The Credit Union Difference: Good, better and best

I’ve spent my thirty-eight-year credit union career articulating the Credit Union Difference. Whether through marketing communication as a past VP of Marketing or knocking on doors as a VP of Business Development, community development evangelist, writer or speaker, volunteer “hike the hill” political advocate or as a consultant pointing the way on how credit unions can be their very best at living the Credit Union Difference. Over the years, I’ve seen the wide variety of credit union brands spanning from those that appear very much “bank like” e.g., it’s all about the numbers, to credit unions that are more like Community Action Agencies, with boots on the ground making life changing investments in their community, than financial institutions.

Today, as many credit union leaders’ focus on how they will better differentiate, compete and grow in a very crowded financial services landscape, find meaningful brand relevance among new generations of potential members that find value in social justice and greater corporate responsibility, and at a time when bankers and politicians are once again raising the voice of credit union taxation –  I humbly offer my take on three levels of credit union value.

The Good – All chartered credit unions are a form of “good” by virtue of their “not-for-profit”, financial cooperative business model. This model does generate extra value for members through competitive rates, fees, and services.

There is value in this brand differentiator. According to 2022 CUNA estimates, the financial benefits provided to credit union members are equivalent to $129 per member or $271 per member household. That is a benefit worth mentioning, but it’s not the best value proposition the Credit Union Movement has to offer. Disclaimer, I refer to the credit union space as “a movement”, because I believe we collectively began moving towards financial inclusion, serving people of modest means and yet we still press on today collectively moving towards Financial Wellbeing for All. That sounds more like a movement than an industry to me.

While “the Good” does fulfill the credit union non-for-profit business model, keeps taxation at bay, and provides modest financial benefit overall to consumers – it alone does not meet the original credit union charter purpose to serve people of modest means – the not-for-profit structure was a way to help us get there.

The Better – Of course this category of credit union, while still fulfilling “the good” structural benefit explained above, rises higher with an intentional purpose of helping people of modest means. These credit union leaders are actively and seriously engaged in reaching, teaching, and lending to financially challenged, excluded, and underserved communities. They have teams that are certified financial counselors that provide high quality financial advice to members, in real time, while they’re serving them, they are expert risk-based lenders, and their concentration of non-prime loans validates it. These credit union leaders have diverse leaders and staff that reflect the diverse communities they serve.

When we are defending our tax-exempt status or our unique collective brand – I feel we frequently forget to mention that more than half of U.S. credit unions have been recognized as Low Income Designated (NCUA) because more than 50% of a credit unions members live in designated low-income census tracts. Or, the more than 500 US Treasury CDFI credit unions that must have more than 60% of their borrowers from a qualified underserved target market (CDFI credit unions now make up a majority of all CDFI assets), or the approximately 500 Minority Depository Institutions that have more than half of their members (and leadership) from a historically underserved minority community. Truly these credit unions are creating higher value and outcomes. Banker attacks stating credit unions have abandoned their “serving the modest means” ethos couldn’t be farther from the truth. I believe the more we lean into it, collectively as a movement, the stronger our argument against taxation will be and the stronger our consumer advocate brand will be.

The financial outcomes at the consumer level include credit building which reduces the cost of insurance, rent, credit and makes it easier to find a better job. Quality financial education that helps to limit reliance on predatory services, first time home loans that lead to the greatest valued asset most consumers will ever have. Small business loans that improve income and creates jobs, and inclusive access for immigrants that creates a path to the American Dream and economic resiliency. These outcomes far exceed a couple of hundred dollars per year, per family in economic value – truly a lifetime of financial success, and in so many cases, help to end generational poverty and income disparities.

The Best – Building on the qualities of the good and the better, the best credit union leaders and their organizations are community champions, and they assertively take on huge economic community challenges. They lean in, they collaborate and leverage talent and significant resources to solve big problems. Examples can be found at all credit union sizes ranging from $100,000 grants made by a small credit union to support local education in their rural and poor community, to medium sized credit unions that are taking on small business lending to immigrants to create jobs to large credit unions that relocate their corporate office to a blighted, low income, abandoned neighborhood intentionally to spur local economic development (and these initiatives are working!)

Rather than spending millions of dollars naming a sports arena, these leaders are investing millions to reduce housing, food and/or employment insecurities, and in doing so are making their communities better places to live. The outcomes from their actions can be seen and felt and they are ideally aligned with the credit union long-term ethos of helping people of modest means.

For those skeptics that don’t think the mission for serving people of modest means isn’t financially viable, check out a 2020 study by Inclusiv, Inclusive Finance, financial performance and the economic impact of community development credit unions. Their study found that Credit unions that focus on community development and financial inclusion are more profitable, grow faster and are more active lenders than their peers across the industry. While the higher risks of inclusive lending are generally reflected in higher rates of delinquencies and charge-offs, most community development credit unions manage these risks and outpace their peers overall financial performance.”

Where does your credit union fit? Can it do better?

Why it matters

Credit unions that consistently demonstrate the best our movement has to offer – not only make meaningful quality of life impacts on their members and community, they also financially perform better, have stronger brands and they help the entire credit union space validate its unique difference and worthiness of its tax-exempt status. I believe that long-term tax-exempt status, and meaningful brand differentiator will depend on credit unions behaving better and best.

In my opinion, when credit union leaders pursue bank like actions whether it be owning a corporate jet, or investing millions in stadium naming rights, it impacts all of us and that doesn’t sound or look very not-for-profit. Credit unions are at their best when they focus on Financial Wellbeing for All and actively seek out and serve people of modest means.