Retired high school teacher Ed Bialkin of Ramsey, N.J., has been a member of Paragon Federal Credit Union for more than 30 years. It’s where he got the mortgage to buy his first house, and it’s where he’s banked for most of his adult life.
The mortgage has long been paid off, and now his pension and Social Security checks are direct-deposited to his Paragon checking account. The credit union’s automatic bill pay service takes care of his utility bills and car payments. He also has a wealth-management account with Paragon, which has nearly 49,000 members.
But Bialkin is considering switching to a bank because he said service went downhill last year at the Paragon branch he uses. Teller lines are longer, and the staff seems less interested in answering his questions, he said.
Bialkin said when he complained last year to three different employees about an unexpected $14 check reorder fee for a book of 28 checks linked to his wealth-management account, all three said they would look into it and get back to him but none did. “Fifty cents a check is ludicrous,” he said. “This is supposed to be a credit union, a cooperative.”
More than 90 million Americans belong to credit unions. A growing number of credit-union loyalists are discovering that their non-profit cooperatives have not been immune to the effects of the recession. Some are behaving more like banks, adding fees and providing less-attentive service. Recent surveys show credit unions’ prices have increased and customer satisfaction slipped last year.
The University of Michigan’s American Customer Satisfaction Index report released in December gave credit unions a score of 80 out of a possible 100, down from 84 in each of the two previous years.
As usual, the nation’s largest banks — including Bank of America, Wells Fargo and JPMorgan Chase — fared much worse than credit unions. But credit unions — normally the customer satisfaction champs among financial institutions — slipped into a tie with small banks.
Many credit unions have reported stunted earnings and capital depletion as a result of the recession, rising bad loans and regulatory pressures, said David Van Amburg, managing director of the American Customer Satisfaction Index. Unlike banks, he noted, they cannot raise capital by selling stock. The result often is staff cuts, fee increases and more unhappy customers.
“We’re seeing a cutback in service from their lofty ratings of two years ago,” Van Amburg said. “While credit unions generally survived the 2008 financial crisis much better than the banks, we are learning now they weren’t completely immune to it.”
Nationwide, 56 credit unions failed in the past two years, up from 30 in the previous two. Three have failed so far this year.
As of January there were 369 credit unions on the National Credit Union Administration’s problem credit union list, up from 211 at the end of 2007.
A growing number of credit unions, including Paragon, are operating under “prompt corrective action” orders from their federal regulator, the National Credit Union Administration.
The actions are triggered when capital, or net worth, ratio falls below 6 percent.
Under such orders, they are required to retain more of their earnings, halt business lending growth and establish a plan to replenish capital. Otherwise, credit unions under prompt corrective action orders can continue to operate normally and members’ deposits are insured up to $250,000, a spokesman for the National Credit Union Administration said.
The news hasn’t been great for credit unions lately. Membership in the nation’s 7,339 credit unions declined 0.3 percent during the fourth quarter, although it was still up 0.68 percent for the year. Loans declined 1.34 percent for the year. Bounced-check fees climbed 4.7 percent to $26.05 from $24.88 in the last survey, and the average amount needed to open an account increased 7.7 percent to $134.56 from $124.94.
“Credit unions are confronting many of the same regulatory obstacles as banking counterparts,” said Greg McBride, senior financial analyst at Bankrate.com. “There will be some parallel in fee trends,” he said.
Yet there are bright spots. Deposits and assets grew and their return on average assets, a key measure of financial health, increased last year to 0.51 percent from 0.18 percent in 2009.
A Bankrate.com survey of the 50 largest U.S. credit unions, released Feb. 25, showed that free checking, which has been disappearing at banks, remains the norm at credit unions.
As with banks, credit-union revenue streams have been pinched by new financial regulations such as a requirement that consumers opt in for fee-based overdraft protection services.
Credit unions, like bank counterparts, are bracing for additional declines in fee revenue if and when proposed limits on debit-card swipe fees charged to merchants are implemented.
Banks have paid increased premiums to the Federal Deposit Insurance Corp. to cover losses from bank failures, and credit unions are paying special assessments to their regulator to cover billions of dollars of losses from the failures in the past two years of five corporate credit unions.
Meanwhile, Debbie Matz, chairwoman of the National Credit Union Administration, has been complaining to federal lawmakers that capital-preservation concerns have made some healthy credit unions reluctant to expand at a time when tight credit is slowing economic recovery.
Matz is pushing for lawmakers to consider a more lenient method of determining whether a credit union is adequately capitalized. For example, she’s asking that holdings of very low-risk assets such as short-term Treasuries be excluded when measuring total assets.
Compared with banks and thrifts, credit unions still offer the best rates, according to a new survey.
Average rate on six-month certificate of deposit:
—Credit unions: 0.57 percent
—Thrifts: 0.42 percent
—Banks: 0.18 percent
Average rate on five-year certificate of deposit:
—Credit unions: 2.31 percent
—Thrifts: 1.88 percent
—Banks: 1.36 percent
Average rate on home equity line of credit:
—Credit unions: 4.28 percent
—Thrifts: 4.97 percent
—Banks: 6.14 percent
Average rate on used-car loan:
—Credit unions: 5.28 percent
—Thrifts: 7.78 percent
—Banks: 6.58 percent
Credit unions score much higher than big banks in a customer satisfaction poll, but last year their score fell by four points, placing them in a tie with small-bank counterparts.
—Wells Fargo: 72 in 2008, 73 in 2009, 73 in 2010
—Citigroup: 69, 68, 69
—Bank of America: 73, 67, 68
—JPMorgan Chase: 73, 68, 67
—Small banks: 80, 80, 80
—Credit unions: 84, 84, 80
Source: McClatchy-Tribune Information Services.