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Free Preview – The New Emerging Credit Union World

add_book6MODERN CREDIT UNIONS OF TODAY HAVE LITTLE RESEMBLANCE TO THOSE OF YESTERYEAR, SO THE CREDIT UNION WORLD IS EMERGING AS A FINANCIAL FORCE. Out of necessity, these financial organizations have become sophisticated and complex so that these institutions can practice a robust cooperative capitalism, which is a form of economic activity which helps neuter some of the criticisms of pure capitalism. In this form of capitalism profit is a secondary or even tertiary goal but nevertheless necessary. The credit union world now can compete with community and even mega banks quite effectively. In the early stages of the evolution of credit unions, those cooperatives emphasized the concepts of thrift and savings. Debt was discouraged; however, over time, the memberships of credit unions have philosophically changed, because of the financial milieu in which Americans found themselves, where debt and borrowing has been encouraged. In the past the credit union world did its best to counsel its membership about living within ones means.

Today, there is little motivation to build up deposits in savings accounts in credit unions, but tens of millions of credit union members do anyway. The reason most often given is that the money is safe in the credit union, because of the National Credit Union Share Insurance Fund (NCUSIF) and that is true up to $250,000, per individual deposit, accounts and for retirement accounts, and Keoghs. Joint accounts are insured up to the amount of $500,000, but after that, just like the Federal Deposit Insurance Corporation (FDIC) of the banking industry, those funds, too, are at risk. Many credit unions of decades past, and a few still, offer special savings opportunities in the form of a “Vacation Club” or “Christmas Club” among others. These types of programs encouraged saving more than borrowing.

Some believe that it’s unseemly that financial institutions, like credit unions and banks, offer a one percent savings rate or less—this is especially true of credit unions—while borrowing rates to members average six to eight percent across all loan categories. Now, it’s all about the spread. Anything close to a three percent spread allows boards and managements of credit unions to expand services and facilities to current members and other consumers who are eligible to become members. This is not an indictment of credit unions, banks, and other financial organizations, because financial institutions of today are merely responding to the wants and demands (without regard for needs—those are a given) of a very fickle member/customer base. Consumers of the 21st century have little or no loyalty to their financial providers. If the credit union or other financial services provider won’t satisfy a want or demand, the member or customer immediately looks elsewhere.

This has become a debtor society, which practically disregards thrift and the concept of becoming debt free. Even the United States government stays in debt (currently pushing $16 trillion). All financial institutions, including credit unions, do not sufficiently discourage debt. There are literally thousands of financial organizations offering credit cards, and many of those credit cards are offered at confiscatory interest rates on unpaid balances and stinging fees if the payment is late. Then, those in the financial and credit union world become perplexed and are filled with consternation when delinquency rates and bankruptcies rise. Credit union leaders and managers should not want to be thought of as enablers. When credit unions are told that a 70-90% or greater loan to share ratio is good, why should CEOs and board members be surprised when members get into financial trouble? No wonder this has become a problem. Boards, managements, regulators, and members are all complicit in maintaining this debtor society.