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Are credit unions still a money source?

I was surprised when it was reported that credit unions we’re being found to have “strayed” into some of those hyper-risk ventures that have already taken down a bunch of banks, with more likely to crash and burn before it’s all over.

I say “strayed” because credit unions have been financial institutions with a long history of operating conservatively. You know, as in making loans to members under a solid business model that requires the applicant to have more than just a pulse to get a loan! So, I suggested in this blog several months ago, and many of you agreed, that credit unions could be a good source of funds, particularly for consumer financing.

Then news broke in late April. Regulators had moved in on the 70-year-old, $1.6 billion Eastern Financial Florida Credit Union, originally formed so employees of Miami-based Eastern Air Lines (ceased flying in ‘91) could get good rates of interest on their savings and the same for their auto and boat loans. That was the credit union model. However, somewhere along the way, Eastern apparently ignored its roots and started acting more like a bank. It’s now reportedly knee-deep in bad real estate deals from offering interest-only mortgages as well as investing in collateralized debt obligations, the latter a major factor in the housing collapse.

Interestingly, bankers are probably smirking at Eastern’s troubles. After all, banks have vigorously opposed attempts by credit unions to gain authority to be more like banks. (Now you know a big reason why I recently applauded the unselfish job the National Marine Bankers Association is doing to educating banks AND the nation’s credit unions about marine lending opportunities.)

Further checking, however, indicates that within the credit union industry, the Eastern takeover is an unusual situation, not indicative of the industry’s overall good health. Credit unions haven’t been in the news stories like banks over such things as TARP funds, though there combined income last year reportedly dropped 47 percent. Fortunately, most credit unions have not been gamblers at the disastrous mortgage-backed securities table. For those like Eastern that have, losses are covered by the National Credit Union Share Insurance Fund.

Accordingly, there are 11,000 credit unions in the nation, most reported to be financially solid. So, contrary to anything negative you may have recently heard or read about credit unions’ health, I think they remain a possible good source of boat financing. While not likely to be convinced to start a marine floorplan portfolio, it is a fact that credit unions were actually first created to make business loans to farmers. So, business lending is certainly within the scope of credit unions. In addition, some credit unions have even had agreements with auto dealers, for example, to fund indirect auto loans, too.


6 comments on “Are credit unions still a money source?

  1. Randy Wattenbarger

    In our market, a Credit Union for many years has actively pursued boat loans and financed many boats for our dealership. For whatever reason or combination of reasons they have changed their funding formula which has historically been 110% of invoice, to 75% of dealer invoice (not including related dealer costs e.g. rigging, batteries, S&H, cleaning, demoing, etc.). At a 10 point margin (which is not profitable), this requires a down payment of at least 35%. This is unrealistic in the income demograhic in our market.

  2. Jim Coburn

    There are plenty of credit unions out there that have practiced less than adequate underwriting (with boat loans, too) and who are in a financial bind. Just like there are many banks out there with a solid financial condition. Some larger CU’s have become more like commercial banks than you may realize.

    As a leader with the NMBA, I believe credit unions are a good source to remain in, or enter marine lending. We have always encouraged them to become members.

    None of my peers or fellow association directors are “smirking” at any troubles that may occur in the credit union arena. We are living through an unprecedented economic time…

  3. Skip Robertson

    We have seen every industry, business and association effected by this terrible economic downturn. Why wouldn’t credit unions be effected by this economy.

    My small dealership has been working with one local credit union for years. I am also a member that has both business and personal accounts with them. A few times a year I ask them if they have any boat repo’s they need to get off there books and every time they say they don’t have any. Cars yes. I decided to call the CEO of this credit union and ask him for a meeting since to me from what I see is that boat loans has been a good business for them. I went to the meeting with the NMBA white paper in hand and made my pitch to him. Lucky for me he was a long time boater. The meeting went for three hours. He called his VP of credit in and asked me to share with him the trouble we as an industry are having with the traditional banking industry. I was amazed what they did not know but I could see both of them very intersted in getting more involved in the recreational lending business. He asked me if I could make a presentation to the credit unions board next month becuase in his words “the board of directors steers the ship”.

    I came away from that meeting so excited to be a part owner of a financial institution that is here to help people like me. Later that same day I received a letter from a bank that I have a credit card with. In this letter they say they are going to raise my interest rate and lower my limit close to my balance. I need to say that I have never been late with anything and my credit score is around 800. After being so mad and kicking the wall for about an hour I wondered if I could call this banks CEO and ask for a meeting to discuss this credit card issue. Hmmmm… I did not waste my time. I just payed it off. Then I remembered what the CEO of this credit credit union said “Our credit union is owned by our members. Credit unions have NEVER taken any goverment money or tax payers money. We are here to serve you.”

    I share this with you all to ask WHAT ARE WE DOING? We sit behind our desk and hope that a big bank will step in and help us with our floorplan issue’s. We scratch our heads when every deal we send over to the bank is declined. Then we take them over to other sources and they get them approved. WHY DO WE STAND FOR THIS?

    I encourage everyone to get involved with there local credit unions. You can’t play the game if you sit on the bench.

  4. dave boso

    So far this year I’ve had customers that can’t get approved by joe’s midnight loan, Let alone a bank or a credit union.

  5. Arch

    When it comes to personal banking, credit unions are superior to banks in almost every way. If people knew how big a rip off most of these big banks are, they would IMMEDIATELY withdraw all their funds and move it over to a credit union.

  6. Chris Lyons

    Great story Skip. You are feeling the same way as most people about traditional banks. This is one very big reason we are trying to start our own credit union for the marine industry. I can tell you first hand that the majority of people working in our industry would like to re-direct there day to day banking to our own credit union. I received over 300 emails from people regarding the May article in Sounding Trade Only and in every email had a story like Skip’s. Unfortunatly if our trade association’s don’t get involved then we will never have our own credit union. I urge everyone to make there voices heard.

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