Consumer Finance Network to Serve Elderly : AARP Plans Credit Union, Savings and Checking Accounts, Charge Card
The American Assn. of Retired Persons, whose 25 million members already represent a massive consumer market, is spending $1 million to create an ambitious national credit union, offering savings and checking accounts and a low-cost credit card.
“The total package will be more competitive than members can find elsewhere if they shop for a combination of a credit card, a checking account and a savings account,” Bruce Myles, director of financial services for AARP, said in an interview Monday.
The AARP Federal Credit Union received its government charter last month, without any publicity. The parent organization supplied $1 million as the credit union’s initial funding, The Times has learned.
Creation of the credit union is the latest bid by the AARP in an aggressive growth campaign. The organization is taking advantage of demographics--the “graying” of America--and the fact that the older population is more affluent than ever.
The credit union would allow AARP to create a nationwide banking institution, with members able to make financial transactions through the mail, over the telephone and through automatic teller machines.
Moreover, it is authorized to offer home mortgages, auto and personal loans, although high interest rates on savings will be the big drawing card for AARP members, who are 50 and older.
Although no one is sure how many people will be attracted to the new project, which is restricted to AARP members, the potential for growth is huge because all the organization’s 25 million members are eligible to join.
The AARP already manages mutual funds for its members, sells them health insurance to supplement Medicare coverage and operates the nation’s largest mail order drug prescription program.
More than 300,000 members have invested $3.9 billion in AARP-sponsored mutual funds in less than three years. But credit union savings, which are insured by the federal government up to $100,000, will probably be much more popular than the mutual funds, which are not guaranteed, AARP officials believe.
The credit card also will be a strong marketing tool because many AARP members who are retired have insufficient monthly income to qualify for a regular bank credit card. The interest rate on credit card balances would be significantly lower than the average 18% charged on many bank cards, sources indicated.
Credit union membership will be offered to selected AARP members in a test marketing program this year and will go nationwide in 1988.
AARP members can join the credit union by paying $5 for a share account. Checking accounts, known as share drafts, will be available, along with savings accounts, known as share certificates.
The savings accounts, offered for six months, one year and 2 1/2 years by banks and savings and loan associations, will be marketed through the credit union as share certificates. The new credit union should provide vigorous competition for S&Ls; and banks seeking the money of AARP members.
Credit unions often are able to offer higher interest rates on savings than their financial rivals, banks and savings and loan associations, said Bob Loftus, spokesman for the National Credit Union Administration, the independent agency regulating the 14,000 federally insured credit unions. Deposits are insured for up to $100,000.
Credit unions “don’t have a profit motive, they don’t have stockholders as a bank has and they are tax exempt,” Loftus said. In addition, credit unions generally have the same financial powers as banks, though they cannot make large commercial loans.
Although many AARP members may be interested in home equity loans, the credit union will not be involved in this for several years, Myles said. The emphasis will be on gathering deposits for savings and checking accounts.
The AARP boasts an annual budget of $150 million and has $27 million in cash in the bank. Membership has risen at least 10% a year for the past four years.
Unlike most such organizations, the workplace will not bond AARP credit union members. Instead, the common link will be membership in the AARP, which costs $5 a year. In government applications, the credit union’s projected initial membership has been estimated at 200,000 to 300,000.
The AARP’s financial drive has been directed by Cyril F. Brickfield, who retires this year after a decade as executive director.
“We have taken studied and reasonable chances,” Brickfield said in a recent interview. During his tenure, AARP has kept dues low, a tactic that built a base of members who became loyal customers for AARP services. For example, the organization made $40 million in 1985 through the sale of insurance to members, and $21 million from ad in its Modern Maturity magazine and the AARP news bulletins.
