Should you dump your big bank for a credit union? An UNEMOTIONAL look

There is a movement afoot. This past Saturday was “Move Your Money” and “Bank Transfer Day.” These events were scheduled in an effort to cripple big banking in America. Many Americans are fed up with corporate greed and what they deem to be unfair business practices by banks. It has been reported that nearly 700,000 people have left banks since September of this year in order to do their “banking” business with credit unions. What does this mean? Does it make sense? And should you do it?

Never operate in absolutes

Are banks evil? While I love personification as much as the next guy, I don’t think banks are evil. No matter how much you hate big banks in America, they aren’t evil. They are operating in a free (and sometimes highly unregulated) marketplace. While I certainly dislike some of their marketing practices (such as the advertisement below), we are the dumdums that say yes. You will never find me blaming McDonalds for making our kids fat. When you enter into a relationship with a bank, especially one in which you are borrowing money from them, then you are generally going to be placed in a subordinate position. They can position it however the hell they want: “we want to help you grow your business” “we want to help you achieve the American dream” “we want to give you rewards for banking with us.” But the fact of the matter is that whatever happens to you once you enter into a relationship with a bank is YOUR FAULT. Yes, once again I’m speaking of personal responsibility. More on this later.

 

What about credit unions?

Within the Move Your Money movement you will find an exodus towards credit unions. Why? There are several reasons. For one, credit unions used their marketing dollars to help fan the flames of banking discontent. I don’t blame them. Secondly, credit unions are not-for-profit institutions. I’ve discussed this before. So is it fair to say that the profits of banks are the problem? Um, no. You won’t find this guy demonizing profits. I do however feel that there is a more abstract concept that is at work. I happen to believe that credit unions and small banks (let’s not forget small community banks that are literally the backbone of so many thriving communities) have a more highly developed “spirit of partnership.” No, I’m not going to ask you to walk across hot coals and watch The Secret. Credit unions and small banks really want to be your financial partner. Big banks have shown time and time again that they aren’t really interested in being your partner. They are simply interested in tricking you into spending money.

The sad reality

Many Americans have already voted. Whereas transferring your daily banking needs to a not-for-profit institution like a credit union seems like it makes sense, the past actions of million of Americans (possibly even you) have already cast a vote in the favor of big banks. What am I talking about? Borrowing. More specifically, borrowing money that they never should have borrowed. In the illustrious words of “that guy” that just won a bar fight, “you mess with the bull and you get the horns.” Every time that you ask the bank “how much can I afford,” you lose. Why? Because you are giving them the power to control your household budget. Is it fair that they frequently tell you that you can afford more than you really can in order to increase the revenue that you provide to their institution? Who cares? Arguing fair is silly for someone that just allowed a bank (the institution loaning you money) to dictate the largest purchases of your financial life.

One of the stupidest mistakes that I see on a daily basis is allowing a bank to tell you how much house, car, or remodel (of a house) you can afford. Here’s what may be shocking to you: you are actually supposed to know how much you can afford to borrow without having to ask a bank. I don’t think anyone should ever be rejected for a mortgage or any other type of loan. Why? Because I only think that people should ask to borrow money when they can TRULY AFFORD to borrow the money. Therefore, there would be no rejections. Did you buy a house no money down, it fell in value, and now you can’t sell it because you are “underwater” on the mortgage? This is because the bank let you borrow money that you shouldn’t have borrowed. Buying a house “no-money down” is a way to sell you a mortgage, not provide you a roof over your head.

My conclusion

This is why I think the Move Your Money movement is slightly misguided. Removing your bank accounts and taking them to credit unions will only take away tens, maybe hundreds of dollars per year from the bank. But the loans that you never should have taken provide hundreds if not THOUSANDS of dollars per year to the big banks. Don’t be the vegan in leather shoes. Feel free to leave your big bank, but make sure that you tell your financial habits.

What’s even crazier is that credit unions and small banks traditionally have more conservative lending practices. This means that these institutions are less likely to lend you money that you shouldn’t borrow. Your willful ignorance will only be supported by the big banking industry. A true financial partner wouldn’t hand you the needle. But alas, we need our fix. Yes, we need a fix.

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