Make a deposit of faith when choosing where to keep your money
Editors' note: Sounding Board is one person’s take on a many-sided subject and does not necessarily reflect the opinions of U.S. Catholic, its editors, or the Claretians.
Supporting your local credit union is an investment in the community that you can bank on.
I remember when I got my first savings account passbook. I was about 8 years old. My dad took me to the local branch of Wells Fargo Bank in Sacramento, California and the bank manager explained how a savings account worked—and I had my first hint of the high math of “compound interest.” She gave me my little blue passbook with embossed gold lettering and showed me where to sign my name.
Most of my deposits were money accumulated from birthday gifts, allowances, and chores. I felt proud to save this money. I was excited to put it in the Lenten milk carton collections for children in Africa or for the homeless, happy to make my addition to the collection basket at Mass. My money was helping people—my family, my church, and people who needed some extra assistance.
When I moved to Washington in 1986, I opened an account at a D.C.-based bank with a branch a few blocks from where I lived. But over the course of 20 years that bank was bought by Bank of America. I switched to another regional bank, but it was bought by Wachovia. A few years ago, Wachovia was bought out by Wells Fargo. But it wasn’t the same Wells Fargo I had grown up with.
Until the 1980s U.S. banks served three basic functions: providing security for money, facilitating payment for goods or services (checks, credit cards, wire transfers), and extending credit. By law they were limited to operating within their state of incorporation and barred from investment banking and speculative trading. Policies kept banks responsible to local communities and businesses. Between 1940 and 1980 there were fewer than 260 bank failures, compared to more than 2,800 since.
The Reagan-era rush to deregulate successfully chipped away at the policies that made this system work. The coup de grâce came in 1999 when Congress overturned the Glass-Steagall Act. For the first time since the Great Depression, commercial banking and speculative investment banking could take place under the same roof. Big banks could create the conditions for an international financial crisis with no regulator big enough to stop them. Within 10 years we were back into a Great Recession.
In 2009 Wells Fargo merged with Wachovia to create a “superbank” with $1.4 trillion in assets and 48 million customers. Along with Bank of America, JPMorgan Chase, Ally Financial, and Citigroup, Wells Fargo stole the homes and life savings of hundreds of thousands of Americans. It’s also been found guilty of charging a higher interest rate to African American and Hispanic home buyers and lying to customers to secure subprime loan agreements. Additionally, Wells Fargo is the second largest investor in one of the top three owners of private prisons in America.
As a Catholic and as an American, I was not happy with Wells Fargo. Finally last year, I again moved my money, this time to Lafayette Federal Credit Union.
I love Lafayette. It’s local. It’s half a block from work. Charlotte, the branch manager, knows my name. Sometimes they even have a candy dish with peppermints. It’s a financial institution where I actually prefer to go inside and talk to the teller rather than simply use the ATM. I enjoy talking to the neighbors and catching up on local news. And it pays better.
Believe me, the move wasn’t easy. In the age of “e-money”—direct deposit, bill pay, online banking, ATMs, etc.—it is difficult to untangle the many wires that run through one person’s bank account. There were multiple waiting periods and possible fines, but it was all worth it.
I had an “exit interview” with the Wells Fargo bank manager. I listed all the reasons I thought big banks were acting as an unregulated scourge across the American economy and that Wells Fargo had just been convicted of practicing its own form of redlining. I told him that credit unions were on the upswing and were hiring—maybe he could get a job with one of them! He made a few notes and politely—and swiftly—ushered me out of his office.
One of the first questions to ask when assessing one’s own financial social responsibility is: How quickly does my dollar leave my neighborhood? Generally speaking, the bigger the financial corporation, the quicker your dollar exits.
Credit unions, as we know them today, originated in Europe in the 1800s as financial self-help cooperatives among small business owners and farmers in particular locales, geared toward providing for and protecting their economic sovereignty. Many of them were started by Catholics and were based on principles of Catholic social teaching. For example, both St. Anthony Claret (1807-1870)—founder of the Claretians, who publish this magazine—and Franciszek Stefczyk (1861-1924) worked in rural areas to establish credit unions among poor farmers. Both wanted farmers to own their farms and market their own crops, and they understood that financial health is intimately connected with family and local community.
As immigrant Catholics brought credit unions to America, they became organized around seven principles that reflect Catholic teaching: voluntary membership, democratic governance, member control of capital, autonomy and independence, education of members and the public in cooperative principles, cooperation between cooperatives, and concern for the local community. Most credit unions today are still built around these principles.
The bottom line for a good credit union is that it exists to help people, not to make a profit. For example, I became a member of my new credit union when I bought a $50 share. When members make deposits into various accounts, funds are pooled together. Then the funds are lent to other members at reasonable, lower interest rates.
As a not-for-profit institution, credit unions do not have stockholders whose votes are weighted by the amount of stock they own. Credit unions are democratic, one-member-one-vote institutions. My credit union hosts a financial literacy center, is a member of the Credit Union National Association, and generates tens of thousands of dollars for the Capital Area Food Bank. According to the Credit Union National Association rate index, credit unions on average pay higher interest than banks on personal savings and checking accounts and charge lower interest on credit cards and loans.
In his 2009 encyclical Caritas in Veritate, Pope Benedict reminds us that “grave imbalances are produced when economic action, conceived merely as an engine for wealth creation, is detached from political action, conceived as a means for pursuing justice through redistribution.” In other words, when governments don’t properly regulate markets, then those same governments can’t ensure that their citizens are adequately provided for.
Are all credit unions created equal? Of course not. Some credit unions have minimized their investment in local communities. Some may not invest according to an aggressive social screen. Some have taken on more corporate customers or increased real estate lending portfolios, both of which expose them to broader market risks. And they often aren’t as convenient when it comes to online banking or ATMs (though this is changing rapidly).
One advantage of big banks is, well, they’re big—as in geographically spread out. If you move often it might be difficult to maintain relationships with a local bank. And if you regularly transfer money to accounts outside of your bank—and especially outside the United States—you’ll find big banks can accommodate this more smoothly.
If you consider moving your money from a big bank to a local bank, credit union, or other community development financial institution (CDFI), here are some questions to ask them: Where do you invest customers’ funds? Did you take bailout money? Do you sell your loans or hold them? What social screens do you have on your loans? How do you use your profit? What are your requirements for membership? Do you participate in “credit pools” or “shared banking” and with whom?
The U.S. Catholic population is currently about 77.7 million, just under 1 in 4 Americans. If every Catholic family moved its money from a big bank to a credit union—as an act of Catholic public witness—we could both stabilize our economy and evangelize for our church. There may even be a Catholic credit union near you.
I no longer have a savings passbook and my tithing isn’t through a Lenten milk carton, but my money is once again helping people. And that’s what money should be about—building strong relationships in the service and love of God. What’s your money doing?
"And the survey says..."
1. I currently do my banking with:
43% - A credit union.
17% - One of the big banks.
13% - A small community bank.
24% - Some combination of the above.
3% - Other
2. I have moved, or plan to move, my money from a big bank to a credit union.
54% - Agree
27% - Disagree
19% - Other
Representative of “other”:
“My personal and business banking circumstances are a nightmare of entanglements. Switching would have to be well thought out and carefully planned.”
“I already have my money in a small community bank.”
3. Credit unions are fine for smaller personal accounts but not for things like home loans and retirement savings.
9% - Agree
84% - Disagree
7% - Other
Representative of “other”:
“It depends on the credit union and its community ties.”
4. I couldn’t give up the convenience of having an account with one of the big banks.
10% - Agree
83% - Disagree
7% - Other
5. I feel more confident having my money in a big bank than having it in a local credit union.
6% - Agree
89% - Disagree
5% - Other
6. Where I invest my money has nothing to do with my faith.
20% - Agree
76% - Disagree
4% - Other
7. I believe what caused the economic recession was:
33% - Lack of government regulation on big banks.
22% - Big banks’ speculative investing.
17% - Predatory lenders.
2% - Irresponsible borrowers.
26% - Other
Representative of “other”:
“A combination of all of the above.”
“Greed and a lack of morality.”
This article appeared in the February 2013 issue of U.S. Catholic (Vol. 78, No. 2, pages 27-30).