Why should I choose a credit union over a traditional bank?

Ralph Estep Jr.
00:00:00

Have you ever wondered why some financial institutions seem to care more about profits than people? Let me tell you, after spending years as a credit union executive, I witnessed firsthand the stark difference between banks that serve their shareholders and credit unions that serve their members. So stay tuned as I pull back the curtain and show you why this choice matters more than you might think.

Podcast Announcer
00:00:25

Welcome to the Ask Ralph Podcast, where listening to an experienced financial professional with over 30 years of experience can help you make sense of confusing questions, current headlines and industry trends about taxes, small business, financial decision making, investment strategies, and even the art of proper budgeting. Ask Ralph makes the complex simple by sharing his real world knowledge from a Christian perspective with all things financial.

Now here's your Host, Ralph Estep Jr.

Ralph Estep Jr.
00:00:54

Welcome and thank you for joining me as we continue our journey together, looking for that mastering of our finances to our Christian faith. Now, if you missed yesterday's show, I explored how to express our love for Christ in our daily lives. And I laid some important groundwork for today's discussion about aligning our banking choices with our values. So if you missed yesterday's show, I'm going to encourage you to go back and check it out.

Now today's question is we always like to start the show with a question from one of our listeners. It comes to us from Butch. Now Butch claims to be from Cincinnati, and he really struck a chord with me because it touches on both faith and finances. And here's his question. He says,

"Dear Ralph, I've been with the same national bank for 15 years, and honestly, I'm struggling. Every time I walk into my branch, I feel like just another account number. Last month, I needed guidance on a small business loan, but the bank representative seemed more interested in their sales quota than helping me serve our community. My church friend mentioned that her credit union helped fund their ministry expansion project, and it got me thinking. But I'm nervous about making such a big change. How do I know if a credit union is the right choice? As a Christian business owner, I want my banking relationship to align with my values while still making sound financial sense. Can you share your perspective, especially given your experience in the banking world?"

Well, Butch, that is a great question. And it's a question many of us face. We're trying to balance between sound financial decisions and our Christian values. It's not just about having a big bank account. It's about using our money in a way that fits our values and does good in the world. And Butch your situation is exactly why I'm passionate about sharing my experiences, particularly my time as a credit union executive. Before we get into the question or the answer for Butch, let me remind you, every Tuesday night we go live. You can get your questions answered.

You can join our community. You go to askralphpodcast.com/live every Tuesday night, 7:00 PM Eastern standard time. You'll join us and we'll dig deep into those topics together. And here's the best part. I give away a hundred-dollar Amazon gift card during each live broadcast.

Now before I share my unique insider perspective from my time as a credit union executive, let's ground our discussion in scripture. And today's scripture comes to us from the book of Proverbs 11:14. And it tells us, "Where there is no guidance, a people falls, but in an abundance of counselors there is safety." I think that's a great way to start today's show. Let's look at finding those abundance of counselors.

Well, let me start by telling you my credit union story. I guess it was about 25 years ago. I just got out of college. I had done some working in the public accounting field and I really wanted to change. And I was looking for a job. I was working with a placement agency, and they sent me for this interview.

And it’s with this credit union, and to be honest with you, I had no idea what a credit union was. I had a sort of an idea that they dealt with credits, but you know, your personal credit or finance or something, but I thought it had something to do with union people or something like that. So I remember I arrived early for this interview and I'm walking into the front door. It is a double door vestibule, and I look over to the right, and there's a sign there that says you know, board of directors.

Well I look at the board of directors and the first name listed on the board of directors is George Bush. And I'm thinking, oh, this is cool. Like I'm interviewing for a job where the President of the United States. And at that time, I don't think he was President, but he had been president. That's before his son was President.

I thought this is going to be fantastic. So I went in and got to the interview, and I remember going through the interview process and the guy that was the president of the credit union was named Tom. And I said to Tom, I said, so when do I get to meet George Bush? He goes, well, you'll meet him
if we hire you at the first board meeting, he says, but I don't think it's the George Bush you were thinking about. So, anyway, funny story. So I started there at the credit union. I started as their accountant. And eventually I worked my way up, up to the point of being an executive vice president.

And let me just tell you, I have a strong bias here because I really fell in love with the credit union approach. So I want to share some stories from my credit union executive days, that show exactly how different I'll say our approach was because I really feel like that's something I buy into. In fact, in my business, I still use a credit union today.

In fact, I have two of them. Well, let me tell you a couple of those stories. The first one I'll tell you about is Mark. Now Mark was this guy. He was a local food truck owner. I remember one day, we had a little meeting in my office, the loan officer brought me the application for Mark. We're sitting there and she's telling me about how he had this great food truck, but he needed $25,000 to upgrade his equipment. She said, Ralph, I would really like to approve the loan, but see we had rules where if the credit score was below a certain amount, she had to bring a loan to me to look at it.

And his particular credit score was 610. Now to be blunt with you, if he'd have gone into most banks, they wouldn't even have given it one ounce of consideration. They would've saw that 610 and said, have a nice day. And instead of that immediate rejection, this is one of the coolest things about credit unions. We did something different.

I can remember. I said to the loan officer, hey, let's do this. Today at lunch, let's go visit Mark's food truck and really take in what he's doing. So we visited that food truck during our lunch hour. By the time we got there, man, this food truck there was a line wrapped around the block. I actually kind of regret even saying we were going to do it.

And we stood there for a little while waiting in line. I talked to some of the customers. And let me just tell you, the customers raved about his food and how quickly they got at the service they received. And like I said, traditional banks wouldn't see these success indicators. They would have just looked at that 610-credit score and said, sorry Mark, we can't help you. But in the end, I approved this loan. Because I saw the value. I saw how his customers loved his food. I saw how his customers appreciate his service. I saw that line wrapped around the block. And as I understand it today, I don't know Mark personally still, but I understand that today, Mark owns three food trucks and employs 12 people. Think about that for a second. That impact that the credit union made, and I was happy to be there to help. But now this person owns three food trucks and employs 12 people. And I also understand he's been a great cheerleader for getting people to join the credit union. In fact, one of my contacts there said not too long ago that Mark had actually brought five other food truck owners to become credit union members. So that was just one of the stories. Let me tell you about another story, and this name, we'll call this lady, Jennifer. And I remember Jennifer coming in, she was trying to start a tutoring center. And she said I needed $75,000 for startup cost and every bank had turned her down. And the reason they turned her down is because she'd never owned a business before. She was a great teacher, but she never owned that tutoring center and they're looking for pro forma financials.

And they're looking for a business plan. But we sat down with her. We had a meeting, and I didn't just look at our financial projections, which as I look back at it now, we're pretty good. But I wanted to understand her vision and see that's the difference. When I talk with her, I realized she had 15 years of teaching experience. Which was great.

So she had a great experience. Maybe she had never run a business before, she hadn't run a tutoring business. But listen, if you've been teaching for 15 years, you have a pretty good idea of what that's going to look like. And here's the even better part. She said to me, she says, Ralph, I got 40 families all ready to enroll their children.

They love me and the school where I teach, but they know that they need more than that. So I sat down with my loan officer, and I say, Hey, how can we do this? So we put together a loan and I knew that it would be concerning for the way we structured this one because of an academic calendar. So we knew that her revenue will be higher during school months and not so high during the other months.

So we put together a loan at work just for her. And checking in, I heard now, her tutoring center serves over 200 students. So as a big grow from that 40. And I also understand that she's opened up two more satellite locations. And see that's the difference. That's the credit union difference between checking boxes, because if I look at the check-in boxes for this particular loan application, I would have said, well, she never owned a business.

She doesn't have a lot of her own money. She doesn't have what we call skin in the game. And I would've just said, you know what? I can't help you. But with the credit union, the difference was we were able to understand her vision. We understand her needs. We saw her passion. Let me tell you about another story.

And that's what I call my proudest achievement in the credit union world. And that was working with the credit union and we put together what we call the first-time home buyer program. And you know, and this is the truth. Like if you go for a traditional mortgage, most banks are going to want to see you put a 20% down payment. But the problem with that, it keeps so many qualified buyers from achieving home ownership.

Now yes, there are USDA loans, there are FHA loans, you can do a first mortgage, second mortgage, but I looked at our membership and I said to the people in charge, I said to the board of directors, I said, listen, there's an opportunity for us here. Why don't we set up a program where we give people that chance to be a homeowner. And we developed what we call the 5% down payment program.

That first time buyer program. Now with that, we required financial education. We wanted to make sure they understood what they were getting into. And I think that's one of the big keys of this is one of the benefits to the credit and I'll talk about this a little bit later, is that idea of educating our members. And this was a cool program because I watched dozens of families move from those cramped apartments into their first homes. And it was so cool to watch and see therein lies, again, that's the credit union difference. That first time home buyer program. Now I remember working at the credit union, it wasn't a couple of years, I guess, maybe a year and a half into it, and this particular credit, you know, I worked at was in Newark Delaware and the main group of the people that were members were the Chrysler Assembly Plant.

Now, why was there? We actually went and got a community charter, which basically means, so let me give you a little quick lesson on credit unions. Generally, credit unions were set up for a particular business. You know, maybe the employees of said business or they would grow when they would add what they call select employee groups or called SEGs and we would add additional ones, and this particular credit union had a bunch of those. And so all of a sudden, Chrysler decides that their Newark plant they're going to do a retooling, which basically means they were going to scrap this plant from the inside out. Going to change it completely over. So this was a big test for the credit union, because what we understood is that particular factory was going to be shut down for nine months. And think about it.

Our credit union was founded, the one I was working for, was founded on those members. So a lot of our members were going to lose their jobs or not necessarily lose their jobs, but they were going to be down for a while. And it was going to affect hundreds of our members. That's just the truth. And I saw big banks were foreclosing on these people. And I said to the board of directors say, listen, we got to help our folks here. So we put together what we'll call a job loss protection program.

And we work with families. We modified their loans. And a lot of cases, we paid just interest only. Now our examiners weren't you know, thrilled with the idea, but I said, listen, we can either put these members into worse financial positions, or we can give them a little break because they make good money.

We knew that the plant was going to reopen. So we wanted to give them that breathing room, because like I said, we could see the light at the end of the tunnel. And I'm proud to say that working with the board of directors and the other members of the credit union, not a single person lost their home during that time. Yeah, we had some members that made bad decisions, and we still had our traditional foreclosures that were going on for other things
not related to that. We still had some repos that were going on with cars. But we were able to help them during that job loss. And truth is I still see members at our local shops today. I've got a couple that are clients in my accounting practice. And they all say the same thing. They say, Ralph, you were able to give us stability and the reason you were able to do that, and this is one of the big things about credit unions. Credit unions choose people over profits, and that's the key. Choosing people over profits. I'll give you just a couple more stories.

I'm on my first week in lending, like I said, I started off as accountant and this opportunity opened up vice-president of lending. I didn't really know much about it, but that's the other cool thing about credit unions. They really promote from within. And so Tom, I told you he was the CEO at the time, took me under his wing and he said, here, I'm going to show you a new area.

Look, I was a great accountant, but I've never done this lending side of stuff. And I'm looking at loan applications. And I remember this one particular case you know, struck me deeply because like I said, the loan officers put most of the loans together, but if their credit score was a certain number or maybe they were borrowing more than the value of the car, all those kinds of things. And I remember one of the loan officers brought me this loan. And this was a single mother that needed a car loan because her vehicle had broken down. And let me just tell you on paper, I'm looking at this and I'm new to this.

I'm green to this. I'm looking at this credit score going, why would you bring me this loan? This person is not going to pay. Her credit score wasn't great. Like I said, it wasn't fantastic. And the truth is, I guess, looking back at it now, traditional banks would have just been an automatic rejection.

They pulled her credit file. They saw that credit score and would say, no, we can't help you. And I'd seen that so many times because sometimes a credit union won't be the lender of last resort. I really worked hard when I was there to move past that. But here's what happened. And this is why credit unions are different. So we decided we pulled Tom in.

We pulled in the other loan officer, and we spent two hours. Yes. Two hours discussing this lady's situation. We called her employer. We looked at her payment history. We looked at her entire financial picture. And why do we do that? Because credit unions serve members, not shareholders. Yes. We had to serve our members.

We had to make sure we weren't putting a loan on the books that was going to default. That we were going to lose money in. But we also realized that we had to look past that and look to the person. And after two hours, we ended up approving that loan. And let me just tell you, I heard about this after I'd left. Three years later, this lady had paid off her car loan completely. But not only that. She became a champion for the credit union, and she was bringing in members, inviting them to come in left and right. And see that's the power of putting people first.

So if you don't listen to anything else I say today, credit unions are all about putting people first. And I witnessed countless similar stories. I remember a small business owner who needed bridge financing during a tough season. We approved that loan. I remember a young couple. They're buying their first home despite having a minimal credit history.

We approved that loan. And I remember a local church needing a loan for expansion, and we were able to work with them. And see, in each of these cases, we made decisions based on relationships and character, not just numbers on a spreadsheet. And that was the key. The credit union was all about the relationship. That relationship to the member and their character. So I thought I'd share some credit union stats because a lot of people don't realize just how pervasive the credit unions are.

And they are a significant part of the financial landscape. Like I said, I've worked with credit unions ever since I started my business now going on 20 years ago. So here's some interesting statistics. So this is as of the fourth quarter 2022, there were 392 million credit union members across 118 countries of the world.

Now that's from the World Council of Credit Unions. So think about that. 392 million credit union members across 118 countries. Now let's look at U.S. Growth. Now CUNA which is the Credit Union National Association reports that credit union membership surpassed, now this is in 2023, 135 million right here in the United States. And think about that. That signifies roughly half of the U.S. Population eligible for credit union membership is already enrolled half. And let's look at membership growth rates for the U.S. Credit unions have constantly been finding positive growth rates

typically exceeding those of traditional banks. They have great financial performance and value. And listen to this one. This one kind of shocked me when I read this. Total assets held by U.S. Credit unions continue to climb exceeding $2 trillion in 2023 according to the CUNA. And at the same time, their loan portfolios are also showing a steady growth, and they're really focusing in on consumer and business lending. A lot more credit unions are doing business lending. There wasn’t something that was a big of a deal when I was doing it. And that member owned structure of credit unions allows them to return profits to the members. Now they don't give you a check but think about it. If we don't have shareholders, then the credit union's profits all go into reducing those loan rates or maybe paying higher savings rates or completely reducing fees. So now let me bring this full circle and tell you why

I think credit unions are fundamentally different and why I think they're a fantastic decision. Number one, I kind of mentioned a couple of times now. That member-owned structure. So when you join a credit union, you're not just becoming a customer, you're becoming an owner. You actually are a member of that credit union. And every dollar of profit goes back to serving members through better rates to improve service and lower fees. Number two thing.

And I think this one is huge and I saw this one firsthand and that's local decision-making. So as an executive, I can make decisions based on local community knowledge. I could go kick the tires or go meet with people in the community. I met them face-to-face. It wasn't some centralized loan out in the middle of nowhere where they didn't see the member in front of them. They didn't have that relationship.

There weren't these corporate, you know, rigid corporate guidelines, check these boxes from those headquarters thousands of miles away. That's a big thing for me. That local decision-making. Now number three is Christian values alignments. Now many credit unions actively support local churches and faith-based initiatives.

This particular credit union I worked with wasn't like that. We did have some of those employee groups that were that. And actually when we got our community charter, which basically meant that we could serve anybody who live, work, worship, or went to school in the city of Newark in Newark Delaware, the University of Delaware was once we made that change, then we opened up the door to a lot of those people, which was a great diversification. So we did that right at the time when we had that plant shut down. And here's the thing why I think this Christian values is so important here. Because these credit unions understand that financial services should strengthen, not strain their members. They want their members to have the ability to live out their faith.

And I think that's huge because it's not just about profits. It's about finding strength and not straining their members. Number four is financial education focus. I talked about this when we talked about that first time buyer program. I know with the credit union, we initiated a ton of educational practices.

A lot of these Christian based credit unions offer biblical financial principles. And they also teach that alongside, you know, practical money management. Just like the Ask Ralph show. So let me ask you a question. Have I sold you on credit unions yet? Well I'm going to share some action steps in a few moments, but first, let me ask you this question. Are you struggling to balance your money and faith?

Are you listening to this and saying, Ralph, I get it. And listen, I get it too. Sometimes it feels like you're the only one trying to make Godly decisions in a world that pulls you in different directions. And that's exactly why I go live every Tuesday night at 7:00 PM Eastern time, because I want you to know you're not alone in the journey. Let me tell you. You know what makes my heart sing? When I see members of the community, having those aha moments during our live show.

And I see it week after week. I love it when somebody finally breaks free from debt or understands how to invest while still honoring God, or maybe they find peace in their financial decisions because listen, those are the moments that matter. And every week I hear stories that could be your story. Like this one, "Ralph, I was drowning in debt until I found your show." Or this great comment.

It says, "I never thought I could invest and stay true to my faith." And this one humbled me. When I heard this one, it says "Your advice helped save my marriage from financial stress." Well, you might be thinking, Ralph, that sounds cool, but what makes those Tuesday nights special? Well, here's what I'll tell you right now. If you listen to the show every day, you know I talk real and I talk real on Tuesday nights.

I talk real about money and faith. There's no sugarcoating it. If you ask a question, I'm going to answer your question live. Yes. I want to help with your specific situation and the best part of it is, is there is a supportive family of people who know what you're going through. They're in the chat, they're feeling the same things as you are.

And like I mentioned earlier, I give away a hundred-dollar Amazon gift card every single week. So let me tell you, the real magic happens on Tuesday nights live. And when you join us, you'll see other people facing the same challenges you are. You'll see them chatting about it. In the chat, you'll see them asking questions.

You're probably thinking those are the same things I'm thinking. And over time, what happens is their victories become your inspiration. So here's what I want you to do. Right now, whatever you're doing, take out, if you're driving, don't do this, but if you're not driving, do this. Take out your phone and add this.

Add askralphpodcast.com/live to your calendar. Put it on there for every Tuesday night at 7:00 PM and make this commitment to yourself and your financial future. Don't let another week go by feeling stuck or alone. You don't have to. Join me and our incredible community this Tuesday night and together
we're going to build some strong financial future while keeping faith at the center. Now, listen, I'm going to be looking for you on the chat and hey, you might just walk away with that Amazon gift card. So see you Tuesday at 7:00 PM Eastern time. And again, that's askralphpodcast.com/live. And I promise you some action steps and here they are.

And these are based on my executive experience at the credit union. Here's how to make this switch because you might be saying Ralph, I am sold man. I am done being a number. I'm done being treated like they're just trying to sell me product. Cause I hear that all the time from clients. They'll come in and say, Ralph, who do you bank with?

I said, first of all, I don't bank with anybody. I am a member of credit union. So here's what I want you to do. Number one. Visit your local credit union and ask about their mission and values. A lot of times you'll see it on their website, but understand that. I remember when I was with the credit union I was with, we paid so much attention to our core mission statement.

We wanted to make sure we were meeting that. So that's number one. Visit your local credit union and ask about their mission and values. Number two. Look at their rates and compare them with your current bank. I would be willing to bet that most times you're going to find that those credit union rates are better, both on the lending side.

They're going to be a little less. And on the saving side, they might be a little bit more. Number three. Here's what you can do. Start with a simple savings account. It's what in the credit union field we call a share account. They're going to make you open up that share account because that's your ownership.

That's your membership. Start with that. Kick the tires on it. See how it works and then move your checking account. You don't have to do all these things at once, you know, move your checking account over then look, here's a great thing to do. I did this a few, I guess probably been about 10 years ago

I had some auto loans with traditional banks. And I found this credit union that they were offering great rates. And I said to them, well, let me try this. So I refinanced one of my auto loans. I got done that and a loan officer called me, and she said, Hey, do you have other car loans? She knew I did because she looked at my credit report. And she goes, what do you think about us refinancing all those?

We ended up refinancing all of our car loans. So that's the fifth thing I said, consider refinancing any loans and number six. And I can't stress this one enough. Get involved in member activities. That's one of the coolest things about credit unions. A lot of them have these members’ activities. They have shredding events, they have educational events, so get involved.

So I really encourage you, if you haven't listened to me, you hear what I'm coming from that. I'm a biased guy, but I think credit unions are far better options than banks. Now tomorrow, I'm going to be switching gears to discuss technology. Specifically I'm going to be talking about 7 warning signs that your computer has been hacked.

You don't want to miss these crucial protection tips. And remember, if you don't listen to anything else I say today. My passion is to help you achieve financial success. I want to see you live out your dreams, and I want to see you grow in your faith. And I know together we can master your finances from a Christian perspective. So as I always end the show, stay financially savvy, and God bless you.

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