WASHINGTON (6/7/12)--Credit unions provide a readily available funding source for businesses with loan demands that banks refuse to meet, and "generally have lower rates on loans than their competitors," National Credit Union Administration (NCUA) Chairman Debbie Matz noted in a recent MarketWatch interview.
Credit unions "make very small loans that frequently banks won't makep--the average loan is only about $230,000--for things like a day-care center or an auto repair shop. Sometimes banks are reluctant to make loans that small," Matz said. However, some credit union small business lending practices are being impacted by the 12.25% of assets member business lending cap, she said. The NCUA supports credit unions that "want to lift the cap and help communities create jobs," Matz added.
Credit unions' nonprofit, member-owned business model results in rates that are more favorable than bank rates "on almost every metric," and Matz noted that credit unions return their profits to members by lowering rates on loans and raising rates on deposits, with average credit card rates of 11.64%, below the 13.22% average bank rate. New three-year car loan rates average 3.7% at credit unions, lower than the 5.47% bank average rate, Matz added.
She emphasized that credit unions "provide services to people of all walks of life." And though credit unions were created to provide credit to people of modest means, anyone can now join a credit union. "It used to be you had to belong to a certain group but many serve anyone in a particular community. It's become much easier to join one," Matz said.
Reaching new members is a must for credit unions if they want to be around in 10 or 20 years, Matz said, and she again encouraged credit unions "to make sure services can be accessed from anywhere, anytime, through mobile devices, and that they can make loans on the spot."
More credit unions are starting to understand the need for mobile services, she added.
The NCUA chairman also emphasized the safe business practices of many credit unions, noting that credit unions are not allowed to engage in the kind of risky business practices that recently created issues for J.P. Morgan. "Credit unions operate within a very narrow margin on derivatives and only as hedges on interest rates. Right now, only seven credit unions are piloting plain vanilla derivatives. It takes an incredible amount of expertise so we're treading cautiously," she said.
While other financial regulators may move to address the issues brought to light by J.P. Morgan's missteps, the NCUA is unlikely to react by changing credit union regulations, Matz said. However, she did detail some of the NCUA's recent regulatory work, noting that the agency is examining all of its current regulations "to see where changes should be made to avoid duplication and streamline."
For the full interview, use the resource link.