Credit unions are facing a new kind of competition, but this time it's not from banks. It's from each other.
Credit unions in Western New York and nationally are now vying for the same customers, often for the first time. Where memberships used to be more distinct in the past, the increasing number of credit unions serving whole communities means more overlap in customers, and less reliance on loyalty.
"You see a lot more comparisons between credit unions than we saw before," said Shirley Meyer, treasurer and CEO of Woodlawn Auto Workers Federal Credit Union in Blasdell, whose charter includes parts of Chautauqua County. "The public out there now is looking for service. They want good rates and they want good accounts without paying fees. And they're going to shop around."
Credit unions have long competed against banks and thrift institutions, but have successfully touted their advantages over those rivals: They're nonprofits that are owned by their customers, not by shareholders. And because they're not taxed and have lower expenses, they can offer better rates.
But those advantages disappear when they compete against other credit unions. That's forcing all credit unions to beef up their products and service to remain attractive and competitive.
"It's going to keep the credit unions on their toes," said Patricia M. Edinger, manager and CEO of Buffalo Metropolitan Federal Credit Union, a $50 million-asset institution serving all of Erie County. "You're going to go where the great rates are, but also where you receive the best member service."
In some cases the competition is even pressuring them to change charters to keep up.
"It used to be banks against credit unions fighting for the market. Now it appears we're against each other," said Ramon Gallardo, manager and CEO of Erie Metro Federal Credit Union in Blasdell, which adopted a community charter last month. With its two branches and $13 million in assets, the 29-year-old credit union now serves anyone who lives, works or worships in South Buffalo, Lackawanna, Blasdell and Hamburg.
But while the competition is a new challenge for many, it doesn't mean smaller credit unions can't survive.
"Some of the smaller credit unions can be very competitive with their dividend rates and loan rates just because they're smaller and don't have the same overhead concerns," said Alfred Frosolone, CEO of Niagara's Choice Federal Credit Union.
Neither credit unions nor regulators see the rivalry as bad.
"There's definitely more competition than what there was before. But I don't see it as a cutthroat negative," said Ann Brittin, president and CEO of Cornerstone Community Federal Credit Union, Western New York's largest credit union. "Any credit union wants to grow. But we're not doing it in an aggressive manner. I truly hope that we don't come across as the big bad credit union."
"Choice works and has worked for years for Americans as consumers," said Nicholas Owens, spokesman for the National Credit Union Administration, the regulator. "And NCUA encourages credit unions to serve their communities."
This is the latest change to the credit union world since Congress passed legislation seven years ago allowing significant expansion of credit unions over banking industry opposition. Traditionally focused on savings accounts and auto loans, today many credit unions offer almost the same services as many banks and thrifts.
First chartered federally under a 1934 law, credit unions are nonprofit financial institutions owned by members who share a "common bond." Originally, that bond centered around a single employer, often large companies. But NCUA began allowing them to add multiple employer groups in the 1980s.
That sparked the ire of banks, which complain that credit unions have unfair advantages in not being taxed and not being subject to all banking regulations. So they repeatedly sued credit unions and the NCUA.
The suits failed until 1997, when the U.S. Supreme Court ruled that the NCUA had gone too far. That prompted Congress' response a year later. Banks have continued fighting since then, alleging that some of the new expansions have gone against the spirit of the 1998 law. But except for a federal court ruling earlier this year in Utah, the efforts have so far failed.
Credit unions are accustomed to fighting off banks. They argue that they provide better service, are more customer-friendly, and offer better deals to customers. And they tout friendly relationships with each other and a desire to collaborate.
"Credit union people typically work very well together," said Brittin. "They're not out to put another one down."
"I would never infringe on another credit union's membership. Never, ever," Edinger said.
Even so, the impact of the community charter has been to change the rules. Although such charters were permitted before the 1998 law, they have spiked in popularity since then and are much broader. Today, more than 1,072 credit unions nationally -- out of more than 9,000 -- serve communities as large as multiple adjacent counties.
In the eight counties of Western New York, 18 institutions have community charters. Several serve all of either Erie or Niagara counties, while others serve particular towns and cities.
And besides the overlap between them -- more than one can serve the same community -- they now also compete with other credit unions who still serve groups of employees living in those communities.
"It's a learning experience for a lot of credit unions," said Patrick Keefe, spokesman for the Credit Union National Association, a trade group. "They're kind of feeling their way through this right now."
Take Meridia Community Federal Credit Union, which serves the south towns in Erie County. The Hamburg institution, formerly linked to the Hamburg Central Schools, has 4,000 members from 35 employer groups, but opted recently to switch to a community charter.
The credit union primarily wanted to grow and offer services for a wider population, but its top executive said competition was also a factor.
"The landscape for the credit union movement has changed significantly over the last few years," said CEO Michael Hoffman. "We have a lot more of the community banks moving into our area and other credit unions have expanded into community charters."
Greater Niagara Federal Credit Union, originally linked with the Union Carbide plant in Niagara Falls, obtained a county-wide community charter and merged with Carborundum Federal Credit Union so it could grow and afford a new building.
"Cornerstone was advertising all over Niagara Falls and they're not even down here," said CEO Marguerite Blakely. "We felt that we had to get a community charter."
That pressure was also a factor for Erie Metro. Originally called Steel 76 Federal Credit Union, its initial affiliation was with the former Bethlehem Steel, but it changed its name and began expanding 20 years ago.
Today it has 40 different employer groups and 4,200 members, and offers most services except business lending.
But Gallardo, of Erie Metro, said its growth has slowed as other credit unions have taken on entire communities. With the new charter, he hopes to reverse that.
"Hopefully, as we see some growth off this, NCUA will allow us to expand even further, into Orchard Park or West Seneca or other communities," he said.