Credit Unions Claim 100 Million Members: Should Banks Worry?

WASHINGTON — Credit unions have new grist for their PR machine — and perhaps another statistical argument with banks.

Membership in the not-for-profit alternatives to banks hit 100 million last week, the Credit Union National Association said. CUNA officials and others reveled in the marketing opportunities and additional political clout the swelling numbers could provide them.

"It is exciting and an opportunity to bring visibility to our industry," said Brett Martinez, chief executive of the $2.3 billion Redwood Credit Union in Santa Rosa, Calif.

Still, numbers any industry reports about itself are subject to challenge, like the time the Credit Union National Association said it added 650,000 members in roughly a one-month period in 2011 and afterward revised the figure down to 214,000.

Even Dennis Dollar, principal partner at Dollar Associates in Birmingham, Ala., and a former chairman of the National Credit Union Administration, questions the 100 million figure.

"Probably as many as 20% of those [100 million] may be duplicates, people who are members of more than one credit union, like myself and many others," he said.

However, such an adjustment still leaves a formidable industry whose members tend to be more passionate about their financial institutions than bank customers generally are.

"Even if you assume that 20% are duplicates and only half of the remainder really understand the difference between a credit union and a bank, that's still an army of 40 million credit union members who know what we are and would make a fairly strong political movement in support of credit union issues," Dollar says.

That is what CUNA's interim CEO, Bill Hampel, is counting on. The new milestone increases the odds of the "average person" knowing what a credit union is, he says.

"Not only have we crossed 100 million members, but membership growth rates have been picking up over the last few years, and that means more people have been noticing credit unions," he said.

Big credit unions are benefiting from the trend more than small ones, Dollar said. The bulk of the growth at credit unions has been at institutions with $250 million or more in assets, whereas "over the last eight years, credit unions $100 million and below actually have had a net reduction in members," Dollar said.

"There's no doubt that it is a recognition of the economies-of-scale factor in credit unions. And that is that the larger the credit union, the better positioned they are to invest in future growth, whether it be branches, new products, technology, staffing, whatever," Dollar said.

More Mainstream?

Hampel said that he thinks that if recent growth trends continue, credit unions could hit 110 million members within five years or even 125 million members within the next decade.

It took CUs until 1958 to hit the 10 million member mark, and the 50 million member milestone didn't occur until 1985, according to CUNA data.

He and others dismissed the notion that as credit unions become "more mainstream" they might begin to be painted with the same brush as banks.

"I do think that in terms of the way consumers look at the marketplace, they see credit unions as a better deal," said John McKechnie, a former staff member with multiple credit union trade groups and now a partner at Washington-based consulting firm Total Spectrum. "Conversely, they perceive the banking industry as being somewhat uninterested in meeting the consumer needs in terms of the fees, [and] their customer service pales in comparison to what credit unions offer."

The fact that CUs have historically served those of modest means is a sign that they are in no danger of losing their status as an underdog in the financial services sector, Dollar said.

The National Association of Federal Credit Unions declined to comment for this story, as did the industry's regulator, the NCUA. But NCUA spokesman John Fairbanks wrote in an e-mail that the regulator would issue its own membership figures when it releases its second-quarter industry report, most likely after Labor Day.

Asked if NCUA's numbers could be expected to differ from CUNA's, he declined to specify but noted that CUNA collects data from a wider range of institutions than NCUA, which only gathers data on federally insured CUs.

Fights with Banks Ahead

The biggest boon for CUs may be the potential for increased political clout, Dollar said.

"The single greatest credit union strength is that credit unions have numbers, whereas the banks' political power is primarily measured in dollars," he said. "I think that every political victory we have won has been because of our numbers."

The catch: credit unions have historically been more effective at using their clout to prevent bad things from happening than using their numbers to make good things happen, Dollar said.

"We can stop taxation and we can stop [the Community Reinvestment Act] from being imposed on credit unions, but we can't get a single member business lending cap increase that doesn't cost any taxpayer dollars," he said.

Meanwhile, some in the industry say that serious bumps lie ahead.

"The compliance burden is a real threat, and if new, additional compliance burdens are imposed on credit unions, that of course would retard growth, especially if those compliance burdens were more severe than those placed on other financial institutions," Hampel said.

Gary Easterling, chief executive of St. Joseph Mich.-based United Federal Credit Union, fears that growth will eventually flatten as banks continue to reengage with customers from whom they stepped away from during the depths of the recession.

"For credit unions that are willing to go toe-to-toe with [banks] in the marketplace, I think credit unions can still win on our total value proposition," he said. "But it is going to be a tougher game for a while because the banks are now back in."

But Sundie Seefried, chief executive of Partner Colorado CU in Arvada, said that banks shouldn't concern most credit unions because "I don't think they can change the culture and environment in which they're doing business and improve their service to the level credit unions have been operating with since the beginning of time."

Ultimately, "we still have much work to do," said Wally Murray, chief executive of the $489 million Greater Nevada CU in Carson City.

With about 80% of Americans categorizing themselves as "poor" to "middle class," he said that there are at least 250 million more people and 6 million small businesses in this country that credit unions could serve.

"Our biggest challenge is that even after being around for more than 100 years, we still cannot effectively communicate our message in a way that the American public can easily understand," Murray said.

The lack of a simple "elevator pitch" forces credit unions to continually spend vast amounts of time and money trying to educate the public and policy makers on the credit union difference and why that matters, he said.