Shopping for a New Credit Card? Consider Credit Unions
because she gets her card through a credit union, she doesn’t get the deception and the hassle (paraphrase). Dawn raises a very valid point, and one that bears deeper examination. At a time when more disgruntled cardholders are ditching their nerfed credit cards and searching for greener pastures, credit union credit and debit cards may be the best deals you can get.Ryan Bubb and Alex Kaufman, writing for the NYTimes, certainly think that credit unions have more to offer. Bubb and Kaufman argue that, while many claim that the Credit Card Accountability, Responsibility and Disclosure Act is the death knell of the credit card as we know it, credit unions prove that it’s not impossible to run a successful consumer lending operation without gouging the hell out of borrowers. That’s because they’ve been doing business the way that Credit CARD act dictates long before any legislation started twisting the arms of card issuers on behalf of the little guy. But before we get into the nitty gritty of what’s so hot about credit unions, it’s important to understand the fundamental differences between a credit union and other financial institutions.
What is a credit union?
The primary difference between a credit union and the other major credit card issuers lies in ownership. As the name implies, a credit union is owned by its members. So, in essence, you aren’t borrowing from investors, but other credit union members. Members pool their assets by opening savings and checking accounts and provide financing and other loans to each other from this pool. Credit unions are not-for-profit cooperatives, often operated by volunteer boards and are overseen and insured by the National Credit Union Administration. Profits are reinvested into the union or paid to shareholder-customers.
Investor-owned banks, on the other hand, are businesses. They are owned by stockholders and controlled by board members and investors. Dividends are paid to shareholders and the bottom line is the bottom line. These credit card issuers are regulated by the FTC and bank deposits are insured by the FDIC.
So it all boils down to interests. Credit unions are usually sponsored by employers for their employees or organized by churches, schools or regional or professional associations. Credit unions worry about the interests of their members and community. The other lending institutions answer to their shareholders.
Perks, Penalties and the CARD Act
The largest backlash from the industry regarding the CARD Act is how the benefits to responsible cardholders will be subsidized. The argument goes that the reason that customers who pay their bills on time and spend responsibly can enjoy interest-free grace periods, cash back, travel rewards and other perks is because card companies can raise money by charging fees and higher interest rates to delinquent borrowers. Now that the CARD Act is eliminating some of these highly profitable fees, issuers claim they will be forced to cut back on rewards and hike up rates for everyone – good borrowers and bad.
So, if you are fed up with the fees and worried about your benefits getting the ax, consider credit unions as you shop around. Thanks to the CARD Act, there are likely to be big changes in the way investor-owned cre
