Join a Credit Union.

As banks across the state announce continued fee hikes for basic personal financial services, Massachusetts consumers are voting with their feet and turning towards credit unions in increasing numbers.

Saving the average consumer between $150 and $200 in fees annually, credit unions continue to be the best option for consumers looking for a viable, cheaper alternative to the mega-banks.

Consumers can no longer rely on free or low-cost checking products from their banks, as services like free checking become a thing of the past. According to a recent survey by Bankrate.com, only 45 percent of non-interest earning checking accounts are free today compared to 76 percent two years ago.

Conversely, most Massachusetts credit unions charge no debit transaction fees and offer account options with no monthly fees. And fees for account errors such as insufficient are lower, averaging $26.52 among credit unions in contrast to a bank average of $29.16.

“I don’t think I’ve ever witnessed as much consumer outrage as I have in the last three weeks. And I’m not talking about Occupy Wall Street,” said Daniel Egan, President/CEO of the Massachusetts Credit Union League. “At a time when consumers’ budgets are stretched all too thin, it’s important for them to know that they don’t have to sit still and accept these outrageous fees.”

As member-owned, not-for-profit financial cooperatives, credit unions return their excess earnings back to the members they serve, typically through higher rates on savings accounts, lower rates on loans, and by charging lower and fewer fees.

At a time when many are fed up or just plain upset, credit unions want to remind consumers that they have options. These days, there is a credit union out there for almost everyone. Their doors are open.

Why don’t you check one out at www.asmarterchoice.org.

Sooner or later most kids will get tired of driving the family car (you hope). For my family, it was within a week of my eldest getting his license.

No matter when your teen driver (or you as a parent) decides the time has come to have his/her own wheels, you are going want to do all you can to protect him/her both physically and financially.

The last thing that I am going to claim to be is an expert in auto mechanics. But as a consumer, a financial professional and a parent, I have learned a few lessons about auto economics – and how to avoid the potholes of car costs.

Read more

August 17 was a great day for golf and for credit unions to show their generosity as the Massachusetts Credit Union League’s Community Hope Initiative held its annual golf tournament to benefit the Massachusetts Coalition for the Homeless. The tournament attracted 103 golfers to the Juniper Hill Golf Course in Northborough for fun and fundraising on a beautiful summer day.

The team from STCU Credit Union and Winbrook took the First Place award and the team from Harvard University Employees Credit Union and Medical Area Federal Credit Union took the Second Place award. Bob Delaney from Members Insurance Agency, LLC took the honors for the men’s most accurate drive and Cheryl Gorman from Harvard University Employees Credit Union had the most accurate drive for the ladies. Closest to the pin honors were shared by Tom Nemeczky from Enterprise Car Sales, Dave Dewitt from Digital Federal Credit Union, Bob Delaney from Members Insurance Agency, LLC, and Peter Buchanan from Harvard University Employees Credit Union.

Digital Federal Credit Union and Members Plus Credit Union displayed their commitment to the cause by sponsoring the tournament awards barbeque. Harvard University Employees Credit Union won the prize for fielding the largest number of golfers on the course (10 golfers) as well as contributing for the Hit The Green Sponsorship.

At the awards banquet, the golfers heard from Robyn Frost, executive director of the Massachusetts Coalition for the Homeless. Robyn expressed the Coalition’s sincere appreciation for the continued support that the credit union community in Massachusetts has shown the Coalition and the Commonwealth’s homeless families. Her update on the efforts of the Coalition to fight homelessness was enlightening.

The League would like to thank the following tournament sponsors:

Awards Banquet

Digital Federal Credit Union

Members Plus Credit Union

Lunch

CU Direct Corporation

Carts

Partners Benefit Group, Inc.

Closest to the Pin

CUNA Mutual Group

Hit The Green

Harvard University Employees Credit Union

Gold

HarborOne Credit Union

UMassFive College Federal Credit Union

Workers’ Credit Union

Reception

MassMutual Federal Credit Union

Silver

Boston Firefighters Credit Union

Grafton Suburban Credit Union

Greylock Federal Credit Union

Leominster Credit Union

Mass Bay Credit Union

Medical Area Federal Credit Union

Metro Credit Union

Massachusetts Credit Union Share Insurance Corporation (MSIC)

Nutter, McClennen & Fish, LLP

Quincy Credit Union

Tee/Green

Bollus Lynch, LLP

Cathedral Corporation

Central One Federal Credit Union

City of Boston Credit Union

Crescent Credit Union

Enterprise Car Sales

Financial Service Centers Cooperative (FSCC)

Hanscom Federal Credit Union

Jeanne D’Arc Credit Union

Liberty Bay Credit Union

Merrimack Valley Federal Credit Union

Metro-Boston Chapter

New England Teamsters Federal Credit Union

Northeast Member Business Services LLC

O.M. Financial Group

Pioneer Valley Chapter

St. Jean’s Credit Union

St. Mary’s Credit Union

Synergent

Tri-County North Chapter

Vertifi Software LLC

Winbrook

The Credit Union Community Hope Initiative is an effort organized by the Massachusetts Credit Union League through which Massachusetts credit unions join together to assist worthy causes.  The Massachusetts Coalition for the Homeless has been the League’s charitable partner for more than 20 years.

“The Massachusetts Coalition for the Homeless is an organization that inspires all of us in the credit union community,” said Nicole James, president of the MAFCU Federal Credit Union and chairman of the Massachusetts Credit Union League’s Social Responsibility Committee.  “With a small staff of skilled, dedicated, and highly motivated professionals, they work tirelessly to help families find safe, affordable, and permanent homes.”

Accepting the check, Robyn Frost, executive director of the Massachusetts Coalition for the Homeless, thanked the credit unions of Massachusetts for their continued support saying, “The credit unions are a real force for good in the community.  They understand what a devastating effect being without a home has on homeless children and their parents and they have been loyal partners in our work to eradicate homelessness.”

Hanscom Federal Credit Union was selected as the site for this year’s check presentation ceremony because that credit union was the leading fundraiser for the Credit Union Community Hope Initiative in 2010.  Massachusetts Credit Union League President Daniel F. Egan, Jr. praised the credit union’s efforts saying, “The leadership, staff, and membership of Hanscom Federal Credit Union constantly demonstrate their generosity.  Not only has the credit union done a tremendous job in supporting the Massachusetts Coalition for the Homeless, but they also raise money for Children’s Hospital, veterans’ charities, scholarships, the Lowell High School ROTC program, and many other great causes.”

After the check presentation, Bernie Winne, president of the Boston Firefighters Credit Union and chairman of the Board of the Massachusetts Credit Union League asked Paul Marotta, chairman of Hanscom Federal Credit Union, to join him at the podium.  He then presented Mr. Marotta, with the Credit Union Community Hope Initiative Outstanding Service Award saying, “Paul’s commitment to community service stands as a great example to all of us.  He has been a driving force behind many of our efforts to assist the Massachusetts Coalition for the Homeless as well as numerous other charitable endeavors that his own credit union has undertaken.”  He went on to say, “It is with that in mind that I am pleased to announce that the award that we are presenting to Paul today, the Outstanding Service Award will henceforth bear his name and be known as the Paul Marotta Outstanding Service Award.”

In accepting the award, Mr. Marotta praised his fellow board members, credit union staff, members of the credit union, and fellow Social Responsibility Committee members.  He said, “The credit union philosophy of ’People Helping People’ is a guiding principle here at Hanscom Federal Credit Union.  I am truly honored to be a part of an organization that does so much good in the community.”

Mr. Marotta, a retired employee of the federal government is a resident of Sudbury, MA.

By Martin Luttrell TELEGRAM & GAZETTE STAFF

mluttrell@telegram.com

Small-business lending could ease

Joe Shaker had an opportunity to purchase the Route 9 property he had leased for his

Wellesley Mazda auto dealership, and he went to his large commercial bank for a loan. But what he thought would be a slam-dunk turned into foot dragging by the bank, he said.

“There was a large disconnect with the … bank as a whole,” he said. “They called up their offices, and they said, ‘Oh, the auto industry, forget it.’ ”

Mr. Shaker said he is confident that the bank — which he would not identify — would have eventually issued the loan, but his lawyer saw what was going on and suggested that he contact St. Mary’s Credit Union in Marlboro. He did, and quickly obtained a loan to purchase the 1.2-acre property near the Natick town line.

Over the past few years many commercial banks have pulled back on lending and credit for small business customers, while credit unions have expanded their small-business offerings. But federal law limits commercial lending to 12.25 percent of a credit union’s assets, and Congress is considering legislation that would increase the lending cap to 25 percent of assets.

That measure is opposed by the banking industry, which contends that credit unions would be expanding beyond their original role of assisting those of modest means, and that they would have an unfair advantage by virtue of their tax-exempt status.

The Credit Union National Association contends that passage of the Small Business Lending Act would result in $10 billion in additional loans and the creation of 100,000 new jobs in the first year.

“When credit unions get near that cap they have to stop lending or put a cap on it,” said Daniel Egan, president of the Massachusetts Credit Union League. “Given this environment, where so many small businesses need credit, many small businesses are losing their current credit lines or having the notes called by the bank.”

He said the cap is an arbitrary limit set in 1998, a concession to banks when a major restructuring passed.

“It was an arbitrary number,” he said. “In the economic reality of the day, that cap is inhibiting credit unions from making business loans. Everyone needs access to credit to add jobs, which is important for economic recovery. … In Massachusetts that would be $490 million in small business loans.”

Mr. Shaker, a Needham resident, said commercial banks, which have been plagued by loan defaults, are skittish about lending to some businesses, including auto dealers, in spite of what he termed a fantastic balance sheet.

“Our example is a perfect example of having everything you would want in a client and financial statement,” he said. “We turned in business financials and knocked their socks off. It was just an attitude. I think at some board of directors meeting on the 50th floor people make general statements and forget what banking is about: lending to creditworthy people with good equity.”

John R. Caulfield, president and chief executive officer at St. Mary’s Credit Union, said the company got into the business loan market about two years ago, initially drawing on customers who also owned businesses. St. Mary’s loan portfolio is $3.6 million, and not near the cap, he said.

“We want to be successful, and this helps to diversify the balance sheet and loan portfolio,” he said.

Stephen Mackowitz, Digital Federal Credit Union’s vice president of commercial lending, said DCU is not near its cap, despite being the largest credit union in New England. He said the company is getting some, not many, customers who have been turned away by banks.

“We’re a big institution, but a lot of small credit unions are bumping against their cap,” Mr. Mackowitz said. “They are servicing their small business customers. It would be a shame to have to stop lending.”

DCU has assets of $3.9 billion. Mr. Mackowitz said the company’s business loans range from $20,000 to $5 million, but outside of investment real estate loans, they generally range from $50,000 to $250,000.

U.S. Rep. James P. McGovern, D-Worcester, who has signed on as a co-sponsor of the House bill, said that he has heard from constituents that small businesses across the state have had difficulty obtaining credit.

“What the bill calls for is a modest increase for credit unions. I don’t think that’s too much,” Mr. McGovern said. “A big part of what will get the economy on track is support for small business.”

But Daniel J. Forte, president of the Massachusetts Bankers Association, argued that while there have been some national banks that have been reined in by regulators, there are plenty of community banks in the state with plenty of capital that want to make loans. He added that credit unions are tax-exempt and would have an unfair advantage over a community bank that pays taxes.

Only a small portion of credit unions in the country are approaching the lending cap, he said.

“One thing we would point out is that only 68 of 225 (Massachusetts) credit unions make commercial loans,” Mr. Forte said. “DCU is at 10.31 percent. They’re close but not hindered to make additional loans at this point. If there are only 40 credit unions in the country approaching the cap, that’s a lot of lending,” he said, referring to the $10 billion in new loans cited by CUNA.

“What they’re really asking is for complete commercial loan authority,” Mr. Forte said.

Currently, business loans up to $50,000 are exempt from counting against the cap, and the pending bill would raise that exemption to loans of up to $250,000.

“At the same time they’re asking to double the cap, they’re asking to increase the exemption by 400 percent,” Mr. Forte said. “They want to go to nearly unlimited commercial lending. In these economic times, one of two things could happen: Credit unions would take loans from taxpaying community banks, or they will make loans that are unsound, and we will have another crisis.”

He said that credit unions were given tax exemption in order to serve customers of modest means. Allowing broader lending authority would penalize taxpaying Massachusetts-based community banks that have a good record of lending, he said.

“I think credit unions are still serving people of modest means,” Mr. McGovern said. “Small business does not have the ability or capacity to loan to General Motors.

“We want big business to grow, and also small business, the engine of our economy. … This is not an anti-bank measure. It’s a pro-small business measure. What I’m trying to do is create a climate where small business will grow. One thing I know is if we do nothing, nothing will happen.”

May 2–Traditional bankers’ hours aren’t too convenient if you’ve got a check to deposit at night or on a weekend.

But now, there’s an app for that.

Digital Federal Credit Union is among a small number of banking institutions nationally to launch a mobile deposit system, Mobile PC Deposit, where members can take a photo of a check and deposit it securely using an Apple iPhone or Google Android mobile device, DCU officials said this week.

“This is huge,” said Denise Gonthier, DCU’s administrative services manager. “It’s a very tech-savvy world out there, and we want to give members what they want. They can now deposit a check from anywhere, at any time.”

DCU, a Marlborough-based company with branches in Massachusetts and New Hampshire, worked with Vertifi Software LLC to develop the system, in which members use their iPhone or Android to take a digital photo of the front and back of the check. The check is then processed electronically from start to finish, Gonthier said.

The applications use the same digital security encryption as DCU’s PC Deposit, a program launched in 2008 that lets users scan checks from their home computers and deposit them safely, Gonthier said. Since the PC Deposit program started, about 7,600 members have used it every month, and about $300 million has been deposited since the launch two years ago.

In the few weeks Mobile PC Deposit has been live, about 2,500 users have already tried it out, Gonthier added.

Applications are available as free downloads through the Apple App Store and Google’s Android Market.

Plans are in the works to build systems for BlackBerry users, as well as other mobile devices.

“It is our intention to roll this particular application out full-force,” said John LaHair, DCU public relations manager.

The PC Mobile Deposit system is “a great application of advanced technology,” said Dan Egan, president of the Massachusetts Credit Union League.

Convenience is the top factor in a customer’s decision to select a bank or credit union, so staying on the cutting edge of technology is important, Egan said. Egan uses an iPhone, and said he does a lot of his banking and bill-paying with the device.

“I don’t know what I did without it before,” he said with a laugh.

Egan said DCU has done a good job of responding to customers’ changing needs, and expects other credit unions to embrace new mobile technology in the future. Technology security continues to improve, making mobile banking safe.

“It’s something I think will grow,” Egan said. “Credit unions are always trying to do things their members want.”

The funds transfers through PC Deposit and Mobile PC Deposit actually speed up the verification process, so it’s quicker than going through an ATM to deposit, Gonthier said.

WASHINGTON | Wed Apr 14, 2010 2:42pm EDT

WASHINGTON (Reuters) – Economic activity strengthened in most U.S. regions during March and early April with the exception of St. Louis, where plans to close several plants were announced, the Federal Reserve said on Wednesday.

“Overall economic activity increased somewhat … across all Federal Reserve districts except St. Louis, which reported ‘softened’ economic conditions,” the Beige Book summary prepared by the Minneapolis regional Fed bank said.

The Beige Book, so named for the color of its cover, is an anecdotal collection of reports from all 12 Fed districts. The latest one is based on information collected before April 5 and will be used by central bank policymakers when the Federal Open Market Committee meets April 27-28 to mull monetary policy.

Retail sales and sales of new cars and trucks rose in most areas and many areas said housing activity increased, though from very low levels. Notably, commercial real estate market activity remained “very weak” across the country.

The Beige Book’s tone underlined the muted nature of the economic recovery.

“While labor markets generally remained weak, some hiring activity was evident, particularly for temporary staff,” it said. “Wage pressure were characterized as minimal or contained.”

Earlier on Wednesday, Fed Chairman Ben Bernanke told Congress that policymakers expect to keep U.S. interest rates low for a long time and refused to rule out the possibility that the economy could slip back into recession.

Daniel Egan, president of Massachusetts Credit Union League in Marlborough, MA, said the report and Bernanke’s testimony pointed to an economy that was treading water at best because so many people are out of work or underemployed.

“It all comes back to jobs,” Egan said. “We’re trying to replace eight million lost jobs and until we can get some kind of sustained job growth we’re not going to be able to get a sustained recovery.”

The Beige Book said that loan volumes and credit quality decreased in most parts of the country last month and described banking and financial sector performance as mixed.

On a more positive note, it said manufacturing was stronger nearly everywhere except in the St. Louis district and new orders showed a pickup. The St. Louis Fed said there were more plant closings and layoffs than there were openings and hires.

“Firms in the construction materials, auto parts, and food and beverage manufacturing industries announced plans to close a plant in the district,” the St. Louis Fed said.

(Reporting by Glenn Somerville; Editing by James Dalgleish)

While banks have frequently made front-page headlines during the financial crisis and economic downturn, credit unions have generally flown under the radar. To check in on the industry, Globe reporter Todd Wallack recently sat down with Daniel F. Egan Jr., president of the Massachusetts Credit Union League Inc., which represents credit unions across the state.

What is a credit union?

A credit union is a cooperative financial institution. Interestingly enough, the first charter for a credit union was established by the Massachusetts Legislature in 1909. The system was set up as a parallel banking system. So the consumer would always have the option of having this nonprofit alternative.

How are they different from banks?

In a cooperative bank, you vote according to how much money you have in the bank. In a credit union, everyone who has a share has one vote. It’s true democratic control. [And in a bank], directors are paid. In a credit union, they are volunteers.

You’ve said credit unions generally offer better rates than banks. Why?

Credit unions don’t pay their directors, and banks do. They are not dominated by any particular depositor. The single point of focus is what is best for that member, not what is most profitable for the institution.

Are there restrictions on what types of loans credit unions can offer?

They can do just about any type of lending for consumers that is available anywhere else. The big problem now is on the business side. We’re seeing a big increase in the number of people who are approaching credit unions for small business loans, and there’s an arbitrary cap on business lending for credit unions. It’s 12.25 percent of assets. It was put into place in a federal law in 1998.

Have many credit unions reached the limit?

Right now, in Massachusetts, one of the larger ones is close to the cap, and the others are staying away from the cap by cutting back on the loans they are offering. So, they are doing either Small Business Association guaranteed loans, which don’t count toward the cap, or they are doing only a limited number of loans. It’s presenting a barrier to credit unions.

If you listen to a small business person, they’ll tell you if they are looking for a loan of less than $500,000, most banks don’t want to talk to them. So you wind up with a lot of people coming to credit unions for loans. The average business loan for credit unions in this state is $254,000.

Banks say credit unions have an unfair advantage because they are exempt from income taxes.

Both Congress and the state Legislature have recognized us as deserving a nonprofit, nonincome tax status because of the services we provide to a broad range of people. Fact is, although we’ve made the offer many times, we’ve never had a bank convert to a credit union. And there’s probably no better time, when the benefit of that structure became evident – when you look at the turmoil in the economy, the bank failures, as well as the general distrust of the large banks and the need for credit. When all of these things went on, and all the pundits on TV said there was no more credit available, credit unions were lending.Aren’t many credit unions limited to serving employees of certain companies?

In Massachusetts, there were never those restrictions. The statute says that field of membership can be anything – it could be geographical, it could be association, it could be anything. The idea of membership in a credit union being employer-based came in 1934 with the federal law. They thought the easiest way to organize credit unions was around employer groups. That transitioned on the federal level in the 1980s into an option for either multiple company credit unions, so several companies’ employees could join, or they could convert to a community-based credit union, where they could serve a given area.

How hard have credit unions been hurt by the downturn?

The adverse effects on credit unions was really . . . collateral damage. There were investments in corporate credit unions – bankers’ banks for credit unions – in which some of their investments in mortgage-based securities turned out to be bad. And the losses trickled down to credit unions, because credit unions had to pay through their insurance fund the losses that occurred at the higher level of investment. The retail credit unions had no investments in any mortgage-based securities, because by federal law, they couldn’t.

How many credit unions are there in Massachusetts?

Two-hundred-nineteen credit unions with $27 billion in assets and 2.5 million members.

What are the biggest credit unions in the state?

Digital Federal Credit Union, which is just under $4 billion in assets. HarborOne Credit Union, which is about $1.8 billion in Brockton. Greylock Federal Credit Union in Pittsfield, which is about $1.2 billion in assets. Those would be the top three.

But some credit unions have failed. [ 28 credit unions failed nationwide last year, compared with 140 banks.]

Some credit unions have, but the failures were based on mortgage loan portfolios in those states you would guess – Florida, Nevada, California, Arizona.

How did you get involved in credit unions?

When I was in law school, my wife was teaching and we needed a car. So we got a car loan from the Malden Teachers Federal Credit Union. I had no income and hers was very small, and I was amazed they gave me the loan. So, I thought this has got to be a great place that would give me a loan. So after I got out of law school, a friend of mine said they needed an attorney at this trade association for credit unions. And I said I’d always wanted to be involved in credit unions. And that’s how it started. I was the general counsel to the association in the early 1980s, and my predecessor had a heart attack, so I become president in 1984. I also serve as president of the New Hampshire and Rhode Island credit union leagues.

© Copyright 2010 Globe Newspaper Company.

Over banks’ objections, credit unions seek higher loan limits

When Shaunna Schiller and her husband were launching their Sturbridge construction business last year, they needed to lease an excavator and a loader for their first job. Nice as the staff was, the Bank of America branch where they had their deposit account would not give them an equipment loan.

They ultimately got the loan, for $38,400, from a source they had considered unlikely – nearby Southbridge Credit Union.

“My thought process was always that credit unions were much stricter when it came to lending than banks were,’’ said Schiller, president of Schiller Brothers Earth Moving & Construction Corp. Until she met a Southbridge manager at a networking group, she said, “I would have never even thought to go to a credit union for financing.’’

With many banks still recovering from the credit crisis and under pressure from regulators to be cautious, credit unions are eager to fill the lending gap for small business owners like the Schillers. Exploiting a political opening, credit unions are lobbying Congress to increase their lending limits, arguing that they could help create jobs without the $30 billion President Obama has proposed giving community banks for small business loans.

“As we can lend more to the small businesses, it creates more jobs, helps the consumer, and hopefully pulls that sector back up,’’ said Ronald H. Covey Jr., chief executive of St. Mary’s Bank credit union in Manchester, N.H.

Credit unions such as St. Mary’s want to lend up to 25 percent of their assets to small businesses, double the current federal cap on their commercial loans. They also want to raise the threshold for loans that count toward that cap, to $250,000 from the current $50,000 level.

Covey said the $700 million credit union, the nation’s oldest, is already up against the 12.25 percent cap on business loans, as demand has jumped in the past two years. Without an increase, Covey said, St. Mary’s will have to start turning away requests for loans within a few months.

Credit unions and banks are locked in an age-old rivalry; community banks in particular fume that credit unions have an unfair advantage because they do not pay taxes. This latest push by credit unions smacks of a land grab, banks say, and they promise to summon all their forces against bipartisan bills that would permit credit unions to make more small business loans.

“For our members, there’s really a fairness issue here. They’re very emotional about this,’’ said Chris Cole, regulatory counsel for the Independent Community Bankers of America, a lobbying group for small banks. He said bankers dispute the credit unions’ argument that the demand for small business loans is going unmet, but said that, nonetheless, the president’s new $30 billion plan would expand lending dramatically.

The House Financial Services Committee will hold a hearing on the credit unions’ request in early March. Its chairman, Representative Barney Frank, readily acknowledged that letting credit unions lend more to businesses is controversial. “The community banks don’t like it,’’ said Frank, a Democrat from Newton. But he noted this is a rare moment in which banks are on the defensive. “It’s going to be a burden on the banks to show that they can meet the demand.’’

As Congress and the White House set their focus on getting the economy back on track, Frank said, all avenues to free up capital should be considered. “Is this a way to get more loans into a system that needs them?’’ he asked.

Tom Parello, president of New England Bride Inc., a magazine publisher and bridal show organizer in Lynnfield with 10 employees, had his line of credit called in at Sovereign Bank last spring. He had banked with Sovereign for several years, so its request to immediately repay a five-figure loan was a surprise.

“They were going through a review of all their loans, and they decided they were going to recall the loan, which meant I had to repay the final balance,’’ Parello said. His accountant suggested he talk to Metro Credit Union, based in Chelsea, which gave him two loans – one to pay off the Sovereign loan and an additional line of credit.

Robert M. Cashman, Metro Credit Union chief executive, said Parello is one of many new customers over the past year.

“We’ve received so many inquiries from small businesses around our branches, this is going to be a vast and growing area,’’ Cashman said. “If credit unions could lend more, you could stimulate the economy and create more jobs.’’ With $775 million in assets, Metro is one of the state’s largest credit unions.

A spokeswoman for Sovereign Bank declined to comment.

At Bank of America, spokeswoman Anne Pace said the lender has seen a “noticeable decrease in small business loan applications’’ in the past year. She said the nation’s largest bank plans to increase its small business lending this year over the $16.5 billion it extended in 2009.

Banks, for all their current troubles, contend that they are most qualified to make business loans. “When you allow credit unions to increase their commercial lending, that’s the riskier part of the banking business,’’ said Cole, of the Independent Community Bankers. “You’re allowing them to gamble on something they’re really not all that experienced with.’’

Executives at credit unions beg to differ. Covey, the head of St. Mary’s credit union and a former banker, is expected to testify at Frank’s hearing in March.

“The issues that we’re having are consumer-based right now,’’ Covey said. “Between the auto and home portfolio, that’s what’s feeling the strains of the economy right now.’’ The business loan portfolio, he said, “is performing stellar.’’

Beth Healy can be reached at bhealy@globe.com.

© Copyright 2010 Globe Newspaper Company.

Legislation that could give credit unions more lending freedom fires up animosity

By Matthew L. Brown, Worcester Business Journal Staff Writer

Tension has existed between community banks and credit unions since credit unions began emerging from their industry-specific enclaves and into the general banking market with their tax exempt status intact.

A generation later, and during a widespread economic recession, that tension has begun to boil over. That’s due in no small part to pending legislation in Washington, D.C., that could ease restrictions on credit union lending.

Bankers and credit unions are part of the same industry. They compete and they respect each other, they say. But angering bankers is the perceived unfair advantage granted to credit unions by virtue of their continued tax exempt status and expansion into every corner of the banking world. Meanwhile, credit union executives (many of whom come from the traditional banking world) are tired of defending their profession.

“We’re in the same business, but we have different rules to play by and that creates tension,” said Matt Sosik, president and CEO of Webster-based Hometown Bank.

Hometown reported total assets of $200 million in its most recent report to the Federal Deposit Insurance Corp. By contrast, Webster First Federal Credit Union, an arch competitor, claimed assets of more than $465 million in its report to the National Credit Union Association.

“We do the same exact things, yet we pay 40 percent of our income to taxes,” Sosik said. “You can’t provide that kind of competitive advantage over the long term. It’s not a tenable situation.”

The tax savings and having unpaid boards of directors, as credit unions do, allows credit unions to offer lower interest rates and fewer restrictions, if any, to membership.

Lifting The Cap

Michael Lussier, president and CEO of Webster First Federal Credit Union, said that structure is designed to help credit unions serve the underserved.

“We’re helping those people in the community, those blue collar workers that are sick of being taken advantage of by high fees and lower interest payments,” he said.

And that’s the image that credit unions have thanks to the status that they earned as bankers to the working class by being in-house banks to companies such as Norton or any number of fire departments.

In a 2005 report, Scott Hodge, President of the Tax Foundation, argued that “the U.S. corporate tax rate is one of the highest in the world, and it could be lowered to good effect if some unjustified exemptions were eliminated.”

“Credit unions were granted a tax exemption almost 70 years ago so that they could serve low-income people who had little access to financial services,” Hodge argued. “Now credit unions are growing by leaps and bounds, serving middle- and high-income people. Why should the exemption continue?”

But Dan Egan, CEO of the Massachusetts Credit Union League, says that’s not exactly true.

“Banks contend that (credit unions) were set up for people of limited means, but that was never the case. They were set up for all consumers,” Egan said.

He said that since Massachusetts chartered credit unions in 1909, the institutions have acted as a check and balance for the banking industry.

Never have credit unions’ effectiveness as a check and balance been more apparent than in the last couple of years, Egan said. The banking industry’s troubles have brought “a heightened visibility and awareness of the value of credit unions,” he said.

Egan argued that small businesses are turning to credit unions in greater numbers now because they’re finding they can’t get the loans they need from banks, or can’t meet banks’ new, stricter credit requirements.

And now, credit unions are lobbying for the increase of a federally mandated cap on lending. By law, credit unions are allowed to loan 12.5 percent of assets.

Under bills being considered by the U.S. House and Senate, that cap would be lifted to 25 percent of assets, right in line with banks.

“The only ones who don’t want this are the banks,” Egan said.

Uneasy Peace

Bankers are just tired of having credit unions flaunt their tax exemption-sponsored wealth, and the local flashpoint is right in downtown Worcester: The DCU Center.

In 2004, Marlborough-based Digital Federal Credit Union paid $5.2 million in a 10-year deal for exclusive naming rights of what was then the Worcester Centrum. And that move of marketing genius has roiled local bankers ever since.

“For DCU to pay…for the naming rights while being tax exempt should outrage everyone who pays taxes in this state,” Sosik said. “That’s not a good use of your tax exemption, and that really got in the craw of community banks across the state. They’re doing this instead of taking $5.2 million and sending it to the federal government. We spend $2 million a year on taxes.”

The DCU Center spend is front and center of a site created by the Massachusetts Bankers Association, CreditUnionRuse.com. The site highlights Digital Federal Credit Union, Greylock Credit Union in Pittsfield and HarborOne Credit Union in Brockton.

Customers don’t necessarily see the differences between banks and credit unions, however. In Central Massachusetts, where there seems to be a bank branch on every corner, it’s difficult to call anyone “underbanked” or underserved.

And in many cases, banks and credit unions coexist without any direct animosity.

For example, Webster First’s former headquarters (it’s since moved its administrative offices to Worcester) and Hometown Bank’s main branch are within spitting distance of each other.

“We know each other, and it works,” Sosik said. “But would we be better off if they were paying taxes? Yes.”