NEW YORK–Credit unions have outgrown their “down home reputation,” according to a new analysis by the Wall Street Journal, with one analyst suggesting CUs are making a lot of loans with “high-risk features.”
The story, which begins by profiling one member who is a former Wells Fargo customer and who received an attractive loan offer on a $42,000 boat at a 5% rate from University FCU in Austin, Texas, went on to state, “Credit unions, long seen as a humdrum corner of consumer finance, are going toe-to-toe with the biggest financial institutions.”
The Journal noted credit unions’ assets have grown at nearly twice the pace of banks’ over the past decade, have been buying banks, and that Stanford FCU had recently partnered with Google on a checking account.
“(Credit unions) are using their newfound financial heft to compete aggressively for business,” the Journal stated. “Dozens of them dole out loans for boats, jet skis and recreational vehicles. Others are getting into cannabis banking. Some went big on problematic loans backed by taxi medallions. Economists and analysts are uneasy about how these bulked-up credit unions will fare in a recession. In another financial crisis, some could fail or shrink, stranding borrowers who prefer not to use banks. In a worst-case scenario, taxpayers could be saddled with the losses.”
‘High Risk Features’
Karen Petrou, co-head of Federal Financial Analytics, told the Journal credit unions are “making lots of loans with high-risk features. They always tried to be George Bailey’s bank and they’re not anymore.”
As CUToday.info reported here, Petrou and Federal Financial Analytics have been critical of credit unions in the past, with the American Bankers Association sponsoring one report suggesting credit unions have not been “living up to (their) statutory mandate to operate not-for-profit and serve people of small means.”
The Journal report does note that while CU growth has been strong “even the largest cooperatives are small compared with the major banks. The entire industry collectively holds less in deposits than JPMorgan Chase.” The report further notes that most of the growth is being driven by a relatively small number of the largest CUs.
Risk Managed Well
The story includes a comment from Donna Bland, CEO of the sixth-largest CU in the U.S., The Golden 1 in Sacramento, Calif., which is seeking to grow assets, loans and deposits by 10% on average annually over the next five years.
Bland told the Journal the credit union isn’t worried about concentration, in part because consumers usually pay down their auto loans faster than real-estate debt, although it has tightened its standards this year.
“We are in the business of taking risk with our members,” Bland told the Journal. “And we manage that quite well.”
The full Journal story can be found here.