Smaller Is Better, Community Banks & Credit Unions Say

Fueled by the financial crisis and prolonged economic downturn, increasing numbers of New Yorkers have been turning to financial institutions other than large commercial banks in an effort to obtain better rates on loans, higher account yields and relief from the seemingly endless string of fees that traditional banks rely upon to boost profits for shareholders. Both credit unions and community banks-smaller banks with a more local focus-have been the main beneficiaries of consumers' rising dissatisfaction with large, commercial banks. In fact, recent statistics from the National Credit Union Administration reported that 1.3 million Americans opened new credit union accounts last year, an increase of just under 600,000 from 2010. The number of credit union members is now a record 91.8 million, while total assets at credit unions topped $1 trillion for the first time ever. And despite the fact that credit union assets still pale in comparison to the banking system's roughly $12.6 trillion in total assets, many believe that credit unions are making serious inroads. Pat Keefe of the Credit Union National Association in Washington, D.C., says that among the numerous advantages of doing business at a credit union as opposed to banks is the fact that consumers get real financial benefits. "Last year, credit unions provided $6.3 billion in direct financial benefit to their members-that is, in lower rates on loans, higher returns on savings and low or no fees for services," Keefe said. He added that broken down by members and households, those benefits equate to $68 per member, or $130 per member household. "The main difference from commercial banks is that our credit union is a not-for-profit organization that gives us liberty to offer more meaningful services to the community we serve, services such as small business loans, financial counseling, financial literacy courses and free tax preparation," said Alicia Portada, director of marketing for Lower East Side People's Federal Credit Union, whose main branch is on Avenue B. Portada outlined other key differences, including that credit unions have a volunteer board as opposed to a bank's paid board and that credit unions work to meet the needs of their members as opposed to banks, which must satisfy shareholders. She also pointed out that credit unions do not use deposits to speculate but rather use them to finance small business and grow the local economy. Another point of differentiation, according to Portada, is in the area of helping small businesses access capital. "Our small business program offers the technical support and access to capital that our members need. A small loan, which may not be profitable for a bank, is right on for our members," Portada said. She said her union's development specialists will often speak to small business owners with no up-front fees and can provide access to capital for nontraditional loan applicants who might otherwise be excluded from the banking system. "Credit unions exist to help people, not make a profit," said Bonnie Sklar of the Credit Union Association of New York. "Their goal is to serve all members well, including those of modest means-every member counts. Credit union members are fiercely loyal for this reason." Sklar also noted that people know their credit union will see them through tough economic times. Richard Kay, CEO of LOMTO Federal Credit Union, a credit union that specializes in serving taxi and black car livery drivers throughout the city, said members can take advantage of numerous benefits, including competitive new and used auto loans as well as high IRA yields and special low rates on taxi loans. Speaking generally about the differences between credit unions and banks, Sklar said, "Members are not just customers, they are owners with a say in the future of the credit union. In addition, credit unions' not-for-profit status means that all earnings are returned to the members in the form of attractive rates and low fees." Further, in an economic crisis that saw scores of financial institutions fail, credit union proponents can also point to better overall financial health. Keefe reported that four times more banks than credit unions have failed since the start of the economic crisis. "Since 2007, there have been 107 credit union failures to 429 bank failures," Keefe said. But thanks in part to the Occupy Wall Street movement, which staged a "Bank Transfer Day" Nov. 5 last year, smaller, more locally focused community banks and credit unions gained while larger banks lost the PR war-as well as some customers. In general, community banks are more involved in the local community and make efforts to get to know members of their town or city. Ideally, community bank customers can easily contact officers at their bank, who are based in the community and not several states or cities away. The loan approval process is also usually faster than it would be with a large bank. Some community banks will also consider the personal character of applicants. Amalgamated Bank, a community bank that was founded in 1923 by the Amalgamated Clothing Workers of America, was New York City's first labor bank and has maintained its ties to the labor movement. On its website, a news release proudly proclaims the bank's support for the Occupy movement as it describes how it welcomed Occupy protesters into the bank on April 13 as they encouraged bystanders and passersby to come into the bank's branch at 52 Wall St. and move their money from large financial institutions to smaller community banks and credit unions. Allison Powell, senior vice president and chief operating officer at The Berkshire Bank on Broadway, explained that the smaller environment of a community bank allows them to be more responsive to customers' unique requests in an attempt to satisfy the direct needs of a customer. "Customers have access to genuine personal attention and there is a stronger connection between our staff and our customers," Powell said. Another difference, explained Powell, is the lack of voicemail. "We truly believe in direct communication with our customers. It is not uncommon to speak directly with the staff member who is charged with the responsibility of making the bank work for them." Powell said that Berkshire Bank works more closely with customers, especially in cases of competitive CD rates and premium rates on liquid accounts. She said, "We are here to speak to our customers on the growth of businesses, property ownership or even regarding security concerns, including financial abuse related to the elderly."