Bank Nice


The Problem with Big Banks and the Benefits of Credit Unions


Most of us require a system to save, transfer, and borrow money. Banks have traditionally offered these services, but banks have developed some big problems that harm us. Credit unions offer a less harmful solution to banking.


What’s a big bank?
Banks are for-profit business corporations, owned by private investors, and governed by a board of directors chosen by the stockholders1. The four biggest banks are Bank of America, JPMorgan Chase, Citigroup, and Wells Fargo.  Based on recent data, the “big four” collectively hold/control:
  • $7.7 trillion in assets3
  • 34% of bank deposits4
  • 44% of credit card purchases5
  • 58% of mortgages6
What’s wrong with big banks? 
Well, big banks:
  • Put our Economy at Risk: Large banks control trillions of dollars and are single points of economic failure. These large banks are highly interconnected, and one failure can rapidly spread to other institutions. Large banks also engage in financially risky behavior, and have accumulated dangerous levels of toxic assets. According to a recent study from the Federal Reserve Board, the size of our largest banks is the #1 factor influencing our vulnerability to financial catastrophe7.
  • Systematically abuse our laws. Many big banks have been convicted of extensive misconduct in their banking policies. Bank of America paid $137 million in restitution for fraud in the municipal bond market8. Citigroup settled for $215 million for their engagement in systematic and widespread deceptive and abusive lending practices.”9 JPMorgan Chase settled for $154 million for misleading its own investors related to complex mortgage securities10. These punishing costs amount to only a few weeks worth of profits, but are a tiny fraction of the damages done by these illegal practices.
Quote from Powell 2009 NYT
Photo credit: Kevglobal
  • Harm Individual Customers: Many big banks harm their customers with excessive and unfair fees, predatory lending practices, and poor customer service. Bank of America recently settled a $410 million class action lawsuit for processing “debit card transactions in order of highest to lowest dollar amount to maximize the number of overdraft fees assessed to its customers.”11 Several Wells Fargo whistleblowers described company practices that “pushed customers who could have qualified for prime loans into subprime mortgages,” specifically targeted African Americans even through their churches because “church leaders had a lot of influence and could convince congregants to take out subprime loans.”12 In addition to specific incidents such as these, the four big banks are listed as in the bottom half of organizations in overall customer service for 201113. Unlike credit unions, banks want to maximize profit. This incentivizes banks to get as much money out of their customers (that’s you!) as they can get away with.
  • Make Violent Investments: Big banks use some of their enormous profits for unethical purposes, like investing capital and services in private prison corporations14, mercenary army corporations15, warlords, and terrorist organizations16. For example, JPMorgan Chase recently settled with the US government for $88 million dollars for violating Weapons of Mass Destruction Proliferation rules as well as sanctions against Cuba, Iran, and Sudan17. The big banks are also the money behind businesses that exploit the working poor, such as the payday loan industry18.
Data from Center for Responsive Politics
  • Undermine Democracy: Big banks fund lobbying efforts, give campaign contributions, and place their own executives in powerful government positions. In turn, this changes the power dynamic in our political process. According to the National Bureau of Economic Research, big banks lobby the government to loosen regulations and allow riskier behaviors that harm individual consumers and put the economy at risk19. From 1990 to 2010, the Securities and Investment Sector was the third largest campaign contributor, and divided their support evenly between Democrats and Republicans20. Henry Paulson is the poster child of the cycle of banking and government positions. As a former CEO of Goldman Sachs, he was appointed the US Secretary of Treasury and architected the bank bailout in 200821.
  • Disallow Dialogue: The customer has little power to engage in dialogue with these companies. In banks this large, an individual person's voice is lost. If you dislike your bank fees or mortgage practices, how can you tell them that? If you are upset with the programs that they are choosing to sponsor or support, where is the space to voice your concern? Some brave groups of people have resorted to strikes22 and class action lawsuits23 to make their voices heard, but the best way to change big banks is to move your money to a credit union.
How do you bank nice? Join a Credit Union.
A credit union is a not-for-profit, cooperative financial institutions that is democratically owned by its members (that’s you!), and run by a volunteer board elected by the members2. Credit unions are membership organizations. People qualify for membership through an employer, organization association (i.e. churches), or community of residence (i.e. live in a particular city or town). Credit unions range in size with the largest being the Navy Federal Credit Union ($41.5 billion in assets, 148 locations nationwide)24 and the smallest credit unions may have single locations and less than $10 million in assets25.

What’s so great about credit unions?
  • Priority shift: People not profit: Credit unions are chartered to help people, not make a profit. According to the Credit Union National Association, their goal is to “serve all of our members well, including those of modest means – every member counts.”26 Credit unions actively educate members about financial services, rather than prey on their lack of knowledge. Since credit unions are not driven by profits, they take fewer risks with their assets.
  • Lower fees, better savings and services: Credit union earnings are returned to the members in the form of lower loan rates, higher savings rates27, and lower fees. Common fees and interest rates were compared across big banks, small banks, big credit unions, and small credit unions in the table to the left. Credit unions still have costs to cover, but these fees are approved by the members. Since most credit unions are much smaller, there are typically no call centers and a relationship between the institution and the members can be fostered. 
  • Investing in local community: Credit unions are typically community or region based. The members who own the credit union are therefore inclined to invest in their own community. Members can make sure people in their community get the services they need.
  • Providing Financial Education: Credit unions provide financial education to their members and their community rather than pushing them to make unsound decisions. Each credit union develop their own programs, but examples providing by the California Credit Union League include hosting seminars and classes about basic financial skills and services and providing programs to help members escape a predatory lending cycle, especially in targeted communities.  
  • Engage in a Democratic Process: As a member of a credit union you vote to elect board members and have a voice in the direction of the institution. Each member has one vote, regardless of the amount of money in your accounts. You can also serve on the volunteer board. Some credit unions hold meetings for their members, providing an opportunity for you to weigh in on issues. This ownership also conveys responsibility for members to help uphold the values of the credit union.

But what about...
  • Deposit insurance. Credit unions are federally insured up to $250,000 per account by the US Government, through National Credit Union Association2, just as the FDIC insures money in a bank account. You only need to make sure the credit union you join is backed by the NCUA.
  • Financial services like loans and credit cards. Most credit unions offer other personal banking services including home and auto loans, lines of credit, and credit cards. These services frequently have better rates than banks27
Map from Community Credit Union Florida
  • Convenience. While some credit union are national, most are small and local. This may have hindered banking convenience in the past, but many credit unions are members in a large co-op ATM network (no fee ATM transactions at any credit union or 7-Eleven)28, allow mail in transactions, and offer free online banking. Many credit unions have 28,000 no fee ATMs in every state, nationwide compared to 18,000 for Bank of America.

  • Credit scores. According to FICO, a credit scoring company, opening/closing a checking/savings account should NOT affect your credit scores. However, if the credit union officially performs a “hard” credit check before opening an account this could lower your score. After talking to a Patelco branch manager, he explained that Patelco does a “soft” credit check when opening an account, which does not affect your credit score. Opening and closing credit card accounts may impact your credit score, so ask if you are concerned.

Are small or community banks a good alternative?
Small or community banks are privately owned, for-profit entities with assets ranging from $10 million to $10 billion (or more)29. They usually have several branches, but are confined to a specific geographic area. Some community banks invest in the local community and provide better services and relationships with their customers30. However, since they are not cooperatives, the boards of these banks can change policies, and even sell out to a larger bank without your voice. Additionally, most small banks' for-profit structure still incentivizes making money from their customers (you) to benefit shareholders (not you).

Credit Unions are the best way to bank nice.

Call to Action
  • Move your money from a bank to a credit union! Visit CUlookup.com to find a credit union near you.
  • If you are a member of a credit union, play an active role advocating for equitable services for your community! Credit unions were founded to service all members equitably, including those with modest means. Some argue31 that very large credit unions resemble banks and may be moving away from their values/mission to ensure access to individuals of modest means and cooperative structure with active member voices. Since members are owners, we are responsible for defending the mission of institution, so we must use your voice and get involved to ensure that the values you switched to a credit union for are being upheld. 
References
1. “Differences between Banks, Credit Unions and Savings Institutions,” Wisconsin Department of Financial Institutions, accessed on November 5, 2011, http://www.wdfi.org/wca/consumer_credit/credit_guides/DifferencesBanksCreditUnionsSavingsInstitutions.htm
2. “Frequently Asked Questions,” National Credit Union Association, accessed on November 5, 2011, http://www.ncua.gov/Resources/Cnsmrs/Pages/FAQ.aspx
3. “Top 50 Bank Holding Companies,” National Information Center, accessed November 5, 2011, http://www.ffiec.gov/nicpubweb/nicweb/top50form.aspx
4. “Summary of Deposits,” Federal Deposit Insurance Corporation, assessed on November 5, 2011, http://www2.fdic.gov/sod/index.asp
5. “The Nilson Report,” Issue 971, May 2011, accessed November 5, 2011,
6. “Study & Recommendations Regarding Concentration Limits on large Financial Companies,” Financial Stability Oversight Council, January 2011, accessed November 5, 2011, http://www.treasury.gov/initiatives/Documents/Study%20on%20Concentration%20Limits%20on%20Large%20Firms%2001-17-11.pdf
7. Xin Huang, Hao Zhou, and Haibin Zhu, “Systemic Risk Contributions,” Federal Reserve Board Working Paper, August 2010, accessed November 5, 2011, http://www.fdic.gov/bank/analytical/cfr/bank_research_conference/annual_10th/papers/Huang.pdf
8. “Bank of America Agrees to pay $137.3 Million in Restitution to Federal and State Agencies as a Condition of the Justice Department’s Antitrust Corporate Leniency Program,” US Department of Justice, December 7, 2010, accessed November 5, 2011, http://www.justice.gov/opa/pr/2010/December/10-at-1400.html
9. “Citigroup Settles FTC Charges Against the Associated Record-Setting $215 Million for Subprime Lending Victims,” Federal Trade Commission, September 9, 2002, accessed November 5, 2011, http://www.ftc.gov/opa/2002/09/associates.shtm
10. “J.P. Morgan to Pay $153.6 Million to Settle SEC Charges of Misleading Investors in CDO Tied to U.S. Housing Market,” US Securities and Exchange Commission, June 21, 2011, accessed n November 5, 2011, http://www.sec.gov/news/press/2011/2011-131.htm
11. Bank of America Abusive Overdraft Feeds Class Action Lawsuit,” accessed November 5, 2011, http://www.bank-overdraft.com/cases/bofa.htm
12. Michael Powell, “Bank Accused of Pushing Mortgage Deals on Blacks,” New York Times, June 6, 2009, accessed November 5, 2011, http://www.nytimes.com/2009/06/07/us/07baltimore.html?pagewanted=all
13. Temkin Group, “2011Temkin Customer Service Ratings Overview of Results,” 2011, accessed November 5, 2011 http://www.temkinratings.com/wp-content/themes/Temkin/assets/pdf/2011TemkinCustomerServiceRatings_CompanyRankings.pdf
14. Elise Foley, “Immigrants to Wells Fargo: Stop Investing in For-Profit Detention,” Huffington Post, October 17, 2011, accessed November 5, 2011 http://www.huffingtonpost.com/2011/10/17/immigrants-wells-fargo_n_1016339.html
15. Andrew Ross Sorkin and Ben Protess, “Blackwater Founder in Deal to Sell Company,” DealBook / New York Times, December 16, 2010, accessed November 5, 2011 http://dealbook.nytimes.com/2010/12/16/blackwater-founder-in-deal-to-sell-company/
16. “Settlement Arrangement,” US Department of the Treasury, August 25, 2011, accessed on November 5, 2011, http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/jpmorgan.pdf
17. “JPMorgan Chase Bank N.A. Settles Apparent Violations of Multiple Sanctions Programs,” US Department of the Treasury, accessed on November 5, 2011, http://www.treasury.gov/resource-center/sanctions/CivPen/Documents/08252011.pdf
18. Kevin Connor and Matthew Skomarovsky, “The Predators’ Creditors: How the Biggest Banks are Bankrolling the Payday Loan Industry,” National People’s Action, accessed November 5, 2011, http://showdowninamerica.org/files/payday-final-091410.pdf
19. Deniz Igan, Prachi Mishra, and Thierry Tressel, “A Fistful of Dollars: Lobbying and the Financial Crisis,” National Bureau of Economic Research Working Paper, May 2011, accessed on November 5, 2011 http://www.nber.org/papers/w17076
20. “Historical Elections, Top Industries,” Center for Responsive Politics, accessed on November 5, 2011, http://www.opensecrets.org/bigpicture/industries.php?cycle=All
21. Justin Fox, “Person of the Year 2008, Runners-Up, Henry Paulson,” Time Magazine, December 17, 2008, accessed November 5, 2011, http://www.time.com/time/specials/packages/article/0,28804,1861543_1865103_1865105,00.html
22. Monica Davey “In Factory Sit-In, an Anger Spread Wide,” New York Times, December 7, 2008, accessed November 5, 2008, http://www.nytimes.com/2008/12/08/us/08chicago.html
23. “Wells Fargo Abusive Overdraft Fees Class Action Lawsuit,” accessed November 5, 2011, http://www.bank-overdraft.com/cases/wellsfargo.htm
24. “Navy Federal Credit Union,” accessed on November 5, 2011 https://www.navyfederal.org/
25. “Small Credit Union Program,” National Credit Union Association, accessed on November 5, 2011, http://preview.ncua.gov/Resources/CUs/Dev/Pages/SCUP.aspx
26. “Credit Union Basics,” Credit Union National Association, accessed on November 5, 2011, http://www.cuna.org/press/cudiff.html
27. “Credit Union and Bank Rates,” National Credit Union Association, accessed November 5, 2011, http://www.ncua.gov/DataApps/Pages/CUBNKMain.aspx
28 “Co-op Network,” accessed November 5, 2011, http://www.co-opfs.org/b2c-homepage.aspx
29. “Community Banking Facts,” Independent Community Bankers of America, accessed November 5, 2011 http://www.icba.org/files/ICBASites/PDFs/cbfacts.pdf
30. Katy Welter, “What is a Community Bank, Anyway?” Huffington Post August 4, 2010, accessed November 5, 2011, http://www.huffingtonpost.com/katy-welter/what-is-a-community-bank_b_670885.html
31. “Bank Attacks: Credit Unions Fight Back!” Credit Union National Association, accessed on November 5, 2011, http://www.cuna.org/initiatives/bank_attack/index.html

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