After a big PR coup in 2011 with Bank Transfer Day, one might reasonably suspect that credit unions have a rosy outlook for 2012. A recent report by the National Association of Federal Credit Unions suggests that the future for credit unions is looking up, but their challenges are not dissimilar to their banking competitors.
According to the report, the Economic & CU Issues Monitor, “the majority of survey participants said that they expect an increase in share growth in 2012, while only 20.8 percent expect share growth to decrease.” A majority also expect to see an increase in lending in 2012, which is a good sign.
Similarly mixed are their survey results regarding defaults and charge-offs on credit union books; a majority of respondents expect the same amount of loan delinquency and charge-offs as last year, while about a third expect to see these numbers lower. Again, not overly inspiring, but indicative of a slow turnaround in the economy.
Though most credit unions are exempt from the Durbin Amendment to the Dodd-Frank Act, which limits interchange on debit card swipes to about $0.21, the report indicates that the “impact of the [rule] may prompt even more belt-tightening.” This likely relates to what we learned from the Independent Community Bankers of America: despite the fact that most smaller banks are technically exempt from Durbin’s limits on interchange, the market is slowly closing the gap between exempt and regulated debit swipe fees.
And, much like their larger competitors, low interest rates set by the Federal Reserve is making it more difficult for credit unions to turn a profit, though they expect that “lowered delinquencies will help to offset” this downward pressure on earnings.
In the report there was no mention of Bank Transfer Day, a sort of protest against big bank greed that took place last November organized largely through Facebook, which encouraged people to move their money out of banks and into local credit unions. The Credit Union National Association, another credit union trade association, grossly overestimated the number of converts Bank Transfer Day created, later lowering their estimate to about 214,000 new members.
Even with so much customer growth, and a different business model than big banks, credit unions are feeling the same pinch that we all are: low rates, sluggish growth, defaults and foreclosures. Slowly but surely, however, these processes are turning around.