7 Reasons Why Credit Unions are Struggling (2024)

FAQs

Why are credit unions struggling? ›

Credit unions facing challenges in managing risks, such as credit risk or cybersecurity threats, may find themselves in difficult situations. Demographic Shifts: Changes in demographics, including aging populations and shifting consumer behaviors, can impact the demand for certain financial products and services.

Humans make up a much more vulnerable attack surface to credit unions than their tech stacks. Last year's most high-profile attacks proved that. Layering artificial intelligence deepfakes onto what is already tricky "people security" is now causing the human-vulnerability risk to rapidly accelerate.

The pros of credit unions include better interest rates than banks, while the cons include fewer branches and ATMs.

(FDIC) bank failures from 2021 up until the March 10 closure of Silicon Valley Bank. Notably, there were no credit union failures directly following the collapse of Silicon Valley Bank. “The credit union system remains well-capitalized and on a solid footing,” said NCUA Chairman Todd Harper in a statement on March 13.

Experts told us that credit unions do fail, like banks (which are also generally safe), but rarely. And deposits up to $250,000 at federally insured credit unions are guaranteed, just as they are at banks.

First, bankers believe it is unfair that credit unions are exempt from federal taxation while the taxes that banks pay represent a significant fraction of their earnings—33 percent last year. Second, bankers believe that credit unions have been allowed to expand far beyond their original purpose.

Just like banks, credit unions are federally insured; however, credit unions are not insured by the Federal Deposit Insurance Corporation (FDIC). Instead, the National Credit Union Administration (NCUA) is the federal insurer of credit unions, making them just as safe as traditional banks.

A major existential threat faces credit unions today due to their inability to scale; losing their member base to virtual, internet-based, financial-technology platform companies (fintechs) offering quick, easy and consumer-friendly services via mobile third-party payment applications, albeit at onerous rates.

Credit unions are insured by the National Credit Union Administration (NCUA). Just like the FDIC insures up to $250,000 for individuals' accounts of a bank, the NCUA insures up to $250,000 for individuals' accounts of a credit union. Beyond that amount, the bank or credit union takes an uninsured risk.

However, because credit unions serve mostly individuals and small businesses (rather than large investors) and are known to take fewer risks, credit unions are generally viewed as safer than banks in the event of a collapse. Regardless, both types of financial institutions are equally protected.

What happens if a credit union shuts down? ›

The NCUA will send you a letter notifying you if your credit union closes and will return your funds within five days of closing. If your balance exceeds $250,000, you'll need to complete a Member Confirmation and Affidavit form to receive any funds over the insured limit.

Additionally, the money held in most accounts at a failed bank is insured through the Federal Deposit Insurance Corporation (FDIC). Money held in credit union accounts is insured through the National Credit Union Administration (NCUA).

Credit union disadvantages

Membership may require meeting certain work, residential or occupational requirements. Many typically offer branches only in a limited area or region.

When a credit union fails, the NCUA is responsible for managing and closing the institution. The NCUA's Asset Management and Assistance Center liquidates the credit union and returns funds from accounts to its members. The funds are typically returned within five days of closure.

If a credit union is placed into liquidation, the NCUA's Asset Management and Assistance Center (AMAC) will oversee the liquidation and set up an asset management estate (AME) to manage assets, settle members' insurance claims, and attempt to recover value from the closed credit union's assets.

If you want to check up on your credit union, make sure it's federally insured by the NCUA and look at its finances, you can do that any time. Go to the NCUA's website at www.ncua.gov, click on the "Credit Union Data" link on the left-hand side of the page below where it says Data and Services.

Since banks are for-profit institutions, they typically have lower incentive to provide the best customer service. Many banks are huge national or global institutions and providing a warm and welcoming environment isn't a top priority for them.