Lending Perspectives: Are credit unions consumer-friendly?

Fairness has been part of our core values from the start but, as an industry, we may not have kept up with advances in thinking about lending and banking.

Generally speaking, credit unions are viewed as being member friendly. We tend to be more fee-adverse than the banks. We don’t make business decisions based on quarterly earnings or our recent stock price. We’re not chasing profits; many of us have worked for years on ideas for how to give back more to members, whether that’s with lower loan rates, higher deposit rates, better service or one-time special member dividends.

Yet are we consumer friendly?

Where am I going with this? Credit unions have a unique history, with many being chartered initially to serve people who work for one employer and, thus, we enjoyed a special relationship with that company’s employees. Certain business practices became commonplace, like the statutory lien (a lien created by a law, not by borrower consent, also known as the right of offset) and cross-collateralization (when the collateral for one loan is also used as collateral for another loan). These practices were written into our account agreements decades ago. This comfy relationship with an employer could be the root for a lot of these practices because the survival of a smaller institution, especially a cooperative financial institution, relied on the all of its members to repay their bills.

Several years ago, a fairly large credit union entered into a settlement agreement with the Consumer Financial Protection Bureau over certain loan and account practices that were claimed by the bureau to be violations of the unfair, deceptive and abusive acts and practices provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among the claims made by CFPB was that the credit union “hid” much of the language allowing it to enforce some of its rights deep in its account disclosures.

 

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