By Dan Brown and Robert Flock
ABA DataBank
Historically, credit unions had strict membership criteria and confined geographic scope, virtually eliminating the need to advertise. The Federal Credit Union Act, which turned 90 last month, directs credit unions to make credit available to people of modest means in a local defined community with a common bond who might otherwise be unable to obtain financial services.
That said, a certain subset of credit unions have capitalized on membership rule changes over the last 25 years, paving the way for mass market advertising targeting millions of potential new members.
From PenFed Credit Union’s partnership with Dulles International Airport and Mountain America Credit Union’s naming rights to Arizona State University’s football stadium to Jovia Financial Credit Union’s 2024 Super Bowl ad, credit unions have launched expensive marketing campaigns going after deposits, loans, and other services. While assets of banks with more than $1 billion in assets have grown by 80 percent over the last decade, marketing efforts by credit unions over $1 billion in assets have fueled their 127 percent increase in assets during that same period. This staff analysis will detail the evolution in membership criteria and the corresponding explosion of both marketing and growth in the credit union industry, as well as some policy implications associated with these drastic changes.
Changes in field of membership policy
Several regulatory and legislative changes since the 1990s have substantially watered down credit union membership criteria, leading to exponential growth. The most monumental change occurred with the Credit Union Membership Access Act of 1998, which allowed credit unions to have multiple common bonds among their memberships.
The National Credit Union Administration has promulgated a number of rules since then, further eroding field of membership requirements. Most recently, its 2023 chartering and field of membership proposed rule would accommodate multiple-common-bond FCUs seeking to add underserved areas to their fields of membership, undermining both their physical presence in local communities and the common bond requirement among membership. Of note, more than 1,000 credit unions have flipped charters (that is, to community charter) since 1996 to maximize their potential membership.
Credit unions must disclose in their regulatory filings the number of individuals within their fields of membership. As Figure 1 above illustrates, credit unions with over $1 billion in assets on average have more than doubled their potential membership pool since 2011. Spikes also seem to occur following key regulatory changes, such as the 2015 chartering and field of membership rule that enabled federal credit unions to add 12 categories of associational groups to membership eligibility, and a 2021 rule that relaxed geography proximity requirements. Finally, in 2023, there were three credit unions that submitted figures over 335 million for potential membership, meaning they believed the entire U.S. population was eligible for membership.
Exponential growth
With these changes vastly expanding membership eligibility, credit unions prioritizing growth have far outpaced their cooperative brethren in acquiring members. As Figure 2 illustrates, the credit unions’ membership growth rates have been significantly and consistently higher than those of smaller credit unions. The spike in the mid-1990s coincides with the legal battle between the NCUA and the banking industry (led by the American Bankers Association) over whether multiple groups in one field of membership was permissible. That case ended up going to the U.S. Supreme Court, and while the court sided with the banking industry’s interpretation of the Federal Credit Union Act, CUMAA reversed the credit union industry’s fortunes.
Not only have credit unions with over $1 billion in assets significantly increased their assets since these changes, their asset growth also surpasses that of the banking industry. Figure 3 compares the growth in assets of banks and credit unions with more than $1 billion in assets. These credit unions have grown over 120 percent in just 9 years compared to 80 percent by banks with over $1 billion in assets in the same timeframe. And changes in membership criteria are only part of the story. To grow members and assets at this rate, advertising plays a pivotal role.
Bright lights, big budgets
Stadium naming deals, marquee sports event sponsorships, university partnerships and endless ads by credit unions are hard to ignore. In fact, on a proportional basis, credit unions with over $1 billion in assets, which are not-for-profit entities that do not pay taxes, spend significantly more on marketing than similarly sized banks. Taking numbers from the FDIC and NCUA call reports, Figure 4 shows the proportional marketing spending by both banks and credit unions with over $1 billion in assets. We compare advertising as a percent of net interest expense based on a 2017 article from S&P Global Market Intelligence that first flagged the noticeable uptick in advertising. As the figure illustrates, the trend has continued, and credit unions with over $1 billion in assets proportionately spend significantly more on marketing than banks with over $1 billion in assets. The average credit union with over $1 billion in assets has more than tripled its marketing spending, from $1.4 million in 2011 to roughly $4.4 million in 2023. However, some credit unions have seen even more pronounced growth in their marketing activities. Navy Federal — America’s largest credit union — has more than quadrupled its marketing spending in the last 12 years, from $43.2 million in 2011 to almost $196 million in 2023. America First Federal Credit Union, a top ten credit union with $20 billion in assets, had one of the largest percent increases in marketing, increasing its marketing spending from just over $4 million in 2011 to $32.8 million in 2023.
Policy implications
One of the more interesting wrinkles behind credit union marketing is that while these institutions do not pay taxes and are not subject to fair lending regulations like the Community Reinvestment Act, they should in theory offer better rates on loans and deposits. If they were doing so, there would be little need for such substantial marketing efforts.
However, research examining household survey data provides evidence that the majority of the credit union tax subsidy is being diverted away from the intended beneficiaries. Contrary to the impetus for the Federal Credit Union Act, the paper also notes that low-income individuals have become less (rather than more) likely to use the services of a credit union: the average credit union member has similar or even higher income than the average bank customer. And if rates offered by credit unions are much closer to those offered by banks, there is a clearer need to advertise.
More than 25 years have passed since CUMAA was enacted, and regulation governing field of membership has drastically changed since that time. With little congressional oversight throughout the last two decades, credit unions have expanded far beyond congressional intent.
Congress has a responsibility to taxpayers and must exercise its oversight authority more regularly than once every twenty years. A hearing on tax-exempt credit unions is long overdue.
Dan Brown is an economist and senior director in ABA’s Office of the Chief Economist. Robert Flock is a VP in ABA’s Office of Strategic Engagement, where he works on credit union policy issues.
