Yesterday, we briefly discussed some of the recent drawbacks of debit cards, which elicited an interesting comment Dawn from Getting Nine Hundred: because she gets her card through a credit union, she doesn’t get the deception and the hassle (paraphrase). Dawn raises a very valid point, and one that bears deeper examination. At a time when more disgruntled cardholders are ditching their nerfed credit cards and searching for greener pastures, credit union credit and debit cards may be the best deals you can get.

Ryan Bubb and Alex Kaufman, writing for the NYTimes, certainly think that credit unions have more to offer. Bubb and Kaufman argue that, while many claim that the Credit Card Accountability, Responsibility and Disclosure Act is the death knell of the credit card as we know it, credit unions prove that it’s not impossible to run a successful consumer lending operation without gouging the hell out of borrowers. That’s because they’ve been doing business the way that Credit CARD act dictates long before any legislation started twisting the arms of card issuers on behalf of the little guy. But before we get into the nitty gritty of what’s so hot about credit unions, it’s important to understand the fundamental differences between a credit union and other financial institutions.

What is a credit union?

The primary difference between a credit union and the other major credit card issuers lies in ownership. As the name implies, a credit union is owned by its members. So, in essence, you aren’t borrowing from investors, but other credit union members. Members pool their assets by opening savings and checking accounts and provide financing and other loans to each other from this pool. Credit unions are not-for-profit cooperatives, often operated by volunteer boards and are overseen and insured by the National Credit Union Administration. Profits are reinvested into the union or paid to shareholder-customers.

Investor-owned banks, on the other hand, are businesses. They are owned by stockholders and controlled by board members and investors. Dividends are paid to shareholders and the bottom line is the bottom line. These credit card issuers are regulated by the FTC and bank deposits are insured by the FDIC.

So it all boils down to interests. Credit unions are usually sponsored by employers for their employees or organized by churches, schools or regional or professional associations. Credit unions worry about the interests of their members and community. The other lending institutions answer to their shareholders.

Perks, Penalties and the CARD Act

The largest backlash from the industry regarding the CARD Act is how the benefits to responsible cardholders will be subsidized. The argument goes that the reason that customers who pay their bills on time and spend responsibly can enjoy interest-free grace periods, cash back, travel rewards and other perks is because card companies can raise money by charging fees and higher interest rates to delinquent borrowers. Now that the CARD Act is eliminating some of these highly profitable fees, issuers claim they will be forced to cut back on rewards and hike up rates for everyone – good borrowers and bad.

But according to the New York Times study, that’s all bollocks – and credit unions are proof. After comparing credit cards issued by credit unions vs. those issued by investor-owned banks, Bubb and Kaufman found:

• Credit union cards offer lower annuals fees
• Credit union cards have longer grace periods
• Credit union cards charge about half the fees for late payments

Also notable: while almost every investor-owned bank will punish borrowers with higher interest rates who can’t make their minimum payment, most credit unions don’t. And in spite of this, the remaining cardholders don’t see their rewards diminishing.

With the CARD Act removing some of the common money-making practices from investor-owned banks’ repertoire, Bubb and Kaufman predict that more cardholders will join credit unions or switch to a bank that emulates the business practices of credit unions. All in all, they see good things coming from the Act.

How to Find a Credit Union

In order to join a credit union, you typically need to be affiliated with the sponsoring organization or have a family member that qualifies. The best method for finding a credit union is to simply ask around. America’s Credit Unions has a list of state credit union leagues that can also help you get in touch with a credit union in your area as well as a credit union locator.

You can also join a credit union through a federal association. For example, the Pentagon Federal Credit Union or PenFed is set up for members of the military and government employees, but anyone can sign up by becoming a member of the National Military Family Association. PenFed is a particularly good route if you are looking to transfer a balance; the PenFed Visa Platinum Credit Card gives you a 5.99% APR on balance transfers for the entire life of the balance (i.e. not an introductory rate).
So, if you are fed up with the fees and worried about your benefits getting the ax, consider credit unions as you shop around. Thanks to the CARD Act, there are likely to be big changes in the way investor-owned credit card issuers do business – but credit unions can simply stay the course.

Photo by Dan4th

Related posts:

1. Banks vs. Credit Unions: Which is Better?
2. What’s Happening with Credit Unions…
3. Consumer Reports’ Credit Cards Worth Holding
4. Why Banks and Credit Unions Charge Fees
5. Credit card bill on the way… (We hope!)