $600 billion; and total deposits were almost $878 million. Every year since 2007, through the recession, credit unions have increased their members, loans, and deposits.
“I’ve had bad experiences with different banks, and my wife heard good things about this credit union, so we decided to come here,” Sam Brown, a customer who joined FFCU in May 2013, said in an interview immediately after making his first deposit.
According to the Northwestern University Kellogg School of Management’s Financial Trust Index of February 2013, only 28 percent of Americans trust national banks, 56 percent trust local banks, and 62 percent trust credit unions.
“People are reacting negatively to the fees and discovering credit unions are their best choice,” senior economist Mike Schenk at the Credit Union National Association said in an interview.
The exclusivity and not for profit aspects of credit unions are in part what drives their conservative business model. FFCU is typical of credit unions with its better consumer interest rates, although credit unions do not use the same terminology as a bank to refer to interest payments on savings accounts.
Instead, the industry uses the term dividends. This is because each depositor in a credit union is a shareholder and has a stake in ownership of the credit union.
FFCU offers higher yielding accounts; its interest rates on certificates of deposit are higher than the typical major bank. FFCU pays 0.25 percent on deposits of at least $1,000 for at least 1-year; its rate on 4-year CD’s with a minimum balance of $5,000 are 1 percent. Bank of America’s highest interest rate on any of its CD’s is 0.45 percent.
Members of FFCU earn a 5 percent yield up to $2,500 for a checking account provided the customer uses his or her debit card at least 15 times a month and forgoes printed monthly statements.The highest yield on a checking account that Bank of America offers is 0.03 percent.
When it comes to consumer credit, FFCU’s auto loans at 2.99 percent are actually higher than Bank of America’s 2.24 percent; however, FFCU’s credit card interest rate on balances is 8 percent, while Bank of America’s credit cards range between 11 percent and 22 percent on balances from purchases.
FFCU’s home mortgage loans vary according to many factors like credit score and purchase price. In general though, mortgages offered by credit unions have a higher interest rate. According to Amir Syed, a private mortgage banker with Perl Mortgage Inc., based in Chicago, the reason is that mega banks like JP Morgan or Bank of America repackage those mortgage loans into collateralized debt obligations and sell them, freeing up the funds for future mortgage loans, something credit unions do not do.
Consumers seeking a mortgage loan on a condominium are more likely to get one from a credit union because of condo association restrictions affecting the sale of mortgage loans, as CDO’s, according to Syed.
However, according to Rohit Arora, chief executive officer of Biz2Credit.com, a company that works with credit unions to increase efficiency, if credit unions do not make offer more services and the newest technologies, they will not remain competitive.
Small business owners moved to credit unions due to “destruction in the marketplace” following the 2008 recession, according to Arora; but he warns credit unions will lose that business if they do not make it easier for small business to obtain loans.
One of the ways Arora helps credit unions maximize their loans is by utilizing electronic banking instead of walking into a credit union and and filling out a written application form.
By law, credit unions can loan up to 12.5 percent of their assets. Bills in Congress would push that limit to 25 percent.
“As banks start coming back, banks, while not being able to offer better rates, can offer better services,” he said.
In 2012, FFCU opened its main branch on Peterson Avenue in Chicago and now offers mobile and electronic banking options.
“This year, we’re going to make sure our delivery channels to our members are as good as they can be. Nowadays with mobile apps and other technology, the game is way different that it was, even two or three years ago, so consumers have high demands now,” Basler said.
“We’re stable financially; we’re looking to grow moderately,” he said.