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'Don't get burned by a bank. Use a credit union for all your financial needs," says one of a series of advertisements run by the Hawaiian Tel Employees Federal Credit Union. Other ads by the same institution use the slogans "let us help you grow your piggy bank" and "our rates make sweet music."
Credit unions take on the banks
Some banks partner, some complainBy Russ Lynch
rlynch@starbulletin.comBut what really distinguishes that credit union and belies its outdated "Hawaiian Tel" name is the tagline in all of its ads: "Membership open to all Oahu residents."
It is precisely that sort of widespread catch-all membership that has bankers nationally railing in public, and in the courts, about what they say is unfair competition from credit unions.
The Hawaiian Tel credit union was started in the 1930s by a few employees at what was then the Mutual Telephone Co. It became a community credit union in 1999, defining its field of membership as anyone who "lives, works or worships on the Island of Oahu," said Norman Okimoto, an executive of the credit union for 11 years and its president for the past seven.
But, banks argue, credit unions have an unfair advantage because as non-profits they pay no taxes.
Okimoto and other Hawaii credit union executives say that is not quite the case in Hawaii, where cooperation between banks and credit unions is more likely.
But the Hawaii Bankers Association officially supports the American Bankers Association view that federal legislation favoring credit unions, particularly the easing of restrictions on their fields of membership, has gone too far.
"They felt that when regulations came up they went beyond the scope of the law that was passed," said Rodney Shinkawa, executive vice president of the Hawaii Bankers Association.
"Their main emphasis is working with a defined group of members," but cases such as the Hawaiian Tel show credit unions are going "beyond what they're allowed to do," Shinkawa said.
Hawaiian Tel is not alone in expanding its membership base. HawaiiUSA credit union, which until recently was restricted to teachers, other school employees and students, now offers membership to 800 "select employee groups."
The point of contention, Shinkawa said, is that credit unions are competing with banks, offering checking accounts, credit cards, car loans, home loans, ATM access and many other services at rates the banks cannot match because of their higher tax liability.
"A lot of people may not get too upset that they escape federal income tax or state income tax, but then I relate to people that they don't even pay property tax at the county level," Shinkawa said.
"The ABA intends to aggressively fight to restore competitive equity to the marketplace when it comes to credit unions," said a bankers' association position statement circulated to banks earlier this month. "Credit unions are becoming full-service players in the financial services industry," the ABA said, grabbing not only banks' individual customers but going after their business customers too.
While credit unions are becoming more competitive, they argue that banks are still much bigger, more versatile and less restricted than credit unions.
Besides, they say, Congress deliberately broadened the credit unions' membership base in recent years and as recently as November, a federal appeals court in the District of Columbia ruled in favor of wider "field of membership" rules by dismissing an ABA challenge.
The Hawaii Credit Union League, the association for most of the 100 federally chartered and three state-chartered credit unions in Hawaii, doesn't think there is much of a dispute in Hawaii.
The National Credit Union Administration, which regulates federal credit unions, ruled in the 1980s that because so many businesses were downsizing, a credit union could have members from more than one employer.
A group of banks went to court, arguing that the law allowed credit union membership to have only "a single common bond," said Dennis Tanimoto, executive director of the HCUL.
"We went to Congress saying that the credit unions cannot continue to serve their official field of membership" and should be allowed to expand. Congress agreed and passed the Credit Union Membership Access Act of 1998, Tanimoto said.
"Now it clearly says a credit union can represent more than one group if the groups share a common bond of occupation or association," he said. That bond can be geographic, such as residents of a county, or occupational, such as trade union membership, or associational, such as membership in a church.
The law opened the way for expansion, but credit unions have been around since the early 1900s and banks have always had the choice of mirroring credit unions or going along the for-profit path, Tanimoto said.
Credit union membership is still restricted, and most do stick with the core group that got them started, he said.
The biggest credit union in the islands, the Hawaii State FCU -- with $506.3 million in assets and 51,000 members -- is restricted to state government workers and their families.
But then comes HawaiiUSA FCU, with more members (nearly 65,000) but slightly smaller assets, $440.5 million as of June 30. By broadening to some 800 employee groups it has attracted criticism because it seemed to take membership far outside its supposed common membership bond, education.
Founded in 1936 as Oahu teachers No. 3 FCU, with membership made up of Oahu elementary school teachers, it did what other teachers' credit unions chose not to by spreading out to rural Oahu.
In mid-2000 it finally changed its name from the Oahu Educational Employees FCU to HawaiiUSA and has broadened beyond members working in education.
It membership groups range from condominium apartment owners associations to individual McDonald's Restaurants.
Those groups are simply not big enough to form their own credit unions and HawaiiUSA is doing it for them in the interests of consumer service, said Karl Yonishige, executive vice president.
A common approach, says Yonishige, is: "Our company doesn't have a credit union. Can you help us?" But his credit union also actively seeks to sign up new businesses, using methods such as having employers attach promotional leaflets to paychecks.
Congress' action to widen credit union membership was based on one philosophy, Yonishige said, "to allow consumer choice."
"To say credit unions always have the best rates is misleading," he said. Car dealers, for example, can offer zero percent financing for the first year or more of a new-car contract.
"But in general, credit unions are a better deal," he said.
Credit union backers say Hawaii understands them, and their mutual ownership, mutual benefit style, more than other states because of an old local money-sharing tradition called "tanomoshi" that grew up in the sugar plantations. People that had money would put it into a fund that would be drawn from by those who needed it.
Nobody made money, but everybody got helped.
The process has been updated a bit, credit unions say, but that's still what they do.
There are 100 credit unions in Hawaii. Altogether they have $4.4 billion in assets, $3.8 billion in deposits, $2.2 billion in loans and serve almost 630,000 member accounts. (Some individuals belong to more than one credit union). Who are credit unions?
Membership ranges from as low as about 100 members to as high as about 65,000.
As of June 30, the $3.8 billion total deposits in the 100 credit unions that are members of the Hawaii Credit Union League placed the Hawaii credit union business as a whole third in size, after First Hawaiian Bank, with deposits of $5.6 billion, and Bank of Hawaii, with deposits of $5.5 billion, and just ahead of American Savings Bank, which had deposits of $3.7 billion at mid-year.
The biggest credit union in the state, the government employee-owned Hawaii State Federal Credit Union, had deposits on June 30 of $427.7 million, ranking it sixth after First Hawaiian, Bank of Hawaii, American Savings, Central Pacific Bank ($1.4 billion) and City Bank ($1.2 billion).
Hawaii State FCU was just ahead of Territorial Savings and Loan Association, which had deposits of $404.2 million.
Sources: National Credit Union Administration and Federal Deposit Insurance Corp.
Credit unions generally offer higher dividends on deposits and lower loan interest rates than commercial banks because they are nonprofit institutions and, because of that, enjoy tax breaks as well as escaping profit pressure present at banks. Here are the main points that make a credit union different from a bank or savings and loan: What's the difference?
>> Owned by members.
>> Every member, whether a depositor or borrower or both, has a single vote to elect directors and make other important decisions.
>> Directors are volunteers and are not paid.
>> Nonprofit. Any gains on investments are passed on to members by lower loan rates and higher returns on deposits.
>> Can only serve its members, not the general public. Members are a defined group, such as employees of a company or group of related companies or members of a profession or trade union, and the field of membership must be approved by the National Credit Union Administration. Those boundaries have been broadened recently, however, and regulators have approved community credit unions whose common bond among members could be as wide as the entire population of Oahu.
The American Bankers Association says credit unions are "over-reaching," going beyond the limited membership intended by the law that governs them and using their nonprofit status to unfairly chase bank customers. In competition, some
banks try partnering with
credit unions, others
complain about themBy Russ Lynch
rlynch@starbulletin.comNot all banks agree, however. One of Hawaii's biggest, Bank of Hawaii, has long taken the position that while credit unions are undoubtedly competitors, they can also be partners and the bank can profit from partnering with them, rather than fighting them.
"We have had a very long relationship with the credit unions here in Hawaii," said David W. Thomas, vice chairman of Bank of Hawaii and its parent, Pacific Century Financial Corp., and head of retail banking for the company.
"Credit unions, because they are not banks, need to have a bank through which they can clear their checks" and do other transactions, Thomas said.
"The relationship is complex, because they are competitors and we do compete for customers in the marketplace," Thomas said.
"The reality is, we could wish them away, argue them away or whatever, but they are not going to go away, because they do fill a need in the marketplace.
"Our thinking is, in addition to thinking of them as a customer to whom we can sell products, and in addition to thinking of them as competitors, we also think of them as partners, so we are figuring out how to service them better, allowing us to generate some additional profit."
If people choose a credit union rather than a bank, "it means we are not getting to see those customers," but they can be bank customers indirectly he said.
For example, Bank of Hawaii makes its automated teller machines available to credit union members. The credit unions pay fees to the bank but the members incur no fee when they use the ATMs.
"If we didn't do that, your credit union would probably have only one location where you could do business. Now they have our 450 ATMs," he said.
Thomas said that early in the new year Bank of Hawaii will be visiting the executives of isle credit unions to show them new services and products the bank can provide.
Already the bank offers services that credit unions may not have the size or expertise to offer, such as travelers' checks and debit cards, he said.
