Starting credit union made easy benefits of belonging are many

Staying Ahead

October 12, 1998|By Jane Bryant Quinn | Jane Bryant Quinn,Washington Post Writers Group

IF YOUR company, town or organization doesn't have a credit union, now is the time to start looking around.

Most credit unions offer their members superior deals -- higher rates on savings than banks provide, and lower rates on consumer loans. Congress has just passed a law that will make it easier for people to join.

Tens of millions of people are potentially eligible for membership, says Dan Mica, head of the industry's trade group, the Credit Union National Association.

Credit unions are organized for groups of people with a common affiliation -- for example, employees of the same company or residents of the same rural district. If your group belongs, you can open an account.

Earlier this year, the Supreme Court ruled that, under existing federal law, each group needed a separate credit union of its own. They couldn't band together in a single union. For credit-union lovers, that was bad news.

In July, however, Congress mooted the court's decision. Groups can now affiliate. If there's a successful credit union in your town, your group can apply to join.

There's no guarantee that a credit union is going to accept you. Not all CUs want to serve disparate groups. Still, the possibility is there. Midsize employers might get together and start a CU of their own.

Under the law, groups of 3,000 members or more are generally expected to form their own CU, although exceptions can be made.

Groups smaller than 3,000 are eligible to join existing CUs or combine with others to form a joint CU. Mike Welch, publisher of the trade paper Credit Union Times, thinks that midsize CUs will merge so that they can provide the same range of services that large institutions do.

The new law ratifies an existing CU policy that lets you remain a member for life. You can keep your account, even if you retire or leave the group.

It also confirms that a CU can admit the immediate family of its members.

CUs are usually formed by employee groups and sponsored by a company or labor union. But they can encompass geographical groups, such as everyone living in a particular neighborhood. Groups like these, however, generally need some sort of personal bond, beyond their address.

Some credit unions offer limited fare: only checking accounts (known as share-draft accounts), savings deposits and consumer lending. Others also offer mortgages, credit cards and discount stock brokerage services.

CUs, on average, don't have the lowest interest rates on mortgages. S & Ls and savings banks tend to be a little cheaper, according to the Bank Rate Monitor in North Palm Beach, Fla. Check out the rates at a mortgage bank, too.

But CUs usually do better on consumer loans. They recently charged an average of 7.8 percent on new-car loans, compared with 9 percent at banks. On credit cards, CUs averaged 13.1 percent, compared with 16.6 percent at banks. Banks also tend to charge higher fees.

For savers, credit unions shine. On 12-month certificates of deposit, they recently paid an average of 5.5 percent, compared with 4.8 percent at banks.

The bankers say there's no secret to the CUs' better rates. They're nonprofit organizations, so they don't have to pay any income tax. That gives them a financial edge over the taxable banks that they compete with.

CUs' privileged tax position isn't their only financial advantage. They don't have to show profits to shareholders or gold-plate a top executive's salary.

Nevertheless, I think the bankers have a point. In fairness, the big credit unions should be taxed in the same way community banks are taxed. The bankers backed that plan, but lost. For now, CUs will retain their edge.

The bankers did win one point when the recent legislation soared through.

CUs have been expanding aggressively into small-business loans, which traditionally have been the bankers' turf. The new law generally caps such loans at 12.25 percent of the credit union's assets, unless it has a history of making business (or farming) loans or serves a low-income population.

The new cap won't stop some CUs from becoming mini, "nonprofit," commercial banks. But it puts a limit on their reach.

To find an existing credit union that might take your group, call CUNA at 800-358-5710. An automated service gives you the number of your state credit union league.

Pub Date: 10/12/98

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