They can claim less than 10 percent of Minnesota’s lending market, having made a little less than $10 billion in loans last year. At the same time, despite the bursting of the housing bubble and the disappearance of thousands of jobs, the state’s credit unions are growing.
Credit unions say that for the most part, they have avoided the exotic mortgages and “NINJA” (no income, no job, no assets) and “liar” loans that brought down banks both big and small. This, local industry leaders assert, is because they lack the profit motive that drove the orgy of mortgage speculation, and have stuck instead to the relatively boring business of writing loans that consumers could actually afford, keeping most of them on their own books in the process.
What’s more, credit unions assert that their services are singularly well suited for these challenging economic times. Their executives believe that they can fill a credit hole that opened up in the recession. With small businesses in particular hungry for funding, credit unions have been pushing the federal government to expand their ability to lend, which is capped by federal law.
Banks are skeptical. They note that credit unions have an unfair competitive advantage because as not-for-profits, they are exempt from paying taxes on their earnings. What’s more, bankers say that credit unions have been affected by the same forces that caused the meltdown experienced by many parts of the commercial banking sector. Banking industry representatives point to overlending by some credit unions, particularly those active in home equity loans and commercial real estate projects, that caused these institutions to become squeezed when the economy contracted.
Credit unions would reply that they’re doing better than banks, and that small businesses are clamoring for funding. Born in the Great Depression, credit unions believe that when people need to stick to the basics, the homely but solid image of credit unions can pay big dividends.
Hanging Tough
“We’re not immune to what’s happening in the economy, but in a relative sense, we’re doing very well,” asserts Mark Cummins, president of the St. Paul–headquartered Minnesota Credit Union Network (MnCUN), “What we’re seeing is deposit growth and a continuation of lending activity. We haven’t cut back in lending so much,” he adds, it’s that “people aren’t borrowing as much for consumer purchases as they have before.”
