No Mo’ Credit Unions

One of my partners was recently approached by an insurance company looking to switch accountants.

This insurance company, whose customers are typically motorcycle owners, was seeing its revenue decline due to the recession. As the banks tightened their lending policies, motorcycle buyers were finding it harder to obtain loans.

They had come across an article about credit unions and wanted to find out more.   My partner, knowing I had several credit union clients, asked me to speak to this prospect to educate them on what a credit union is and how to form one.

Here is a summary of what we discussed:

A credit union is a member-owned, member-controlled, not-for-profit cooperative financial institution formed to permit groups of persons to save, borrow and obtain related financial services and to participate in its management.

Credit unions are similar to banks in that they offer similar financial products to its members, such as checking and savings accounts, certificates of deposits, loans, mortgages and even debit and credit cards.

Unlike a bank, a credit union is a not-for-profit organization, thus allowing them to offer higher interest rates on savings accounts and lower interest rates on loans than an income tax paying bank.  Another important difference is that credit unions are member-focused institutions.  The members own and operate the credit union for mutual benefit. They are not motivated to credit returns for their shareholders like banks, thus in many cases, obtaining loans and other services is simpler and less expensive than in a traditional bank.

Credit unions must serve a specific field of membership. This field of member is what bonds the members in the credit union.  Some samples are employees of a single corporation, school or even trade/industry.

Ensuring there are enough members to establish a credit union is critical to the financial stability of the credit union.  Also, if everyone wants loans and no one is putting in deposits the credit union will fail quickly. This is why the NCUA (National Credit Union Association, which oversees all credit unions in the US) requires most credit unions to have a minimum of 3,000 members.

In my analysis with the insurance company prospect we discussed how they would be able to find 3,000 members. They queried motorcycle clubs, associations, collectors, sellers, etc. to determine if there would be an interest in such a credit union.  In the end, they weren’t able to find enough interest to make it worthwhile.

So there isn’t a credit union that caters to the motorcycle industry, YET!

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