eBrief: Patronage Dividends in a Recovering Market

In challenging market and regulatory environment, building member loyalty is one way to foster future success.


At year-end 2009, 237 credit unions (or 3.1% of all credit unions) paid interest refunds to members totaling $56.6 million. This is a decrease from the $66.8 million returned to members in 2006, but the continued refund demonstrates credit unions have served members in myriad ways during the economic downturn.

More credit unions pay bonus dividends than interest refunds; however, because bonus dividends are not separated from regular dividends in the Call Report it is difficult to ascertain an exact figure. Paying bonus dividends or interest refunds, also known as patronage dividends, is just one way credit unions can differentiate the cooperative model from that of competitors. Like credit unions, the nation's largest consumer cooperative, REI, Inc., is a successful retailer competing in a for-profit world. And it uses an annual dividend to do so. In addition to offering a cash rewards credit card and discounts on gear rental, car rental, and adventure vacations, REI offers its nearly four million members an annual dividend — typically 10% on eligible purchases. The more members patronize REI, the more they are rewarded. According to REI’s website, in 2009 it returned more than $80 million to its members, the most in the outdoor equipment and clothing company’s history.

REI does not exist to fulfill a need for financial services, but the principles it promotes are still applicable to credit unions. The company’s financial performance also illustrates how a patronage dividend forges resilient member relationships, even during a recession. In 2009, REI posted a nearly 5% increase in direct sales, and although its same-store sales declined by 3.5%, that performance was better than expected.

As many credit unions face a challenging market and regulatory environment, ensuring member loyalty is one way to help guarantee future success.