Credit Unions

I like credit unions (not for profit financial institutions). They tend to have less troublesome--i.e. evil--practices. The benefits of being not for profit are: no taxes, better rates (deposit and lending).

It's pretty easy to figure. Imagine a bank and a credit union with the same depositor base. Both set a rate for a new car loan for a specific person at 6.25%. Both institutions have employees to pay, and insurance to buy, and other expenses (building, electronic transactions, etc.). To simplify let's just say that those expenses are the same for both, which is reasonable since we are trying to compare to similar sized institutions. Exactly what that will take away is hard to say, but as it doesn't really matter, let's say the leftovers on the loan is 2.5%. With a credit union all of that will go to the depositors as interest. The goal of the bank, however, is profit.

So for the bank, some of those leftovers are going to be profit. Since a bank is for profit, those profits are taxed, so those taxes also come out of that extra (technically they come out of the profits, but the profits are set greater to accommodate the tax burden). If depositors at a bank are lucky, then they get about a quarter to the dollar of a good credit union.

Now credit unions can also lower lending rates, which would reduce deposit interest, but would benefit customers in a different way. The result is the same: banks absolutely, positively, cannot compete in a rational market.

So banks try and make the market as irrational as possible. Laws are written so that credit union charters are granted very narrowly so that credit unions cannot grow or spread too much. Credit unions are made to have restrictions on who can join. Credit unions are not allowed access to the fed for their money but must often go to banks for their short term loans.

As such I love to see banks fail when going up against credit unions. More, I can't stand the dumb ass tax argument. Credit unions are tax free because of their not for profit status, not because banks have been relatively successful--to date--in pinning them to small isolated customer bases. So long as a credit union remains not for profit, they will retain their tax free status and should be allowed to grow as large as the market will bear. Right?