Credit Unions: Tough Foe for Banks Tax-Free Status Helps These Financial Institutions Provide Low-Fee Banking to 44 Million Customers - and Counting

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ANTON LOCHER, a college student studying law enforcement in the metropolitan Detroit area, says you can't beat his bank when it comes to services and competitive fees. The catch is that his "bank" is not a bank at all. Since November 1995, Mr. Locher has been a member of the Warren Schools Credit Union, located in Center Line, Mich.

Locher was looking for a low-cost loan to buy a new truck. He checked with local commercial banks and auto-finance companies. The lowest rates, he says, were offered by the Warren Schools Credit Union, which he was able to join. As it turned out, he didn't buy the truck. But he has stayed with the credit union, for its variety of services and competitive costs.

Locher is certainly not alone in finding satisfaction in joining a credit union. In the United States, there are more than 70 million credit union members, up from 44 million in 1980. In the same period, assets in the nation's 12,201 credit unions have risen more than fourfold, from $69 billion in 1980 to $318 billion today. Yet millions of people remain unaware of credit unions, or their low cost of service compared with banks. Consumers seeking lower fees "should consider banking at a credit union," says Stephen Brobeck, executive director of the Consumer Federation of America (CFA), a consumer group based in Washington. In late February, the CFA and the Credit Union National Association (CUNA), a trade group, held a joint press conference in Washington to announce research findings based on 1995 data showing that credit unions charge lower service fees than do commercial banks (see chart). And often credit unions waive fees altogether. On "economy checking" accounts, for example, a majority of banks charge services fees. Only a minority of credit unions do; and their fees are lower. On regular checking accounts, credit union fees average three-fifths of the bank fees ($3.59 vs. $5.97 per month.) On interest-bearing checking accounts, credit union fees tend to be three-fifths of bank fees ($4.43 vs. $7.43 per month. Moreover, less than half of all credit unions charge fees when monthly minimums are not met. Almost all banks do. Again, credit union fees, according to the CFA and CUNA tend to be lower for services such as credit cards, cashier's checks, money orders, certified checks, and research time. (Banks do tend, however, to offer more automated-teller-machine services - and, in some cases - lower ATM charges.) Banks file lawsuits Little wonder then, that banks are fighting back against credit unions. For years now, banks have sought to deprive credit unions of their exemption from federal corporate income taxes. Credit unions have been able to carry the tax-exempt status because they are not-for-profit institutions serving "members." Many banks, especially smaller and mid-level banks that must compete with credit unions in small towns, argue that the not-for-profit designation is "bunk," that credit unions, for all practical matters, are banks. …

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