Credit Unions: The Cheaper Alternative?

The standard means of obtaining credit has become so widespread that being at the mercy of increasing interest rates and inflated charges on loans and credit cards has become so commonplace that it is easy to believe there is no other option. But there may be an alternative in the form of the little known credit union movement.

A credit union is a profit sharing, financial co-operative run democratically by the members of the union itself. And by offering a more financially attractive alternative to the standard products offered by banks, the popularity of the credit union movement in the UK is increasing.

As maximizing profits is not the key goal for a credit union, such an organisation has three main aims:

· To encourage its members to save regularly

· To provide loans and financial assistance to its members at the lowest rates of interest possible

· To offer its members help and support, if required, in the management of their financial affairs

To enable you to take advantage of the kind of services that a credit union offers, all you have to do is become a member. Not that this is quite as straightforward as you might imagine…

The key to becoming a member of a credit union is what is known as the ‘common bond’. The common bond determines whether or not you will be accepted as a member of a credit union and this could be that you reside in a specified area, work for a particular employer or within a particular trade, or that you are a member of a certain club or association.

Because of this, credit unions welcome everybody from within the common bond regardless of income, employment status or age and also – and perhaps more crucially, regardless of your credit rating or if you are unable to save a regular amount. So whether you have a poor credit rating or not you can still become a member of a credit union and save as little or as much as you like.

Irregular savers are just as welcome as those people who are able to save money on a regular basis and usually all members, regardless of the amount saved, are paid the same percentage annual dividend on their savings. Whilst generally paid at 2 to 3%, this can be as much as 8% depending on profits.

Using the sum of all members’ savings, the credit union is then able to provide low cost financial services to its members. Although each credit union (as all mutual societies) must ensure that enough money is set aside to ensure financial stability, all other profits are used to provide the lowest interest rates for members’ loans whilst returning an attractive rate of interest for its savers.

With an attractive 6% being the typical interest rate on loan repayments (which normally includes insurance at no direct cost), as the rate of interest that a credit union can charge is capped at 1% a month the most interest you would have to pay on a loan of £100 for example would be only £1 a month!

Insofar as government regulation is concerned, the Credit Unions Act 1979 remains the key legislation that regulates the activities of credit unions. As well as setting out the objectives of an individual credit union, it also mandates that all accounts are independently audited on an annual basis and that full insurance is put in place against fraud and theft.

Also, a given credit union cannot lend all the money saved as loans to its members and cannot invest any residual money in any ventures above a certain level of risk. To reduce the risk of bad investment and to ensure that all savers’ money is not tied up for long periods of time, any money in the control of the credit union must be put into bank deposit accounts, government bonds or other reliable investments.

Overall, credit unions offer an easy and convenient way to save and borrow and can provide a focal point for a community by bringing people together, to both help each other and to help the community as a whole. A credit union can also help to revive the economy of a local area as more money stays within the community which has a knock on effect on income for local businesses.

All you have to do is prove that you can save before any loan will be offered but once proven, financial assistance will be offered based on how much you can save or tailored to your individual circumstances. Paying into a credit union is also easy and can be done at local shops, convenient collection points, or can even be taken directly from your salary.

So is becoming a member of a credit union right for everyone? Before considering them it is worthwhile bearing the following points in mind:

· Regardless of which credit union offers you the best option, you cannot simply join whichever credit union you want. You have to fulfill the requirements of the common bond or at the very least, be a close family relation of someone that does and who is already a member.

· Credit unions are not just a means of obtaining cheaper loans. Although there is no fixed rule for all credit unions, generally you have to have saved with them before any assistance is offered and proved yourself to be able to save.

· A credit union does not provide the convenience of the high street banks as an individual union will typically have very few or sometimes no ATMs and few branch offices.

· Credit unions may not offer the range of services that you can get from your local bank so check to see what is on offer before you commit. Other services such as the return of cancelled checks etc. may also not be provided. It may be worth retaining an account at your bank alongside credit union membership.

· All money borrowed from or saved with a credit union must be in the name of a member and as such, no money can be borrowed in the name of your business. Even if you need money for your business you still need to borrow money in the manner of a standard member of the credit union.

If you above points do not preclude you from becoming a member of a credit union then the best way to obtain a list of the credit unions operating in your local area would be from the Citizens Advice Bureau or your local council. Alternatively there may be a credit union covering the particular industry/place of employment where you or your partner work so it may be worthwhile contacting your payroll department or trade union representative.

Although relatively small in size due to legal restrictions in place to prevent unfair competition with banks and other financial institutions, the UK credit union movement is growing in popularity and offers a real alternative to expensive bank loans or credit cards. Even if your credit rating is poor or non-existent, a credit union may be the right option for you.

Avoid the Hassles and Bogus Charges – Find a Credit Union!

What Credit Union CEOs Really Want

An overwhelming number of CEOs don’t receive professional development, support or acknowledgment for their leadership talents. In an industry that positions itself as the ‘good guys’ I encounter behaviors and actions that are less than honorable. Reflecting upon past experiences with other credit union CEOs and examiners from NCUA and the State of Florida, there is compelling evidence that the shine on our principled reputation is dimming.

Leadership is being replaced by task-oriented managers. Service to mankind is being eroded by difficult regulators in lieu of financial measures. Perhaps a contributing factor is that there are too many managers in CEO roles versus leaders. The difference is meaningful. A leader is a person who gets others to do what they need to get done in order to accomplish the organization’s mission and goals. Leaders are self-starters with a vision or dream. Managers are doers. What makes a leader effective also makes them self-confident and persuasive.

Leaders set the direction, bring together the necessary resources, motivate and encourage, and provide the vision. The nation recently celebrated the 50th anniversary of Dr. Martin Luther King’s “I have a dream” speech. Think about that as an example of a leader vs. a manager. Dr. King said he had a dream… not a plan for operational efficiency, compliance with regulations, or task management.

Go back to the same time period, May 1961, and President John Kennedy said we will place a man on the moon and bring him home safely this decade. Short on details, long on vision yet it happened. An NCUA examiner would wet themself if a credit union CEO made such a bold announcement without magnitudes of spreadsheets. Narrow minded persons make shoddy leaders and they aren’t very good as examiners either.

As a credit union CEO, you must remain focused on the business, not working in the business. Others will try to drag you down into the details and daily procedures and you have to be vigilant and resist. I have a credit union client that recently watched its CEO unexpectedly resign. In the years he was their CEO, he did the job of the CFO. That is not leadership. Because he received no authentic feedback, and that is curious as the retained CPA firm, supervisory committee, examiners and strategic planning firm all failed to tell him so, he did not develop as a leader and will take that issue to the next credit union.

Making sure what needs to get done, gets done, is not the CEOs job. When anyone says differently, and Lord knows the examiners and some board members do so, you need to clarify what the role of the CEO is. Many of the people that a CEO comes into contact with are themselves managers. They have no frame of reference for leadership. Micro-management is the bane of all CEOs and it is more explicit in the credit union industry due to the dependence on and directive of volunteers and those that have never run a financial organization but believe themselves to be qualified to tell you how to. You did not waive your First Amendment rights to express your views when you became a CEO. Speak up!

In the 29 great years I was a credit union executive, I saw all kinds of CEOs. Today, as a business diagnostician and executive coach, it is my mission to work with ethical, successful leaders. If the CEO is open to feedback, then progress may be made. If on the other hand, the CEO believes if it isn’t broke, don’t fix it and keeps their board in the dark, I have to walk away.

How can you improve when you believe you are so good now? The lack of authentic feedback may have clouded your perception. A qualified, neutral 3rd party assessment of your leadership talents is a reality check for CEOs. Remember: all persons inside your credit union have an agenda. You cannot expect the kind of candid feedback you need to grow as a leader from them. You may even get push back from the board members that remember coaching was only provided as a last ditch effort to salvage a career.

I recently caught up with a friend who was a CEO in a large credit union. He shared that his board authorized a business coach for him for a period of six months at an investment of $30,000. That is an enlightened board!

Becoming a better leader and one that is ethical and successful means working on your non-talents. Those may be skills like conflict management, listening, empathy and compassion, planning, mentoring, team building, and your own interpersonal skills. Getting coaching from outside the organization can help you identify and address your blind spots. The coach is going to be focused on your success as a leader of the organization.

In order to get what you really want, start today to address how to improve your leadership talents. Becoming a leader has a return on investment of 5 to 8 times. To get what you want, give others what they want and that is an ethical, successful leader who provides value and returns more to the members and staff