Giving Credit

Affiliating with an existing credit union -- or starting a new one -- is an inexpensive way to boost fringe benefits.

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Larry J. Brock of Brock's Steel got the idea from an employee who was having trouble saving money. "We'd just come out with raises," the president of the small, privately held company recalls, "and I said, 'Why don't you take this raise and put it away in a savings account?' He suggested [I put it in] the credit union."

The credit union, in this case, was the First Peoples' Community Federal Credit Union, based in Cumberland, Md., where Brock's Steel, a scrap-metal processor and operator of a steel service center, is headquartered. First Peoples' serves individuals who live or work in Mineral County, W. Va., and Allegany County, Md. "I got on the phone to [the credit union]," Brock remembers, "and set up payroll deductions."

Brock's Steel, with 28 employees, is typical of the growing number of small businesses that offer credit-union services to workers. In the past, only big companies had enough employees to make credit unions feasible. But recent deregulation in the financial industry has opened up credit-union services to people in small corporations as well.

And small companies are signing on. In southern California, for example, more than 650 small businesses offer credit-union services to workers. In central Florida, the figure exceeds 300, according to Credit Union National Association Inc. (CUNA), an industry group based in Madison, Wis.

Credit unions are, by definition, cooperatively owned financial institutions offering savings and investment plans, consumer loans, individual retirement accounts, and checking and related services. They are organized, in CUNA's words "to meet the financial needs of their members." Loans are given to members of the credit union only, and only members are allowed to open savings accounts.

Credit unions are attractive to small companies because they enable employers to offer the special services at a relatively low cost. The primary expenses are processing costs (expenditures associated with deducting savings and loan payments from workers' earnings), rent, and utilities (if they donate building space for credit union use).

By making credit union services available, companies make themselves more attractive to prospective employees. Says Joan Pinkerton, public information officer of the National Credit Union Administration (NCUA), a federal regulatory agency in Washington, D.C., "Credit unions are increasingly seen as a type of fringe benefit." In addition, employers view credit unions as a way to boost employee loyalty and-encourage workers to save.

Workers are attracted to credit unions for a variety of reasons. Some like the convenience of payroll deductions for savings and loan payments. Others, especially young employees, cite easier access to credit and the ability to establish a credit history.

As cooperatives, credit unions don't seek to make money. "The purpose of the credit union is not for profit, not for charity, but for service," says Kathy Enderlin, a consultant with the Massachusetts CUNA Credit Union Association Inc., in Burlington. But the two big selling points of credit unions are paying higher-than-average interest on savings and charging lower-than-average rates on loans. For example, Brock's employees earn 0.5 to 0.75 of a percentage point more on their savings at the First Peoples' Community Federal Credit Union than they would from a local bank. Likewise, they pay 0.5 percentage point to 2 percentage points less on loans, says Paul C. Herring, First Peoples president.

Equally favorable rates are available at many credit unions elsewhere in the country. "Our money market rates are slightly above bank rates," notes Michael Dahlkoetter, vice-president of the Los Colinas Federal Credit Union in Dallas. He cites the credit union's low overhead and nonprofit status as factors behind these higher rates.

Membership in U.S. credit unions now tops 47 million and assets equal more than $89 billion. Credit unions in the United States number more than 20,000 -- 12,000 of them chartered by the federal government and 8,000 by various states. The differences between state and federally chartered credit unions are slight. In Massachusetts, for example, a new credit union pays $100 to obtain a charter. The federal government, meanwhile, charges no fee.

Deposits at most state and all federally chartered credit unions are insured up to $100,000. "We insure 5,000 of the 9,000 state chartered credit unions," says Pinkerton of the NCUA. Like other financial institutions, credit unions are regulated. For example, credit unions, like banks, are limited in the percentage of their assets they can loan.

The biggest change in credit unions came in April 1982, when the NCUA board issued a policy statement (Ruling 82-1) relaxing a previous requirement that credit union members had to have a "tight common bond," such as employment by a single company or membership in a specific union. The result is that credit unions can now be formed by any sort of group in the same geographic area -- stores in a shopping mall, for instance, or businesses in an industrial park. At the same time, existing credit unions can expand to serve workers in what are described as "small employee groups," even if those workers are in entirely different industries. For instance, it makes no difference if one participant in the credit union is a card shop and another is a computer maker.

By taking in these new accounts, existing credit unions are protecting themselves against such moves by their sponsoring employers as layoffs or the sale of subsidiary companies. For example, Los Colinas Federal Credit Union in Dallas used to be Zale Employees Federal Credit Union. It sought the change because each time Zale Corp., a retailer based in Dallas, sold a chain of its stores, membership in the credit union -- and credit-union assets -- dropped. To remedy the situation, the credit union asked the NCUA for permission to expand its charter to serve individuals and businesses within a 10-mile radius of the industrial park in which it is located. Today, Los Colinas's assets total about $7.9 million, and its membership exceeds 8,000 persons. Its 1982 growth rate was an enviable 42%, according to Los Colinas's Dahlkoetter.

Another example of charter expansion is the DFW Federal Credit Union in Grapevine, Tex. When its sponsoring employer, Braniff Airways Inc., went bankrupt in 1982, DFW also petitioned the NCUA to include in its membership those workers within a 10-mile radius. The institution now has assets of about $35 million and membership in excess of 15,000.

One way for small companies to offer credit union services to workers is to affiliate with an existing institution. Local credit unions will provide the forms and other necessary literature. They will also send a representative to explain credit union services to you and your employees -- free of charge.

If you are interested in affiliating with an existing institution, write CUNA s public relations department (P.O. Box 431, Madison, WI 53701). It will put you in contact with credit unions in your area and will send you a brochure, Credit Unions: What They Are, How to Join and How to Organize One.

Another source of information is the NCUA, which operates six regional offices (see sidebar). The NCUA is a good source, too, if you are considering starting a new credit union by pooling the resources of a number of small companies. To start a new credit union, Enderlin of Massachusetts CUNA says you need at least 200 to 300 employees for a financially viable institution, and she suggests that you obtain evidence that the companies involved will support the credit union. This could include offers of office space to the credit union, employees' time, a willingness to provide payroll deductions, or a donation to help the credit union get started.

Edith Stetson of the NCUA's office in Boston advises small companies to meet at length with all those employees interested in forming a credit union to gauge their interest and commitment. And she recommends the NCUA booklet, Chartering and Organizing Manual for Federal Credit Unions.

If you decide to pursue the matter, contact the NCUA again, Stetson says, and, ask to speak to a representative. He or she will provide all the necessary forms.

WHERE TO OBTAIN INFORMATION

ON CREDIT UNIONS

National Credit Union Administration Regional Offices

Address Area served

Region 1 (Boston) Connecticut, Maine, Massachusetts, New

441 Stuart St. Hampshire, New Jersey, New York, Puerto

Sixth Floor Rico, Rhode Island, Vermont, Virgin Islands

Boston, MA 02116

(617) 223-6807

Region 2 (Capital) Delaware, District of Columbia, Maryland,

1776 G St. NW Pennsylvania, Virginia, West Virginia

Suite 700

Washington, DC 20006

(202) 82-1900

Region 3 (Atlanta) Alabama, Arkansas, Florida, Georgia,

1365 Peachtree St. NE Kentucky, Louisiana, Mississippi,

Suite 500 North Carolina, South Carolina, Tennessee

Atlanta, GA 30367

(404) 881-3127

Region 4 (Chicago) Illinois, Indiana, Iowa, Michigan,

230 South Dearborn Minnesota, Missouri, North Dakota,

Suite 3364 Ohio, South Dakota, Wisconsin

Chicago, IL 60604

(312) 866-9697

Region 5 (Austin) Arizona, New Mexico,

611 East Sixth St. Oklahoma, Texas

Suite 407

Austin, TX 78701

(512) 482-5131

Region 5 (suboffice) Colorado, Idaho, Kansas, Montana,

LEA Complex Nebraska, Nevada, Utah, Wyoming

10455 E. 25th Ave.

Aurora, CO 80010

(303) 837-3795

Region 6 (San Francisco) Alaska, American Samoa, California,

77 Geary St. Guam, Hawaii, Oregon, Washington

Second Floor

San Francisco, CA 94108

(415) 5566277