SOCIALLY RESPONSIBLE BANKING: Fire Your BIG Bank & Go LOCAL
by Shelby King
We continue to hear news about financial institutions’ predatory lending practices, credit card companies that raise their interest rates to exorbitant levels and corporate banks spending frivolously while simultaneously accepting billions of dollars in government “bailout” money. Americans feel cheated and angry, but most of us don’t know how to fight these mega-banks.
Big banks are big business, and they probably have your money. When you patronize a traditional financial institution, your money is used to fund projects that you may or may not support. For example, Morgan Stanley, Merrill Lynch and Citigroup all provided loan capital for a Chinese dam project that displaced 1.4 million people and destroyed wetland habitat, according to the Rainforest Action Network.
On the other hand, locally owned banks and credit unions traditionally keep their profits within the community. What profits aren’t returned directly to the customers in the form of higher dividends on savings and lower interest rates on loans are often returned indirectly by the community projects they fund. For example, Oregon Community Credit Union’s Community Outreach for Employees Program (C.O.R.E.) pays their employees for volunteering with non-profit organizations or schools of their choice. Additionally, Oregon Community Credit Union donates money to local chapters of charities such as The American Cancer Society, United Way, Children’s Miracle Network and The Red Cross.
You don’t have to keep your cash in traditional mega-banks. In fact, ending your relationship with your current bank is easier than you might think. It’s simply a matter of moving your money elsewhere. Denying mega-banks your business sends a powerful message, and breaking up doesn’t have to be so hard to do.
How Did We Get Here?
We all remember the panic that spread throughout the world in the early fall of 2008. Here in the United States, we were glued to our televisions, watching and listening to things that were difficult to comprehend. As the days and weeks wore on, we began to realize that we were in the middle of a financial meltdown unlike anything we had witnessed. The uncertainty and anxiety generated by the crisis was apparent in daily conversations as people struggled to make sense of what was happening. Suddenly, Americans came to realize in a very tangible way just how fragile our economic system is as we watched seemingly powerful financial institutions crumble.
Now we are dealing with the aftermath of that financial fiasco. Many Americans have lost their homes, their businesses, their jobs and often their entire life savings. The dramatic stock market crash coupled with the collapse of the real estate market has left people wondering where to put their money.
The 2008 financial debacle was the direct result of greed and deceit by the financial institutions we were supposed to trust. Market instability caused by newly created lines of credit – which staunched the flow of money, slowed economic growth and diminished the buying and selling of assets – hit consumers, businesses and lending institutions hard. As a result, many banks were left holding loans backed by assets that had dropped in value dramatically and weren’t bringing in the amount of money needed to pay off the loans. This dried up the banks’ financial reserves and severely restricted their ability to lend money.
Our economy works because of credit. When credit is used wisely, it is a great tool for creating economic growth. For example, credit can be used to create a new business or expand an existing one. This can create jobs. Credit can also be used to improve an existing home or buy a new one. This, too, creates jobs and benefits the economy. But, in the recent years leading up to 2008 creditors and consumers got greedy, and things got out of control.
Mortgage brokers approved more and more risky loans, then repackaged these loans with other mortgages and resold them as “investments.” Thousands of families took on mortgage loans they couldn’t afford hoping to flip the house or refinance later at a lower interest rate.
The housing bubble finally burst, setting off a chain reaction. Flipping homes for a quick and easy profit no longer worked and adjustable rate loans caused mortgage payments to become unaffordable. Thousands defaulted on their loans, leaving financial institutions and investors responsible for the money.
With this tsunami of defaults came giant losses in the form of mortgage-backed securities, causing many banks and investment firms to begin hemorrhaging cash. Then came a flood of homes entering the market, which lowered prices and dramatically slowed new construction. The result: thousands of construction laborers out of business and homes that were now worth less than the mortgage value.
At the crux of the meltdown was the banking industry. At the height of the home-selling frenzy, it took little more than a pulse and a signature to get a home loan. People bought homes they couldn’t afford, and banks turned a quick profit while the rest of us suffered huge losses.
What Can You Do?
We are all disgusted by the arrogant actions of those mega-banks and financial institutions. It is time to send a clear message to those who got us into this mess, saying we’re not going to pad their pockets and support their pet projects anymore. We can do that most effectively by denying corporate banks our business.
“Bank at your local bank. That way your money is staying in the community.” says Patricia Hathaway, owner of Hathaway Financial services, a Eugene company that specializes in socially responsible investing. “The best way to send a message is to pull your money out of these banks. The smaller banks, I think there is a misconception that your money is less safe. It is not true if the bank is FDIC insured.”
Hathaway also recommends investing your money locally and cutting up credit cards affiliated with big corporations.
In Oregon, we have multiple options for choosing a locally owned and operated bank. Hathaway says Summit Bank, based in Eugene, offers excellent service and supports local organizations such as Food for Lane County, United Way of Lane County and WomenSpace.
Albina Bank, a Portland bank established in 1995, is the only commercial bank in Oregon certified by the U.S. Treasury as a Community Development Financial Institution (CDFI). Although Albina Bank only has branches in Portland, they are able to serve Willamette Valley residents thanks to online banking. In fact, says Susan Beall, Assistant Vice President and Marketing Manager for Albina, people from as far away as Texas have inquired about using Albina’s services because of the great things the bank does for the community.
For example, Albina Bank customers can get a VISA card that allows them to choose where their money is invested. Each year the bank “gives back” a percentage of all the charges made on a card. The customer can choose whether that return goes to fund the arts, economic development, the environment, health and social services or education, according to Beall.
“Since we started doing that in 2002 we’ve given over $85,000, at no cost to customers, to local schools and non-profit organizations,” she says.
Beall, like Hathaway, believes that another advantage of banking locally is the accessibility and service. At a local branch of a large bank such as Bank of America, it is difficult to do things like have overdraft fees waived, says Beall, because branch managers are not allowed to make those decisions.
“At a community bank you’ve got access to the decision-makers,” says Beall. “What we try to do is empower our branch managers to be able to make those decisions themselves. We believe that it’s the employees that are familiar with their customers and the customers’ situation, so they’re best able to make those choices.”
Community Credit Unions
A bank, even a local one, is a for-profit business. A bank has shareholders who expect to pocket some of those profits; if you would rather your money go directly to a non-profit organization, open an account at a credit union. Community credit unions are member owned, says Laura Illig, Vice President of Marketing at SELCO Community Credit Union. “Our Board [of Directors] is all volunteers, and they’re all members,” says Illig.
Because the members are the owners, profits are returned to them through lower interest rates on loans and higher yields on deposits. Most credit unions donate to charities, but Illig says SELCO is different because they also send their employees to volunteer. “SELCO doesn’t just write a check,” say’s Illig. “They show up with people, in their t-shirts, working right alongside the other volunteers. I think that’s really the difference.”
Illig says you’ll find no difference in services offered between credit unions and banks. SELCO offers a wide range of services, including online banking, mobile banking, credit cards, loans, commercial and mortgage lending. They even offer insurance services.
Historically, community credit unions are started to serve a particular niche of the population, says Illig. SELCO was created in 1936 by a group of schoolteachers who pooled their money together in a shoebox to loan between one another in times of need. SELCO, like most credit unions these days, has branched out to allow all members of the community to join.
A Credit Union with a Cause
There are some people who aren’t eligible for a loan at most banks or credit unions. People that are considered too high risk are often the ones who are the most in need. These people might be former drug addicts with a past record of trying to pass bad checks. Maybe it’s a single mom who needs a few hundred dollars to pay a car mechanic. Maybe it’s a homeless person who just needs a safe place to keep his monthly disability money.
Eugene is home to a very rare type of credit union. Although the difference in name varies by only one word, that word means a world of difference, according to Loretta Moesta, President of OUR Federal Community Development Credit Union. It’s that one word – development – that sets OUR apart.
“There’s a huge, huge difference. Community development means you have to prove that more than 80 percent of your members fall below the national median income,” says Moesta. “And predominantly, your services have to be geared toward community and economic development in your field of membership. So, we provide asset-building opportunities to those who might not have access to it elsewhere.”
OUR Federal’s home is a well-kept older converted house across from the Red Barn Grocery in the Whitaker neighborhood of Eugene. The credit union began from an anti-poverty movement by some local “kids of wealth,” in the 1960s, says Moesta. These philanthropic investors wanted to provide a base for a credit union at which low-income members could pool their money and loan small amounts to one another.
Today, OUR Federal provides basic financial services such as savings, check cashing, direct deposit, loans and, most recently, a VISA debit card. Members can also get money orders, send money through Western Union and send faxes. Maybe most importantly, OUR Federal provides basic financial counseling. Through the Lifeline program, a curriculum developed by Moesta and some of the OUR Federal Board members, volunteers provide financial counseling to over 800 Lane County families each year.
Although OUR Federal is set up to address the needs of low-income or high-risk community members, they also accept clients with disposable income. In fact, says Moesta, OUR Federal tries to encourage financially stable customers, those whose options are not limited, to borrow from them because it helps to balance their loan portfolio and, more importantly, generates income.
“Loans are the number one income for any credit union,” says Moesta. “We also have local people of means who put their money on deposit here, at zero percent [interest], in order to support what we’re doing. Because they can see their dollars at work.”
Is it Difficult to Switch?
It’s one thing to realize it’s a good idea to switch your money to a local bank or community credit union, but when people think of switching all of their automatic payments and direct deposits from one bank to another it can seem like a giant task.
“It’s really very simple for people to move. All they need to do is come in and talk to a financial adviser who can walk them through the process of what to do with their existing bank. Then they just have to go to their old bank and tell them they want to move,” says Laura Illig of SELCO.
Admittedly, this process takes a little time. But with more accessibility to customer care and personal service to walk you through the process, Illig says, it’s not a difficult one.
Keeping your money local is an easy way to improve the lives of those around you and better the community you love. If you’d like to learn more about switching to a local bank or credit union, just visit one of the branches near you or log on to their website.