Credit Unions Continue To Serve Members, Not Profits (CUToday, October 28, 2024)

By Haleigh Laverty
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In recent discussions about credit unions, there have been concerns raised about overdraft fees and claims of predatory practices by the few. While these questions merit some attention, they should not overshadow the reality that the overwhelming majority of credit unions remain committed to their founding mission: serving members, not profits.

​Credit unions, by design, are not-for-profit financial cooperatives. This long-standing fundamental structure ensures that their primary goal remains to benefit their members rather than shareholders. Unlike large, for-profit banks, credit unions operate with a member-centric ethos, which shapes the financial decisions they make. It is this cooperative model that has afforded millions of 

Americans, including military and veteran families, access to alternative financial services apart from large, for-profit banks, often with more affordable and fair options.

A recent news article claimed that some credit unions have become "addicted" to overdraft fees, likening them to predatory banks. It is important to acknowledge that while few credit unions may have their own practices that warrant a review, as with any organization or institution, these cases are far from the norm and shouldn’t undermine the many benefits credit unions provide to their members, especially underserved communities abandoned by banks. The credit union movement continues to prioritize its commitment to offering access to fair and responsible financial services to America’s consumers.

Moreover, the article overlooks a critical point: the context in which credit unions operate, particularly those serving military and veteran members, and low-income populations. Military families often face unique financial challenges, including frequent relocations and deployments. Credit unions carry a strong history backed by dedicated service to military and veteran communities, stateside and abroad. Their missions and purpose are specifically aimed at offering tailored, personalized financial services to meet these members’ unique needs.

60 Years Of Experience
DCUC recognizes this niche part of the movement as “defense credit unions,” and has over sixty years to speak to their commitment and appreciation for supporting the financial needs of our nation’s military and veteran communities. DCUC was formed after credit union leaders and advocates recognized the need for a voice within the industry to represent and champion defense credit unions’ efforts to protect and ensure these communities’ financial prosperity. To paint the whole credit union movement with the same brush as predatory banks ignores the vital role they play in helping service members and veterans manage their finances responsibly.

The suggestion that credit unions are trying to hide overdraft data or avoid transparency is misleading. The credit union movement as a whole has always embraced transparency and accountability, as evidenced by the reporting requirements imposed by the National Credit Union Administration (NCUA). Rather than resist reforms, credit unions have long supported regulations that promote fairness and protect members from harmful financial practices. The key issue is ensuring that any regulation recognizes the unique nature of credit unions and does not lump them in with for-profit institutions whose goals are fundamentally different.

However, this does not reduce the concern that the growing trend of over-regulation could pose significant risks to credit unions, especially those of smaller size, sustainability and future growth. Jason Stverak, DCUC's chief advocacy officer, recently pointed out that regulations are essential for maintaining financial stability and protecting consumers, there must be a balanced approach considering the following:

1. Credit unions should not be subjected to the same regulatory frameworks as large commercial banks. Regulators should consider the scale, structure, and mission of credit unions when designing rules, ensuring they are proportional to the risks credit unions present.
2. Creating regulatory sandboxes that allow credit unions to innovate in a controlled environment can help them compete with fintech companies while ensuring consumer protection. These sandboxes would give credit unions the flexibility to test new technologies and products without the immediate weight of full regulatory compliance.
3. Streamlining compliance requirements and reducing redundant regulations would lower the burden on credit unions, particularly smaller ones. Leveraging technology and automation can also help credit unions manage compliance more efficiently.
4. Open dialogue between regulators and credit unions is essential for creating a regulatory environment that balances oversight with the operational realities of the industry. Engaging credit union representatives in regulatory reform discussions can lead to better outcomes for both regulators and the institutions they oversee.

Consumer Friendly OD Policies
Furthermore, credit unions offer some of the most consumer-friendly overdraft policies in the financial sector. Overdraft protection at most credit unions is structured to minimize harm to members, offering reasonable fees and flexible repayment options. And with this structure, revenue is reinvested in the community—through better loan rates, fewer fees, and financial education initiatives.

It's also worth noting that credit unions are democratically controlled. Members have a direct say in how their credit union is run, meaning that practices deemed harmful by members can be changed from within. This is in stark contrast to for-profit banks, where customer feedback often falls on deaf ears. Credit union members vote for their boards of directors and can influence policies in ways that big bank customers cannot.

The article mentions low-income designated credit unions generating higher overdraft fees per member than other credit unions. It is crucial to understand that low-income members often face more frequent financial instability, which can result in more frequent overdrafts. The solution here is not to penalize these credit unions but to support policies that reduce financial hardships for low-income communities. Credit unions are uniquely positioned to provide financial education and tools to help these members avoid overdraft fees, and many already do so.

Exist To Serve Members
At their core, credit unions exist to serve their members, and the fact is that the vast majority of credit unions adhere to their cooperative principles. They remain focused on providing fair, affordable, and responsible financial services—something that to this day still sets them apart from for-profit banks.

Instead of attacking the entire credit union movement, the best way forward is to encourage practices and institutions that truly serve people, while recognizing that credit unions have been, and continue to be, a better alternative for millions of Americans seeking financial stability.

Credit unions are not perfect, but they remain the "good guys" in a financial landscape often dominated by profit-driven motives. Their mission to serve and empower members should be celebrated and supported, rather than being unfairly tarnished by the scrutiny of a few.

Haleigh Laverty is a Communications Specialist at the Defense Credit Union Council.