Let me start this article on credit union superpowers by making a respectfully low bow to Stan Lee and Malcolm Wheeler-Nicholson, founders of Marvel and DC comics respectfully. Both Lee and Wheeler-Nicholson delivered the chassis of the modern super-hero. They created these heroes with superpowers that arose from unique accidents (Spiderman), technical innovations (Batman), or genetic mingling with aliens (Captain Marvel). The credit union industry has many superpowers as well, and today we are going to focus on one, the HUG.
Superpower: Let the Cooperative force be with you – aka the HUG
Credit unions are financial cooperatives, meaning that they are owned and managed by their members. Every account holder has an ownership share in the credit union, allowing them to participate in the management of the credit union via elections and other actions. The cooperative business structure is a unique feature of credit unions and comes with a fantastic set of 7 cooperative principles. Just as a refresher, here they are.
- Voluntary Membership
- Democratic Member Control
- Members’ Economic Participation
- Autonomy and Independence
- Education, Training, and Information
- Cooperation Among Cooperatives
- Concern for Community
The last principle, “concern for community,” is a favorite as it exemplifies the credit union spirit of “people helping people.” Of course, the word “cooperative” is just fantastic. It means that credit unions work together to solve problems and build a better financial landscape. To put it in simpler terms, credit unions hug. Bother literally and figuratively.
This hug is expressed in the passion that credit union employees have for their members. They love to help them in ways that you wouldn’t expect from your financial institution. Credit union employees have been known to help change a member’s flat tire (even in the rain), check on older members during snowstorms, and even, on rare occasions, temporarily take care of a member’s pet.
The Loan Hug
During the great financial crisis, credit unions worked very hard to keep members in their homes when foreclosure from other financial institutions was looming uncomfortably close.
When monthly energy prices were nearly the amount of an auto loan payment, many credit unions offered to let qualifying members skip their auto loan payment to pay their energy bills in order to keep the lights on.
The ability to skip a loan payment is nearly a standard benefit found with most credit union credit cards and auto loans. While skipping a loan payment extends the life of the loan, the ability to have additional cash available may be a critical way for members to stay afloat. Recognizing this need and creating solutions for it is the hug that credit unions offer.
While the credit union hug is lovely and genuinely does differentiate them from other financial institutions, there may be an economic benefit from these hugs, specifically in keeping members in their homes and providing methods for an increase in cash flow. Deferring an auto loan payment is considered a form of a micro-loan. Micro-finance research performed by Harvard Professor Rohini Pande and Duke University Professor Erica Field indicates a positive economic impact when a borrower is given a chance to defer a payment. Professors Pande and Field found that offering borrowers a grace period of just two months doubled the rate that new businesses were created. The cash flow generated by the deferred payment allowed the borrower to take more significant risks that then resulted in bigger rewards. After three years, business profits were 41% higher, and household incomes increased by 19.5%.
Financial impact of the HUG
Does this mean that credit union members who skip an auto loan payment will have a similar economic impact? The research has yet to be completed; however, an argument can be made that by allowing the member to have the freedom to have additional cash has two positive impacts on local economies. The first is that it keeps the member from defaulting on other loan obligations and keeps them in a positive cash flow state. The second is that it makes the member more loyal to the credit union and increases the likelihood that members will not default on the auto loan in the future. And, most importantly, credit unions are, for the most part, the only financial institution that offers this important and needed financial hug.
“With great power comes great responsibility.” – Stan Lee