Hush Puppies, Graffiti, and Credit Unions: An Industry at the Tipping Point

Public policy efforts for 2010 focus on initiatives that benefit Main Street, where credit unions live and work.


Credit unions meet consumer needs for-profit institutions cannot, and the financial crisis of the past two years underscores the role credit unions play in providing a financial service alternative. Although serving as a source of credit is their ordinary function, that credit unions continued to do so during a time when other lenders withdrew from the market is an extraordinary example of how the industry can serve a social purpose. Major financial experts and preeminent national news programs have noted credit unions’ accomplishments during this latest recession and have recommended consumers take advantage of the industry’s financial services and products.

Hush Puppies, Graffiti, and Credit Unions
In The Tipping Point, Malcolm Gladwell examines the “levels at which the momentum for change becomes unstoppable.” Credit unions are facing a tipping point in that they have broken into the public conscious. Last year, webcasts, broadcasts, and business reports described credit unions as a “model for others” (BusinessWeek) and “a reliable source of credit in a tempest tossed sea” (Wall Street Journal).

Public economic policy and press coverage in 2009 was about saving the pillars of the American economy; this year is about consumers. Unemployment is now the No. 1 public policy priority. Mortgage modifications, unemployment benefits, predatory lending, and consumer protection are topics for Main Street, not Wall Street.

And Main Street is where credit unions live and work. Public media now recognizes the value and timeliness of organizations that focus on member value, not the bottom line.

Tipping Point Opportunities
In 2008 and 2009 credit unions helped members obtain credit, stay in homes, and renegotiate loans. In 2010 credit unions have an opportunity to expand their scope.

America’s small businesses generate two out of every three new jobs and have been an engine of economic growth for the past decade. Now, small businesses require more credit to jump-start job creation and recognize their potential in pulling the nation out of the employment slump.

During the recession, credit unions were leaders in providing credit to consumers and businesses. According to Callahan & Associates Peer-to-Peer software, loans for member businesses granted in 2009 totaled $9.7 billion, and total outstanding business loans grew by 10.5%. Total member business loans at December 31 reached $29.3 billion.

Lending practices in the banking world paint a contrasting picture. According to the Federal Reserve’s January Senior Loan Officer Opinion Survey, a net 3.7% of banks reported constricting lending standards for small businesses – those with less than $50 million in annual sales – during the past three months. This, coupled with tightened loan terms during the fourth quarter, contributed to a $423 billion contraction in small business loan origination in 2009, as reported by Peer-to-Peer.

What the Tipping Point Means for Credit Unions
Credit unions are poised to move forward. They are forging new fiscal relationships with the likes of real estate brokers, chambers of commerce, and universities. They are initiating conversations with entities that in the past were not aware of credit unions or did not see the value in local financial alternatives.

On the regulatory front, initiatives are expanding the industry’s role in economic recovery. Bipartisan support in Congress as well as in state and local legislatures is fueling proposals that increase credit unions’ small business lending authority and local deposit, investment, and development opportunities.

As the media, Congress, and the American public embrace credit unions’ value, performance expectations will expand. The notion of financial services organizations whose No. 1 goal is serving the interests of regular people is flourishing. The word is out. Credit unions can make 2010 not only the Year of the Consumer, but also the first year in a new decade of credit union leadership.