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Defying the economic slump into which the COVID-19 pandemic cast the world, credit unions are doing quite well. The third quarter bulletin of 2020, released by Wisconsin’s Office of Credit Unions, highlights how well the state’s 118 state-chartered credit unions have been doing: Total assets represented by Wisconsin’s credit unions rose to $48 billion, up from $41.1 billion at the end of 2019, generating $362 million in net income by September 2020.
“I’m not surprised credit unions are growing in Wisconsin and nationally. Consumers are savvy. Because we’re owned by our customers, or members, the credit union business model provides them with a great value, and we’re focused on member success rather than shareholder profits, people can tell it’s a good deal. And that’s the credit union difference” says Kim Sponem, CEO of Summit Credit Union.
UW Credit Union President Paul Kundert is also not surprised. “Credit unions tend to grow counter-cyclical to the economy. The more difficult time people are having with their finances, the more likely they are to shop around and examine their options,” “Credit unions grow based on the increase in members that they have. We have nearly 300,000 members and each one has less than $10,000 of deposits with us on average. So, our growth really is a reflection of how many people are coming in and opening accounts. Even this year, we’ve had more than 10,000 people open a checking account with us.”
Historically, the nature of credit unions—smaller, community-based and mission-driven—contributes to this trend. More and more people are choosing credit unions than ever before, and credit unions are growing and are more able to provide larger loans and more services. As the grow, a disproportionate share of assets is being gathered by a few top performers. Five of Wisconsin’s largest credit unions, Landmark, Summit, UW Credit Union, Community First and Educators, have a combined number of more than 1 million members. The other 115 credit unions in the state share another 2 million members.
So What Is a Credit Union?
Credit unions are member-owned financial institutions that coexist with banks and offer many of the same types of services with different types of leadership and membership. Because credit unions are member owned, the credit union serves its owners and that is you. Members of a credit union are, by design, part of the same community: to join a credit union, one must typically share a link to the union, be it through family, employment, geographical location, school, union, religion, etc. As cooperatives, credit unions are collectively owned by their customers; customers elect members from their own ranks as board members and decide the direction of the institution.
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“In a bank, the shareholders elect the board, and a bank board is more likely to spend time talking about profit, but in credit unions, the board spends more time talking about member satisfaction,” Kundert adds. Even with large assets that could rival a bank’s, credit unions retain their mission to serve communities, reduce fees and not seek profit. As such, the success of credit unions in the face of the pandemic shows that they are particularly well-suited to the needs of the people in these difficult times.
“Summit has been growing and we’re proud of that because growth allows us to help more people build financial security, including homeownership, and give back to the communities where our members live and work,” explains Sponem. “And, it’s not just about growth. We were also named a Top Workplace in 2020.” Sponem continues, “In addition to COVID-19, 2020 put a spotlight on racism and gave us an opportunity re-examine and refine our ongoing work in diversity, equity and inclusion efforts at Summit and in the communities we serve. We firmly believe that diversity is our strength.”
Credit unions traditionally have been smaller than banks and fill a niche for small loans and financial education that banks are often too big to fill. A credit union member’s savings and loan balances are typically lower than a bank’s which often means higher fees in percentage terms than for larger customers. However, since credit unions are mission-focused, members are likely to pay reduced fees. “Our board is focused on finding ways to reduce fees on members. In any given month, 97% of our members pay no fees at all for their checking accounts,” Kundert reveals.
“We recently looked at some research by an independent industry source”, Sponem says. “It showed that, in just one year, Summit helped our members save $30 million, or about $333 per household, as compared to an average Wisconsin bank. That puts more money in people’s pockets. I always say, It’s your money. Own it.”
Despite their quickly increasing financial power, the number of credit unions has been dwindling. In 2005, there were nearly 9,000 federally recognized credit unions. In 2013, that number was down to 6,600. Now, there are barely more than 5,100. The number of credit unions has been nearly cut by half in the past 15 years. Wisconsin went from 171 state-chartered credit unions in 2013 to 118 today.
More Customers But Fewer Credit Unions
Every year, Wisconsin is seeing more consolidation with larger entities regularly taking over the smaller ones to consolidate their positions. Being a successful financial institution has become increasingly more expensive, requiring new secure tools, heavier regulations and heavy investments in technology. This makes it far more difficult to be viable as a tiny, local financial institution, while the major players can bear the brunt and spread the costs over a much larger number of customers and larger asset bases.
“At the peak, there were 563 credit unions in Wisconsin; we had more credit unions per capita than anywhere else in the country,” Kundert adds. One hundred years ago, Wisconsin took a leadership position regarding small loans and opposing predatory interest rates. In 1913, four years after the first American credit union opened in New Hampshire, Wisconsin enacted legislation allowing credit unions. It wouldn’t be until 1934, more than 20 years later, that the Federal Credit Union Act passed, allowing all states to follow in the footsteps of the Badger State. For its key role in pioneering credit unions, Wisconsin has been housing the Credit Union National Association (CUNA) in Madison.
Wisconsin credit unions doubled the sum of assets they represent in less than a decade: At the end of 2013, their total assets had reached $24.5 billion. Not only are credit unions experiencing an acceleration of their growth from year to year, but 2020 has proven to be a record-breaking year for them: From January to September 2020, credit unions increased their assets by an additional $7 billion, far more than the $4.1 billion acquired from 2018 to 2019, $2.8 billion the year before, and so on.
Wisconsin’s larger credit unions, which often had assets in the hundreds of millions just a few years ago, have grown significantly: Landmark Credit Union represents assets worth more than $5 billion; Summit Credit Union has more than $4.3 billion; UW Credit Union has just passed the $4 billion mark, $700 million more than at the end of 2019; Community First Credit Union reports more than $3.4 billion; and Educators Credit Union reports more than $2.6 billion, up from $2.1 billion one year ago.
Credit Unions May Be Getting Larger But They Haven’t Lost Their Mission
This does not mean that credit unions are turning into member-owned banks, however, Paul Kundert assures. When COVID hit, “We offered emergency loans to members that suddenly lost income and there was a delay in getting unemployment benefits. We loaned out almost $3 million to members in emergency loans,” he says. “We require no payments or interest for three months, and then you can take up to three years to repay at 1.9% interest. We also offered payment extensions for people so that they wouldn’t be reported as delinquent in their loans.”
Summit Credit Union highlights the work done for local businesses: Through the CARES Act, Summit “helped many businesses be able to keep paying their employees by providing more than 1,400 loans worth about $59 million.,” says Kim Sponem. “Now, we’re working with these businesses to get loans converted into grants, where possible, so Wisconsin’s small businesses can stay afloat despite the economic impacts of the pandemic.”
Educators Credit Union expanded their education-based approach to help members and organizations with financial literacy efforts and donations. “These efforts include providing lunches for frontline workers, funding a sensory bag drive, supporting the No Empty Backpacks school supply drive and donating $80,000 worth of backpacks and school supplies for homeless MPS students,” says Kelly Blickle, spokesperson for Educators. In the 2020 year alone, despite the economic hardship, Educators Credit Unions opened two new branches and provided an unprecedented $4.27 million in rewards to their members.
Beyond the fact that economic hardship pushes people to reallocate their savings to credit unions, the year 2020 brought a number of abnormal forms of revenue to countless Wisconsinites—and Americans in general. “Members have increased their savings dramatically during the pandemic. The federal stimulus money that came in, many of our members have put that away in savings and haven't spent it yet,” Kundert states. The increased unemployment benefits aimed at lessening the blow of mass unemployment also contributed to solidifying the assets of lower- and middle-class households, which make up the customer base of credit unions. Additionally, with the closure of entertainment venues and eateries, there have been fewer avenues to spend that money.
This is a trend that has been reflected nationally: The National Credit Union Administration reports that total assets in federally insured credit unions rose by $248 billion—16.1%—in 2020, reaching $1.79 trillion. Wisconsin’s credit unions bolstered their assets significantly more than the average seen in other states.
Jean-Gabriel Fernandez is a journalist and Sorbonne graduate living in Milwaukee. He writes about politics, cannabis and culture for the Shepherd Express.
