#5756 - 05/02/0511:28 AMRe: What makes a credit union a credit union?
Ix Chel
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Registered: 08/10/04
Posts: 2742
Loc: En la Isla Mujeres
Well, I cannot believe that I am the first one to jump in on this. Anon - you are going to receive all sorts of answers on this and most will say that there is not much (if any) difference. Since I happen to work for a credit union, I will present my side first.
Credit Unions were originally developed to help out employee groups in small communities to gain financing when it had been very difficult to obtain. Nowadays, financing is not as difficult and credit unions have evolved with the changing markets. We are non-profit groups which means that we do not have to pay taxes. We are able to pay back the profits of the year in the form of lower rates, higher dividends, and creative financing options that we may not have otherwise been able to offer. We service both employer groups and the community at large.
Now it is time for the banks to chime in...
_________________________ If A = success, A = X + Y + Z, X = work. Y = play. Z = keep your mouth shut. Alfred Einstein
Banks are owned by stockholders, and are operated for the purpose of earning money to pay to the stockholders. (Please don't think I'm saying there's anything wrong with that!) The depositor/borrower of a bank is a customer, nothing more. The stockholders elect a board of directors to oversee the management, and generally pay the board for that work. A stockholder's voting power depends on how many shares of stock he/she holds.
Credit unions are non-profit cooperatives, and as such are "owned" by the members (i.e. the depositors). The members elect directors to oversee management, and directors are generally not compensated for this service. Members each have one vote.
Banks can raise capital by selling more stock.
Because they can't issue stock or bonds, the only way for credit unions to raise capital is by retaining earnings. Because they are nonprofit cooperatives, they don't pay income taxes, but do pay property tax and employment taxes. (Federal credit unions don't pay sales tax, but in most states, state chartered credit unions do.)
Credit unions are subject to almost all of the same consumer protection regulations as banks. CRA is the only exception, and that's because CUs are limited to a specified field of membership. Credit unions are also much more limited in the types of activities they can engage in. Credit unions don't have trust powers, are severely restricted in the types and amount of business loans they can make, and in the types of investments they can make.
So I would disagree (respectfully ) with GenerousLife. While CUs and banks serve some of the same depositors and borrowers, I don't think it's an "unlevel" playing field. They're really on different fields altogether.
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Good point. In most states, MSBs can raise capital, and there are some other differences in ownership/control issues and powers, but you're right - they are owned by the depositors and do pay taxes.
There's also a fourth breed of cat: a bank organized as a subchapter S corp. It's owned by stockholders but pays no income taxes at the corporate level . . . only at the owner level.
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#5763 - 05/10/0505:10 PMRe: What makes a credit union a credit union?
Anonymous
Unregistered
Very good description of a Credit Union. I use to be a Credit Union Examiner, and one thing I will always remember was a credit union that had an excess of retained earnings. Guess what, they were required to return those earnings to borrowing members as a rebate on interest charged on loans. How many banks and mutual savings banks do you know of that rebate interest income to its borrowers? Also what difference is it going to make if you tax a non profit organization's income, if they do not have income to tax?
Credit unions are subject to almost all of the same consumer protection regulations as banks. CRA is the only exception, and that's because CUs are limited to a specified field of membership.
Well let's just cover that a bit more. CU's are not covered by CRA (A regulation that requires that financial institutions provide loans, investments and services to ALL populations and geographies, including low and moderate income groups) not because of the small groups they're supposed to be serving, but because when CU's were originally developed, they had promised to serve primarily Low and Moderate Income people (ie the working class).
Now a days, CU's serve anyone. One of the largest in the nation serves primarily HIGH income people, completely ignoring the original intent that they serve Low and moderate income people. This is part of the "level playing field" issue that bank's bring up.
I am not allowed to "red line" (draw a line around a poor community and say "I won't bank there because these people are too poor") but a CU actually can.
Many CU's make a great deal of money. THe funds often do get returned to shareholders, but they also get returned to their senior management in the form of huge salaries, 1st class tickets (I fly coach) etc. Those of us who feel this is wrong would like to see a CRA test applied to CU's. If they're meeting the original intent (which would be shown through a positive exam outcome) they would be fine, but for those who are not, they should be placed in the same group as us, taxes and CRA included!
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Dawn Coursey VP/CRA Queen
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#5765 - 05/13/0512:08 PMRe: What makes a credit union a credit union?
Ix Chel
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Registered: 08/10/04
Posts: 2742
Loc: En la Isla Mujeres
Dawnie - not to argue with you on this...but I am pretty sure that CUs are not the only ones who send their executives on 1st class seats or pay high salaries...please be fair in your arguments.
_________________________ If A = success, A = X + Y + Z, X = work. Y = play. Z = keep your mouth shut. Alfred Einstein
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Loc: Back in New Orleans
Based on asset size, I would bet that more CUs send people first class than banks. I worked for Chase for a while, and no one flew 1st class, including the regional president. We had a travel agent in the bank and we took what was least expensive.
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#5767 - 05/13/0502:02 PMRe: What makes a credit union a credit union?
Ix Chel
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Registered: 08/10/04
Posts: 2742
Loc: En la Isla Mujeres
Have you worked for a CU? Rarely do we send anyone on 1st class and we actually have trouble getting qualified applicants for positions; the complaint is most often that we do not pay enough. We lose a lot of good candidates to banks. Anyway, this is frivolous arguing. My concern with Dawnie's post was that it included language intended to cloud the issue. The issue is not whether we send someone on a 1st class plane ticket...
_________________________ If A = success, A = X + Y + Z, X = work. Y = play. Z = keep your mouth shut. Alfred Einstein
Actually I said "many" CU's make a great deal of money. They have to filter the money off somewhere, and often this is in the form of large perks for execs (and the board). The CU I'm speaking of is fair, they also send their board first class on flights as well...when they're not taking the company jet
Happy now? I didn't say you. Actually reading closely, I have said, and did say that the original intent of the CU Charter and exclusion from CRA was due to a good reason, the focus on LMI communities and clients. If you're meeting that focus, kuddo's to you. But not all CU's are created equally. More and more are pushing the button to the limit, which needs to be halted.
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Dawn Coursey VP/CRA Queen
CRA Rating is in...Once again...OUTSTANDING Woo Hoo
Quote: One of the largest in the nation serves primarily HIGH income people
I've got a pretty fair knowledge of the CU industry and I'm not aware of this CU. In fact, I'd be shocked if your statement were really accurate. Please PM me with the name of this CU and I'll do a little research. If I agree with you, I'll shut up.
Quote: I am not allowed to "red line" (draw a line around a poor community and say "I won't bank there because these people are too poor") but a CU actually can.
Due respect (and I do ) but you're just wrong! A community-charter CU has to have a defined geographical area that it serves. No regulator in its right mind will let a community CU draw communities in a way that excludes low-income areas. In fact, if you look at the NCUA regulations on community charters, it's much easier to show that your requested area qualifies as a community if it's a low-income area.
In all other respects, CU's are subject to the same "redlining" rules that your bank is. Neither occupational nor associational, nor community chartered CUs can redline low income neighborhoods.
Quote: Many CU's make a great deal of money. THe funds often do get returned to shareholders, but they also get returned to their senior management in the form of huge salaries, 1st class tickets (I fly coach) etc.
These "huge salaries" you speak of are more the exception than the rule. Moreover, CU's don't have stock, so they can't give their CEOs stock or options as part of their compensation or retirement . Lots of banks do, and these comparisons of bank salaries with CU salaries don't take that into account. CU CEO salaries are set by the CU board, which is composed of CU members who get NO compensation for serving on the board. This serves as a pretty good check on CEO compensation.
Quote: If they're meeting the original intent . . .
This argument cracks me up. Congress could have written a "means test" into the federal CU Act, but it didn't. I think it's pretty clear that Congress didn't originally intend for banks to be insurance agents, securities brokers, investment banks, etc., but now they are. If banks want to lecture CUs about "original intent," then banks should stick to banking. I know the ABA has sponsored some fluff studies to argue that CU's aren't serving people of modest means, but there are reliable studies that show the opposite. Most CUs still make lots of loans to people that banks wouldn't touch with a 10 foot pole.
After Randy's post, I thought this thread had died . . . maybe this will kill it!
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Quote: I think it's pretty clear that Congress didn't originally intend for banks to be insurance agents, securities brokers, investment banks, etc., but now they are. If banks want to lecture CUs about "original intent," then banks should stick to banking.
#5772 - 05/16/0512:35 PMRe: What makes a credit union a credit union?
Ix Chel
Power Poster
Registered: 08/10/04
Posts: 2742
Loc: En la Isla Mujeres
rainman - this is a thread that will never die. Oh maybe this particular thread will go away, but in a short amount of time, another will surface, arguing the same points with the same participants. The way it goes round and round reminds me of the religious or political threads...no one is convincing anyone of anything here.
_________________________ If A = success, A = X + Y + Z, X = work. Y = play. Z = keep your mouth shut. Alfred Einstein
#5773 - 05/16/0512:36 PMRe: What makes a credit union a credit union?
Ix Chel
Power Poster
Registered: 08/10/04
Posts: 2742
Loc: En la Isla Mujeres
Quote:
Quote: I think it's pretty clear that Congress didn't originally intend for banks to be insurance agents, securities brokers, investment banks, etc., but now they are. If banks want to lecture CUs about "original intent," then banks should stick to banking.
What was the original intent of GLB?
To make everyone miserable?
_________________________ If A = success, A = X + Y + Z, X = work. Y = play. Z = keep your mouth shut. Alfred Einstein
That's my point, Jokerman. Banks have evolved over time. Where the banking statutes (i.e. Glass Steagal) specifically restricted banking activity based on "original intent," banks obtained changes (i.e., GLB) in the banking statutes that permit additional activities by banks.
Dawnie and those who use her arguments are trying to say that CU's should adhere to some "intent" of the original CU acts. There's no restriction, requirement, test, or other expression in the FCU Act of a Congressional "intent" that CUs could only (or even predominantly) serve low to moderate income members. CU's don't need to modify the CU Act to take out a requirement to serve low to middle income people - it's not there in the first place!
CU's are happy to serve people of modest means, and they do so every day. But if you're looking for a legal restriction that says they can't also serve the middle class or those who are well off, you won't find it.
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Nobody's perfect, not even a perfect stranger.
You're so cute in your defense of the CU industry Rainman...and wrong
And before I offer up my comments, let me once again say, that I strongly support the ORIGINAL intent of CU's: The Federal Credit Union Act. This act, passed by Congress in 1934 during the depths of the Depression, was intended to provide working-class Americans with credit "for provident and productive purposes" and to assist in the nation's economic recovery.
Given the stated goals of the CU's it made sense to offer the tax break, and over time, exclude them from CRA, but then the mega CU began to grow and grow and grow. Those CU's give the balance of CU's a bad name. Call them what they are, a BANK without taxes or CRA, which is basically a very unlevel playing field.
Quote: I've got a pretty fair knowledge of the CU industry and I'm not aware of this CU. In fact, I'd be shocked if your statement were really accurate. Please PM me with the name of this CU and I'll do a little research. If I agree with you, I'll shut up.
I am not allowed to "red line" (draw a line around a poor community and say "I won't bank there because these people are too poor") but a CU actually can.
Due respect (and I do ) but you're just wrong! A community-charter CU has to have a defined geographical area that it serves. No regulator in its right mind will let a community CU draw communities in a way that excludes low-income areas. In fact, if you look at the NCUA regulations on community charters, it's much easier to show that your requested area qualifies as a community if it's a low-income area.
In all other respects, CU's are subject to the same "redlining" rules that your bank is. Neither occupational nor associational, nor community chartered CUs can redline low income neighborhoods.
I'm suprised you've not heard of the 10th largest Fed CU in nation.
Membership requirements...know it snows in Alaska, or if you aren't aware of that, open your account at one of their Washington branches. They'll tell you about the snow so you fit in the "defined scope of membership or common bond".
Believe me, I watch their numbers. They rock in the high income mortgage lending game. In the rural communities however, I kick their butt...which is interesting, being that I'm the number 10 lender in the state for mortgage lending, and they're number 1....yet in low-income rural deals, (An area they claim they are focused on) I'm number one. I offer the ONLY First Account in the state to these rural areas (treasury department account with little to no fees for focus on LMI areas). Their consumer accounts are higher cost in these areas than my account.
If you dont' think they're focused on the high income market, hang out at the Petro club with me. I'll point you in the direction of their managers who are sitting there working the room. Or if that isn't enough, you could visit the Trust Company, or their Insurance Company...who focus on both consumer and large commercial insurance. Or perhaps you want a very large commercial real estate loan? See one of the top two lenders in our state...they just left banking to work for the CU's for profit lending company booking deals $1MM up. They don't talk to the poor people...working class, etc., but if you own an oil company, they'll buy you a drink at the club.
And I'm sorry, but redlining comes in all forms. They don't lend squat in the rural communities in comparison to me, and yet they're the number one consumer financial institution in the state. Why is it I do more, at lower rates, then they do in the very rural, off road system, areas? I don't have branches there either....in fact I have less branches then they do.
They don't have to lend here...they don't have CRA breathing down their shoulders, so why do what they can for these communities when they can refi the house belonging to the president of an oil company?
Quote: These "huge salaries" you speak of are more the exception than the rule. Moreover, CU's don't have stock, so they can't give their CEOs stock or options as part of their compensation or retirement . Lots of banks do, and these comparisons of bank salaries with CU salaries don't take that into account. CU CEO salaries are set by the CU board, which is composed of CU members who get NO compensation for serving on the board. This serves as a pretty good check on CEO compensation.
Not here Sparky No one is going to curb this CU. They dominate the political market here in Alaska. Their board and half of the politicians (I'm guessing low) are in the pocket of this CU because of their size. How well do they pay? Well two collegues of mine went over there. They were making in the ohhhh $160M to $200M range annually. They're doing better now, poor little darlings. You should hear what they offer their trust officer prospects!
Quote: This argument cracks me up. Congress could have written a "means test" into the federal CU Act, but it didn't. I think it's pretty clear that Congress didn't originally intend for banks to be insurance agents, securities brokers, investment banks, etc., but now they are. If banks want to lecture CUs about "original intent," then banks should stick to banking. I know the ABA has sponsored some fluff studies to argue that CU's aren't serving people of modest means, but there are reliable studies that show the opposite. Most CUs still make lots of loans to people that banks wouldn't touch with a 10 foot pole.
Back in the old days...they didn't need a means test. Back in the old days, we didn't need CRA. Now it's the new days....let's play fair and institute one. If they're meeting the "means" then leave them alone. If not, which you'll find with CU's in Alaska, Texas, Illinois, and a few other states dominated by them, then by all means let's change their charter and make them play with us...on the same play ground. Put their money where their mouth is...if they're everything you say, what the heck, a good test will prove it won't it?
And as to the bank expansion issues...scroll up...the CU's are playing in the same arena as us, they just get to do it cheeper, with less rules.
It's good to be handed a gun in a stick fight...just what we've done to our CU's in the competitive fight to survive in the financial world. I don't have a gun, but I do have a big stick, and I've already been sure to hit as many congressmen as possible with it. Problem is, this CU is standing behind them with her gun...and it's apparently more threatening than me All curtesy of the un-level playing field we are trying to share.
Edited by Dawnie (05/16/0504:06 PM)
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Dawn Coursey VP/CRA Queen
CRA Rating is in...Once again...OUTSTANDING Woo Hoo
I don't think it's a big secret AKauditor, but as a favor, I'll remove your CU name and let folks guess. It's not much different than saying "BofA" so I meant no particular offence to you, just telling the story.
_________________________
Dawn Coursey VP/CRA Queen
CRA Rating is in...Once again...OUTSTANDING Woo Hoo
Indeed, Dawnie, I am familiar with the CU you speak of. I know enough about it to know that you are just wrong about some of the things you so confidently proclaim as fact.
However, I did not intend for this to degenerate into an argument over one institution's practices and I regret that I egged you on in that direction. Much as I want to, I won't carry that argument on further, because I don't think it's appropriate in this forum. Suffice it to say that anyone who wants to do a fair analysis of this issue will have to go beyond the "information" you put out.
I will point out that I asked you to PM me with the name of the CU, not to include it in a public response.
You can quote the intent of the FCU Act all you want, but the fact that Congress thought FCU's would help make more credit available to people of modest means does not indicate that Congress only intended for FCU's to serve people of modest means.
Moreover, you can't find any rule in the FCU Act that says CUs can only serve people of modest means. If Congress had intended such a restriction, they would have put it there. They didn't.
#5779 - 05/17/0511:45 PMRe: What makes a credit union a credit union?
John Burnett
Compliance is my life
Registered: 10/27/00
Posts: 12642
OK. This thread has deteriorated into a spitting match. Valid and invalid points on both sides, and none of them are contributing to the information sought by the original questioner. So I am locking the thread, folks.
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) with GenerousLife. While CUs and banks serve some of the same depositors and borrowers, I don't think it's an "unlevel" playing field. They're really on different fields altogether.
etc. Those of us who feel this is wrong would like to see a CRA test applied to CU's. If they're meeting the original intent (which would be shown through a positive exam outcome) they would be fine, but for those who are not, they should be placed in the same group as us, taxes and CRA included!
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