Most likely you and other credit union managers have spent more hours reading NCUA bulletins, NAFCU proposals and sitting in more webinars in the past few weeks than you’d ever like to count. The “bail out” of US Central and the corporate credit unions, as we’ll call it, has many on edge. How much do you have to pay? What will your bottom line look like to members? How will you combat the media’s negative reports? What if a corporate credit union actually failed – where will you shift your drafts, ACH, etc?

No doubt the situation with the corporates has credit unions uneasy about their future and the overall impact of the solution. However, opportunity is born from such great challenges.

Credit unions are largely safe and secure; however, many credit unions are failing, being liquidated or merging with other institutions. These events were largely overshadowed by the media’s focus on big banks, with understanding. It is hard to make the headlines when Wachovia, an institution with assets greater than the entire credit union industry, fails. Now that the corporates are in fear of failing and the entire CU industry is being affected, the media is starting to focus in on credit unions.

The Benefits of Credit Unions:
Many credit unions were founded after the Great Depression; a time when banks were failing, unemployment was at an all time high, the stock market crashed and people were seriously concerned about their financial well-being (sound familiar?). Credit unions, each serving a distinct field of membership, became a financial haven to many consumers, providing opportunity and a sense of financial security. The cooperative model brought benefits such as higher savings yields, lower loan rates, and lower fees. However, the current landscape is blurring these benefits and the credit union difference needs to be reiterated through new means.

Before we examine the new opportunities, let’s first examine the uniqueness of credit unions and the benefits routinely promoted.

Field of Membership:
With more and more credit unions switching to community charter institutions or adding thousands of SEGs, the distinctive field of membership has been largely blurred. This trend, designed to help institutions grow, has put credit unions in the cross hairs of banks as they question how a community credit union differs from a community bank. Furthermore, credit unions shed one of their single most powerful marketing tools – exclusivity (which remains one of the most persuasive tactics used by businesses).

Higher Savings Yields:
The stock market decline not only eliminated a huge portion of cash available in the system, it caused a change in operations by banks. Banks are required a lower capital ratio than credit unions because banks can issue stock to gain funds. When investors refuse to buy this stock (as seen currently), banks are forced to gain deposits in the same fashion as credit unions. As a result, many banks are offering deposit yields higher than credit unions; sometimes nearly double credit unions’ yields. The “Deposit War”, as we call it, is likely just beginning.

Lower Loan Rates:
Credit unions are famous for great auto loans. Over the past couple decades credit unions have gained ground in other loan types, such as mortgages and unsecured loans. However, with the sharp decline in borrowing, the lower demand is causing banks to become very competitive with their loan rates. While the media focuses on “banks” not lending, what they are largely referring to is the big banks not lending to large businesses. They are not referring to the local banks, which, like you, probably have plenty to lend and are willing to do so.

Lower Fees:
The current economy has financial institutions looking to buffer their financial statements in any manner possible. Non-interest income, specifically fee income, has become the center of focus. Bankrate.com’s latest “Checking Fees” study of banks revealed the average NSF fee is $28.95. Glancing at 25 credit unions’ fee schedules, we noticed over half were at or over this average.

The Changing Landscape:
The above points reiterate the landscape is changing. Opportunity cannot be found by solely relying on the same 4 or 5 bullet points of difference used for decades. This will become especially true if the media focuses its attention on the credit union industry.  NCUA mentioned some credit unions may fail as a result of the current proposal, but that more would fail if no solution was provided. So where is the opportunity?

The Corporate Opportunity:
The bank crisis caught people largely off guard, instilled panic and used taxpayer money for the bail out. The lending practices of many institutions were exposed and ultimately caused a great mistrust in these larger institutions. Credit unions can use these events to build trust and truly show their difference.

Upon NCUA’s final solution details being revealed in April, you should be proactive and explain the corporate situation to your members upfront. In simple fashion, detail how your credit union will be impacted and ensure members their funds are insured. Doing so will demonstrate your openness and respect for your members. You may lose some deposits or members, but what if your members are caught by surprise as were bank customers?

Furthermore, use this as an opportunity to reveal your true difference. Because credit unions are not taxed and the industry overall has a capital ratio of about 12-13%, government assistance is unlikely. Credit unions should reiterate to their members (and the general public) that as a large cooperative, the credit union industry is able to identify and implement solutions to sustain operations as an industry without a “bail out” from taxpayers.

Being open with your members and the general public about the situation is key to maintaining a positive reputation and building trust. Identifying the industry’s ability to sustain itself based upon the cooperative model upon which credit unions were founded (without taxpayer money) may help credit unions gain more positive awareness in general with both current and potential members.