Buyer Beware: Some Credit Unions Are Not Federally-Insured, Others Offer Controversial Payday Loans
Consumer advocates are warning that while many credit unions are a great (and often better) choice for customers, they should do their homework on their credit union before they make the switch for Bank Transfer Day.
The National Consumer Law Center says customers should look out for the few credit unions that are not federally-insured and others that offer controversial payday loans, according to California Watch.
Advocates single out just 24 credit unions out of 7,000 nationwide that make their money offering short-term loans that consumers advocates say can lead customers into a destructive cycle of debt. In California one of those credit unions is Kinecta Federal Credit Union, which acquired the Los Angeles-based Nix Check Cashing four years ago. The company says it is providing emergency loans to groups that need it most. Advocates say that Kinecta gouges its customers with inflated loan application fees. Advocates say that approach to business goes against what is best about credit unions — and perhaps, the spirit of Bank Transfer day.
"Credit union management should be serving the will of the members to have an alternative financial system to a stockholder-owned banking system, not an alternative financial system that is designed to extract wealth from its customers, which is what a payday lending operation is designed to do," Ed Mierzwinski, consumer program director for the U.S. Public Interest Research Group, told California Watch.
Consumer advocates also suggest that customers switching banks check to make sure that their credit union is federally insured in case it fails. That's especially important in California, which does not require credit unions to have federal insurance.
Of the roughly 450 credit unions in California, there are 13 credit unions that are backed solely by the private insurance company American Share Insurance. California Watch obtained a list of these credit unions:
California Association of Highway Patrolmen Credit Union
Christian Community Credit Union
El Monte City Employees Credit Union
Firestone Financial Services Credit Union
Fiscal Credit Union
Los Angeles Firemen's Credit Union
San Francisco Fire Credit Union
South Bay Credit Union
Southern California Postal Credit Union
Lutheran Credit Union of America
Mid-Cities Schools Credit Union
Monterey Credit Union
SafeAmerica Credit Union