There are a lot of shotgun weddings these days. It’s not a groom and secretly pregnant bride, but credit unions looking to expand are snapping up small banks, some who are seeking relief from regulators increasingly on their back with new rules, at a time when it’s tough to grow organically. So, these marriages of convenience of sorts are on the uptick, and it’s not likely to be a passing fad.
"For years, smaller banks have been looking to be picked up by larger ones in order to escape the mounting regulation costs of Dodd-Frank (signed in 2010),” says Jeff White, a financial analyst with FitSmallBusiness.com.
Matt Wrye, manager of media relations for the California and Nevada Credit Union Leagues, offers more insight. “Just one of perhaps a few reasons we are most likely seeing this trend is because it’s the right-place, right-timing for these credit unions. With the U.S. economic expansion entering its ninth consecutive year and several mortgage lenders, financiers and banking entities having been hollowed-out by the effects of the “Great Recession,” credit unions have been at the right-time, right-place to spread their “for people—not profit” mission and message.”
Perhaps a secondary or spill-over effect in this recent push, says Wrye, is that credit unions are continually improving their sophistication and technologies to serve “new” members—and as some of them grow bigger, they realize there is opportunity to serve new individuals as they consider the small-bank acquisition marketplace. Scalability has come into play for some credit unions as they look to both strengthen their safe-and-sound bottom line and continue returning—or even increase—their “give back” to members.
The question is, what does this potentially mean for you?
“This is mainly a good thing for consumers when they are being purchased by credit unions. Credit unions have many benefits to you if you use them for your banking needs -- mainly due to the fact that you become a member of the credit union. They typically offer lower loan rates and higher savings yields than comparable local banks. For example, credit unions can charge no more than 18% on their credit cards,” says White. (Editor's note: The 18% cap applies to federal credit unions and was established by the NCUA.)
Credit unions have been a staple of smaller communities for years, and with the success of online banking really hitting its stride - they're expanding. “I think credit unions are taking advantage of new technology and new members by looking for growth opportunities. This means that the members of the credit union will potentially benefit by getting better rates and yields in the future, because the more money that comes into the bank the better returns the credit union can get for their members.
With so much of the banking industry swallowed up by the largest banks nationwide, seeing credit unions growing can only be a good thing for the consumer," says White.
Wrye adds another plus, “They now each have one vote in a democratically-run (and usually a locally owned) financial institution that is truly—and historically—looking out for their best interest). They’ll receive individual care and attention, and a long-term partnership to help them thrive and prosper. A small community bank, while well-intentioned, cannot say the same, since its ultimate goal is to increase profits for shareholders.”
But that’s not to say there are no concerns for consumers. “As long as the purchase doesn't limit the options for consumers in that area, then it's a good thing. If it takes away the competition entirely for your city, forcing you to bank with the credit union, then that's never a good thing. Consumers are always benefited the most by competition,” says White.
At stake for consumers is whether consumers will or will not feel “at home” at a local credit union versus their former community bank, points out Wrye. “Consumers come in all types in regard to their needs and wants. Will they realize that credit unions are “for people, not profit”? Will this message resonate as they explore what the credit union has to offer that is either similar or dissimilar or somewhere in between compared to their former community-bank experience? Does it matter to them?”