The pros and cons of credit union credit cards
Nonprofit card issuers get high marks, but aren't for everyone
By John Morell
When looking at credit cards, check out more than the offerings of the big banks.
A May 2011 study conducted by Pew Charitable Trusts reviewed terms for the 12 largest banks issuing credit cards and the 12 largest credit union card issuers and found that credit unions offer more consumer-friendly terms.
The study found credit union annual percentage rates for purchases were lower, ranging from 9.99 percent to 17 percent. Federal law caps most credit union loans at 18 percent. Unhindered by that rule, banks charge more -- 12.99 percent to 20.99 percent.
However, credit unions aren't for everyone, and before you fill out an application, be sure to do your homework.
Here are some pros and cons of credit union credit cards to help you determine whether a credit union credit card is right for you.
Pro: You're a member, not a customer
Credit unions are member-owned, nonprofit organizations that have a stated goal of providing services for their membership, as opposed to banks, which are in business to turn a profit and must answer to stockholders. In the Pew study, the largest credit unions advertised lower annual percentage rates than the largest banks in July 2009.
The Pew study, conducted as part of the nonprofit group's Safe Credit Cards Project, compared banks' and credit unions' cards across a broad range of terms, including over-limit, cash advance and late payment fees. In each case, the credit union cards terms were more consumer-friendly.
"Overall, penalty fees were slightly more common among credit union cards than among bank cards, but credit unions charged significantly lower fee amounts ($20 compared to $39 for most bank cards)," according to the study.
"Because we're not-for-profit organizations, we're not going to ding you with fees like a bank," says Chris Colliver, a legislative analyst for the California and Nevada Credit Union League.
Though you must join a credit union to get the benefits, doing so is relatively easy. Check out FindACreditUnion.com to locate one or more in your area that you're eligible to join. Also, credit union staffers are usually more than happy to get you signed up with applications for credit cards, home loans, car loans, etc.
But remember, "nonprofit" doesn't mean "charity."
"A credit union isn't in business to make money, but they're not here to lose money either," says Mike Lanotti, general counsel for the New York Credit Union League. "If they feel that credit card isn't right for you in your current financial condition, they'll tell you before they process your application. It's a more personal procedure."
While your credit history, income and expenses play the biggest role in whether you get a credit card or loan from us, we're also looking at your motivation and desire.
|-- Jeremy Trull
Credit union marketing specialist
Con: All accounts are tied together
For all the good things credit unions offer, the biggest downside is known in the financial industry as "cross-collateralization."
Here's how it works: Say you receive a car, RV or boat loan through a credit union with which you also have a credit card. In the fine print of the loan contract, you'll probably see that your credit card balance is secured by the auto, RV or boat. This means that, in the event of defaulting or declaring bankruptcy, the amount you owe on that credit card doesn't get wiped out. It simply becomes secured by the other loan.
"This is a problem that's fairly unique to credit union customers who get into financial trouble," says Peter Orville, a bankruptcy attorney based in Binghamton, N.Y. "You might stop paying your credit card bill because it's unsecured and continue to pay your auto loan because you don't want your car repossessed. But because of cross-collateralization, that credit card is secured by your car."
It could also be secured by your credit union account. "If you have money in a credit union account, and they have reason to think you're going to default on one of your loans, they can take it, even if you're not past due," says Orville.
|12 LARGEST CREDIT UNIONS
Here are the top 12 credit union credit card issuers as of July 2009, according to the Pew Charitable Trusts:
- America First Credit Union
- Boeing Employees Credit Union
- Digital Federal Credit Union
- Golden 1 Credit Union
- Navy Federal Credit Union
- Patelco Credit Union
- Pennsylvania State Employees Credit Union
- Pentagon Federal Credit Union
- Schools First Federal Credit Union
- Suncoast Schools Federal Credit Union
- Vystar Credit Union
- Wescom Credit Union
Pro: Second chances are welcome
If you fill out an application for a credit union credit card or loan and are turned down, you usually have the option of asking the powers that be to take another look. Some credit unions have loan committees made up of employees and members who review the initial credit decisions. If you feel you deserve that low-interest card because you have the income to support it, and you'd like a fresh financial start, a letter to the committee explaining your circumstances could get them to approve you.
"While your credit history, income and expenses play the biggest role in whether you get a credit card or loan from us, we're also looking at your motivation and desire," says Jeremy Trull, a marketing specialist for Idahy Federal Credit Union in Boise, Idaho. "Maybe you had some bad financial luck in the past, and you're on your way up again. We'll take that into account."
Con: Asking a little bit more of you
If they give you a second chance with a card, credit union officials might make a request you probably wouldn't hear from a bank. Many credit unions actively promote personal finance courses to help educate their members, and you may be asked to attend a money management seminar.
"It's in the credit union's interest to keep their members aware of the latest information on personal finances and budgeting," says Lanotti.
Pro: Willing to work with you during your tough times
Designed, as they are, to provide solid customer service and attend to their membership's needs, your credit union could be a good friend if you should experience financial hardship. Nearly every credit union has stories about how they've modified loans and credit card terms for members trying to get back on their feet.
A credit union isn't in business to make money, but they're not here to lose money either.
|-- Mike Lianotti
General counsel, NY Credit Union League
Con: Not immune from tough times of their own
With so many banks closing or merging recently, it's smart to ask whether the credit union that you want to join is any more stable than its bank counterparts. While credit unions have been generally healthier than banks during the financial upheaval during the recession that began in 2007-- having avoided missteps such as involvement with subprime mortgages during the housing boom -- they are hardly in the free and clear. They are basically local institutions, so if a particular area is hit hard by layoffs or the housing crisis, the local credit union is going to feel the pinch, just like the small business down the street. In fact, the National Credit Union Administration, which oversees credit unions, has taken over institutions that have struggled over the past year. Some of these credit unions have closed down, while others have been swallowed by larger credit unions. Regardless, depositors are protected up to $250,000, as they would be with bank deposits.
Credit unions across the country have also complained that new disclosure and billing regulations in the Credit CARD Act of 2009 will increase their operating costs. Unlike the big banks, credit unions will struggle to comply with the new rules.
Pro: They have ATMs everywhere...
Your new credit union may have only a handful of branches, or maybe even just one, in your area, but the industry addresses this issue with the Co-Op Network, which is an affiliation of 28,000 credit union ATMs around the U.S. and Canada. There are thousands more in seven other countries.
Con: ... But they can be hard to find
It's not always convenient when you're in another city or an unfamiliar part of town to track down that Co-Op ATM. If you do a lot of traveling, expect to do some research on where they are or you'll be facing some out-of-network ATM fees.
You can find Co-Op Network ATMs in your area by calling (888) SITE-CO-OP or checking co-opfs.org, or if you're away from the computer, text your address, intersection or ZIP code to MYCOOP to receive a message about the closest fee-free ATM.
You can also download Co-Op Network ATM locations into your car's GPS system. The network also features a "shared branch" program that allows another credit union to handle banking questions or problems for you if you're away from home.
See related: Credit CARD Act of 2009, Glossary of common credit card terms
Updated: February 9, 2012