By Dave LindorffA few months ago, like many struggling Americans, I had my credit line frozen at my local bank. I hadn't done anything wrong, and have always paid my monthly installment payment on time, but I learned from a bank employee at the institution, which had once been a small family-owned operation but had earlier this year been acquired by a regional bank, that most of the bank's home-equity lines of credit were being similarly frozen and "reviewed" because the bank had lent a lot of money to a housing development that was underwater and facing bankruptcy. I was told I could simply apply for a new credit line, and pay off the old one, but there was a hitch: I'd be paying almost 3% more per month in interest than with the old loan.
More recently, I went in to the bank with a check I had just received, a bit late, from a magazine for which I write regularly. Because the payment was late, so were some of my bills, so I asked a bank officer, as I had occasionally done over the years, to okay the check for immediate credit as a courtesy, which would allow me to pay those bills. I was turned down. "We don't offer that service anymore," he said. "Your check has to clear, which could take two days." When I pointed out that what I wanted to pay was my mortgage, which was owed to the same bank, and that the money, in any case, would be in the bank's hands either way, he said, "Sorry, that's our policy." The final blow came when I learned that some company in China had accessed my account, pulling out first a few pennies in two trial electronic transactions, and then hundreds of dollars. The bank put a stop to the problem when I notified them, but it took a month for them to refund me my money, even though the fraud should have been spotted by them right away, and it was the bank's fault, not mine.
Fed up with all these rip-offs, I went looking for an alternative, and happily found one: a local credit union, in this case one called Freedom Credit Union.
Walk into Freedom Credit Union's office and you immediately sense that something's different. The staff members are relaxed. There's a friendly play area full of toys for little kids. There are also lavatories right off the lobby (when is the last time you saw a bank that had rest rooms for its customers?).
Signing up for several accounts, my wife and I were told that we could have savings/checking accounts which, with one account number, allowed us to instantly transfer money within the account from one classificationsavings, which carries a higher interest rateto free and interest-paying checking, in order to cover payments, while specifying that any auto-deposits go directly into savings to earn the higher interest rate. Overdraft protection from other accounts was free (versus $15 per covered transaction at my bank). We were provided with large boxes of checks for our accounts at no charge, too.
We were also issued debit cards, and told that they would be free at any credit union ATM in the countrynot just Freedom's ATMs, but any credit union's ATM. (Many credit unions also refund any charges if you use a bank ATM and get socked with a charge.)
We didn't have to be part of any particular organization to join Freedom Credit Union. Like many credit unions, membership (and when you join a credit union, you become a part owner) is open to all. And our deposits are insured, as at a bank, for up to $250,000 per account, by the National Credit Union Agency, a government body.
Then we asked about getting a credit line. Here we got a particularly pleasant surprise, because of what our bank has been doing, and because of what I've been reading about how banks are pulling back on lending, even refusing to allow people to refinance mortgages at current lower rates, and generally being grudging about making loans. Apparently not so at credit unions. The loan office at Freedom Credit Union sent out an appraiser to look at our house within days of receiving our initial loan application, and has already called twice to ask if I was having any problem filling out the full application.
President Obama recently had to call bankers to the White House to plead with them to start lending (unsuccessfully, it appears), but here's my credit union begging me to finish filling out my loan application, and this for a loan that will be at a rate more than 1% lower than what my bank was offering!
No wonder the banks have been trying, ever since President Franklin Roosevelt signed into law the Credit Union Act of 1934, to crush credit unions, claiming that their tax exempt status (credit unions are all non-for-profit institutions) gives them an "unfair" advantage. Happily, so far they've failed in this unrelenting effort. Meanwhile, it's not really the tax break that explains why banks had to be bailed out, like savings & loan institutions before them, while credit unions have never been put in such a situation: Credit unions never got caught up in the sub-prime scandal, or got involved in trading in CDOs. (Well, two corporate credit unions that handle short term cash on hand for ordinary member-owned credit unions did get burned by sub-prime investments, but didn't need any federal bailout money.) Furthermore, as membership institutions, even in hard times they have tended to put their members first. Here is what a report by CUNA advised its member credit unions at the onset of the financial crisis: "Credit unions should not find it necessary to penalize members with higher loan rates, more and higher fees, lower dividend rates, service cutbacks or layoffs just to keep net income from falling for a year or two." Try to find a bank or bank organization urging the same kind of action on behalf of bank customers. Instead, they've famously been jacking loan rates, raising fees and inventing new ones, and cutting service. Pat Keefe, a credit union industry spokesman, notes that credit unions have been experiencing a "huge inflow" of savings from members since the crisis began, and says loans have fallen off, not because credit unions have pulled back on lending, but because demand is down as people try to reduce debt. Interestingly, demand for business loans is up, but credit unions are limited by statute to no more than 12.5 % of lending going to businessesa limit that the industry is trying, against stiff resistance from the bank lobby, to have Congress raise to 25%.
And no wonder 90 million Americans are already using credit unions. At a time when the interest rate on a 30-year mortgage at a typical bank is 5.58%, it's 5.44% at credit unions. At a time that bank interest on savings accounts is averaging .44%, it's .68% at credit unions. At a time that bank CDs are paying an average of .62%, credit unions are paying 1.22%, or almost double. And at a time used car loans at a bank cost 7.5%, credit unions are charging 5.72%. Credit card interest is generally about 1% lower, too, with no fees, and most credit unions don't hit you with a penalty for just one late payment on a card balance (compare that to bank credit cards which can charge late payment fees of $25-50, plus finance charges on the overdue balance, and often will also substantially jack your future interest rate on balances to usurious levels). Clearly, the number of credit union members should be a lot higher than it is, especially these days, but I guess it's hard for credit unions to compete with the advertising budgets of the banks. Either that or Americans are just financial masochists.
My advice, though, is to stop grumbling about your bank, and about all those obscene fees, charges and the bad service you get, and just do a little research and switch to a local credit union. It's not just that you'll save money, be happier (and be able to relieve yourself if the need arises while you're doing your financial business), but in a small way, you'll be doing your part to stick it to the banks.
DAVE LINDORFF is a Philadelphia-area journalist. His latest book is "The Case for Impeachment" (St. Martin's Press, 2006). His work is available at www.thiscantbehappening.net