Credit unions get their due: as more banks turn their backs on community needs, the lure of credit unions is stronger than ever.

As more banks turn their backs on community needs, the lure of credit unions is stronger than ever.

FOR THE PEOPLE LIVING IN CENTAL BROOKLYN, New York, finding a needle in a haystack might be a snap compared with finding a local bank. In fact, there are only two banks that serve the area's mostly black community of 750,000.

These New Yorkers, though, are hardly waiting for a Citibank or Chemical to set up new branches in their backyard. Taking control of their own financial destiny, they've set out to do their own "thang."

In fact, it was a group of activists from the under-30 "hip-hop" crowd who took matters into their own hands last January when they founded the Central Brooklyn Federal Cerdit Union. Offering savings accounts, loans and other financial services to individuals, churches and businesses in the neighborhood--the grass-roots credit union is putting Central Brooklyn back on the financial map.

"We decided it was time to resume the work of the civil-rights and black power movements," declares Mark Winston Griffith, the credit union's president. "Building a community-owned financial institution is [pushing] the financial frontier."

The Central Brooklyn Federal Credit Union is but one example of how the nation's 13,200 credit unions are taking fiscal accountability to a new level. Operating solely to meet the needs of their members--rather than make profits--credit unions are empowering communities, churches and employee groups to spread their collective wealth as they see fit.

It's no surprise, the, that the credit union motto: "Not for profit, but for service," resonates more loudly than ever before. Over the last decades, as banks grew larger and catered increasingly to more affluent depositors and corporate accounts, many more Americans have flocked to credit unions. Today, says the Madison, Wis.-based Credit Union National Association (CUNA, these institutions count over 65 million members and $280 billion in assets. Credit unions are based on a simple operating principle: People should pool their money and, in turn, make loans to one another.

Historically, credit unions have provided loans to the kind of customers that banks often shun: small businesses, low-income home buyers and rural communities. They offer a special appeal to blacks, who for decades have been subjected to loan bias and discrimination. credit unions also inspire a sense of ownership among members. Everyone who joins a credit union becomes a "shareholder", acquiring a share for opening up an account.

Today's credit unions are preparing for an even larger national role. A proposal put forth by President Clinton favors the creation of a national network of community development financial institutions and embraces the concept of credit unions. If the plan becomes reality, a Community Banking and Credit Fund would provide $382 million over four years to help expand and launch these types of community-based projects.

One institution likely to benefit under such a program is the South Central People's Federal Credit Union (SCPFCU) in Los Angeles. Chartered last November, the SCPFCU plans to offer small-business loans and other financial services to the 650,000 residents of riot-torn South Central Los Angeles. "A credit union is the best vehicle for community-driven reinvestment," says Clyde Johnson, chairman of the SCPFCU and president of the SCPFCU's founding company, Black Employees Association. "Our primary goal is to rebuild South Central's infrastructure and to expand the economic base."

Membership Has Its Privileges

Like other financial institutions, credit unions are closely regulated. Nearly 60% operate under federal charter and fall under the jurisdiction of the National Credit Union Administration. The rest are state chartered and regulated by state agencies. But make no mistake about who runs the show. Credit unions are operated by people who have a common bond: neighbors, churchgoers, union members and co-workers.

There's a great advantage to keeping your money among friends. While the local bank may require you to plop down a minimum deposit of $200, credit unions will typically open an account for as little as $5. And instead of relying on stuffy loan officers, most credit unions make loan decisions by committee. Applicants, in other words, are judged by their peers.

The largest credit unions by far are those built by employees. According to CUNA, about 78% of these organizations are occupational, including government, education and manufacturing. Another 14% are associations and 6% are residential.

By definition, credit unions are member-owned, and don't strive to boost shareholders earnings. Instead, "earnings are returned to members in the form of higher savings rates, lower loans rates and enhanced services," says Jerry karbon, editor of News About Credit Unions, an industry newsletter affiliated with CUNA. Indeed, Gallup Polls show that shareholders are more satisfied with the services they receive at a credit union than bank customers are with their institutions.

The integrity factor at credit unions key, too. Policies are set by unpaid, volunteer officers who are elected by other members. Democracy always rules: At shareholders' meetings, it's "one man, one vote," regardless of income or amount on deposit. Members with $10 and those with $1000,000 in their accounts have equal weight in shaping credit union policies.

What Makes Credit Unions Hot

With a membership of 4,775 and assets under $20 million, the average credit union can't really be stacked up against the average bank. Remarkably, though, credit unions offer many of the same services as banks, including passbook savings accounts, money orders, interest-bearing share draft (checking accounts, traveler's checks, consumer loans and auto loans.

They also have more flexible rules than you'll find at any bank. Where the banks are failing to make loans today, credit unions are more than willing. Specifically, you'd be hard-pressed to find a commercial bank willing to make a $300 loan to finance, say, a new stove. Yet these ae the types of transactions that Terry Trudeau, manager of the Philadelphia-based Germantown Federal Credit Union, says make the difference in her members' lives.

"Last year, I made loans for as little as $50," she reports. "Our main purpose is to take in deposits and then put that money back into the community." The neighborhood credit union, with 3,000 members and $2.3 million in assets, provides personal loans of up to $20,000.

Members can turn to their credit unions for low-rate mortgages, too. As the military's Navy Federal, the largest credit union in the country $7.5 billion in assets), virtually every type of consumer loan is available. But its biggest loan business is in mortgages. That's not atypical, either, given how mortgage and home equity loans make up the largest portion of the nation's $14.8 billion credit union loan portfolio. Last year, such loans were 36% of the total composition, followed by auto loans at 33% and personal loans at 31%.

Credit unions offer some of the cheapest plastic. At the largest credit unions, where credit cards are typically issued, rates are more than competitive. If you were to get a Visa card from Navy Federal, for instance, your interest payments would be 11.9%, compared with as much as 21% for a bank card.

The bigger the credit union, the better the offerings. Institutions with asset bases of $10 million to #100 million practically go head-to-head with banks. The services of these institutions have steadily evolved to include automated teller machines, credit cards, mortgages, individual retirement accounts, certificate of deposits and money market accounts as well as small-business loans.

At AT&T, employees enjoy the advantages of such a full-service credit union. In addition to traditional bank products, there's a youth savers program and a college financial and package. Convenience is key, says Linda Wood, AT&T Employees Federal Credit Union director of marketing. "Not only don't we require a fee on ATM cards and provide free checking, but also there's no minimum deposit." In addition, the credit union's 60,000 members have access to 14 locations and can use a 24-hour toll-free line to bank by phone.

Your Money Is Safe In A Credit Union

Most credit unions don't engage in commercial lending. This may attest to their soundness. According to Veribanc, a bank-rating firm in Wakefield, Mass., 78% of credit unions receive the highest safety rating, compared with 71% for thrifts and 78% for commercial banks. Moreover, loan delinquencies continue to decline at credit unions, 1.0% relative to 1.8% in 1989. The default rate for credit union loans averages well below 1%.

Inspiring more confidence, nearly all credit union savings are insured under either federal, state or private funds. Fedeal insurers set aside $1.27 for every $100 on deposit, and the National Credit Union Share Insurance Fund insures deposits of up to $100,000 at over 13,000 credit unions nationwide. Deposits covered by state cooperative insurance programs are often insured beyond $100,000. Needless to say, your money is well protected. Here's the best proof: No federal credit union member has ever lost money.

The Downside

Credit unions may be outstanding when it comes to providing low-cost, quality services, but they do have drawbacks. Undercapitalization is a major weak spot. Any credit union with less than $100,000 in capital (reserves) may be standing on shaky ground.

The Smaller credit unions are the first to be hit by recession and the last to recover, says Clifford Rosenthal, executive director of the New York-based National Federation of Community Development Credit Unions (NFCDCU). "The capital position of many credit unions is too weak to overcome even the smallest losses. "If they write off any bad loans, it could cripple them.

Unlike employee credit unions, most community- and church-based credit units aren't able to do payroll deductions. "[Employee credit unions] know they will get certain dollar deposits every month," says Rev. Michael Neily Harris of Atlanta's Wheat Street Church Federal Credit Union. "So they tend to have better control over their money. With a church credit union, you have to trust that your members will make deposits." For this reason Wheat Street opened its field of membership to employees at Bronner Bros., the $19.5 million black hair-care company that ranked NO. 72 on the 1993 BE INDUSTRIAL SERVICE LIST.

But regulators are looking for more than trust. For the past year, Wheat Street, one of the nation's oldest and wealthiest church-based credit unions ($1.2 million in assets), has been faced with lending gridlock. Regulators have restricted it from mortgage lending due to a technical error back in 1989. The government's beef: Too much of Wheat Street's portfolio was tied up in real estate, which accounted for more than 65% at the time. It is now 38%. (Wheat Street, which has loaned over $1.5 million in its 37-year history, is currently working with the Georgia Credit Union League to lift the ban.)

Lastly, once you join a credit union, you may not have easy acces to your money. The doors to many credit unions are open only three days a week, and there's usually just one location, versus several branches for a bank.

Much like selecting a bank, joining a credit union is a highly personal decision. So before you make a commitment about where to stash your cash, as yourself: What do I really want? Are you looking for a friendly, service-oriented financial institution where deposits are high, loans rates are low and everybody knows your name? If this is the case, then a credit union may be just right for you.