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According to a new study by the Consumer Financial Protection Bureau (CFPB), credit card interest rates at credit unions and small banks are lower than those of the 25 largest credit card companies, saving consumers up to $500 on average per year. Despite this, many consumers are unaware of or do not actively seek better rates and deals from their local credit unions.
“The challenge is the larger issuers have considerable resources from a marketing standpoint, but credit unions are more niche-focused,” said John Bratsakis, CEO and President of the Maryland DC Credit Union Association (MDDCCUA).
While not everyone can join every credit union, Bratsakis said, anyone can join a credit union. Each credit union has its own unique membership requirements, but all exist for the sole purpose of providing accessible banking to their members through lower rates on loans and fees.
Credit unions and smaller banks may not have the resources to promote their services to the masses but unlike the larger institutions, credit unions provide tailored services to their unique memberships and provide more value. In contrast to conventional banks and major credit issuers, credit unions are organized as nonprofit entities collectively owned by their members. Credit unions adhere to a statutory interest rate cap, presently fixed at 18 percent by the National Credit Union Administration.
“We attract people based on our purpose,” said David Woodruff, CEO of APL FCU in Howard County. APL FCU began as a credit union in the 1950s for employees who worked at the Johns Hopkins Applied Physics Laboratory. By 2000, the credit union expanded to include members who lived or worked in Howard County. APL FCU focuses its marketing efforts on geotargeting the Howard County area.
Credit unions, like APL FCU, are driven by their mission to serve their members. Larger institutions, much like corporations, need to return investments back to their shareholders. So, they charge high-interest rates and annual fees on credit cards to maximize profits. Credit unions, on the other hand, are delivering through their value and dividends. Each member is a stakeholder in the success of the credit union, which ensures they are all benefitting from fair and low rates.
The top three credit card companies represent roughly 95% of credit card debt, according to the CFPB report, which also noted evidence of anti-competitive behavior in the consumer credit card market, including suppressing payment amount information to credit reporting companies. This practice inhibits competitors, including credit unions, from being able to promote and offer lower rates to potential customers.
In 2009, the Federal Trade Commission issued a ruling requiring major credit card issuers to furnish credit limit amounts to credit reporting companies. Before this, insufficient reporting hurt consumers and competitors.
The CFPB also noted that these same credit card issuers may “distort the credit card shopping experience by providing incentives to comparison websites that may promote more expensive products over cheaper alternatives.” This practice prevents credit unions from being prominently featured to potential customers in their markets.
Still, Woodruff said credit unions, like the APL FCU, do their best to reach their target members by focusing on the areas and interests they serve.
“We can’t and don’t necessarily compete with all the bells and whistles that the larger credit card issuers and financial institutions can offer, but we can compete with the overall value. We don’t maximize profit. We maximize value through competitive rates and a personal connection to our members,” said Woodruff.
Because of their mission-focused membership, credit unions offer consumers a chance to give back to their communities indirectly or directly. Each member can cast a vote, and members of the boards must also be members of the credit union.
“Credit unions are acutely in tune with what is going on in their local community. Because they are local, they can pivot and create programs that fit the needs of the community and are able to deliver tremendous local impact,” said Bratsakis.
In fact, Maryland and DC credit unions were able to deliver $413 million in direct financial benefits to their over 2 million members, equating to roughly $418 per member household, Bratsakis said.
In addition, in less than 24 hours after the Francis Scott Key Bridge collapse on March 26, Bratsakis was able to get nearly every member organization of the MDDCCUA to commit to providing support and relief.
In the state of Maryland alone, there are 71 credit unions available to potential members. Consumers interested in learning what credit unions they may qualify for may check out: www.tryacreditunion.com.
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