Like so many other jittery consumers, Meta Levister wasn't looking forward to shelling out $15,000 or $20,000 for a new car when her old Ford Mustang quit running in October.
And Levister had an extra reason to be cautious with her spending: As a teacher in the Los Angeles Unified School District, she already suffered a 9% pay cut earlier in the year and is facing the prospect of a long strike within a couple of months.
But when the Los Angeles Teachers Federal Credit Union cut its rate on loans for new cars to 7.5% and eased its credit policies, Levister took the plunge and bought a brand new Honda Accord.
"There's no way I could have gotten this car without my credit union," said Levister, who teaches at Cienega Elementary School in the Mid-City area. "Finance companies charge too much, and they don't offer the flexibility that the credit union does. When your pay has been cut and you're looking at a strike, banks don't bend over backwards to help you out."
Across Southern California, dozens of credit unions are slashing their loan rates, liberalizing credit standards and making other types of concessions to help their members weather the recession.
* The Los Angeles teachers' credit union--whose 70,000 members make it one of the nation's largest--has also cut rates on unsecured personal loans and lowered the rate on existing mortgages to 8 3/4% from as much as 13%, without charging any refinancing fees.
"It sounds corny, but we're just people helping people," said Alan K. Fricke, the credit union's president.
* Pacific Federal Credit Union in Pomona--whose 2,000 members recently took a 5% pay cut when the state trimmed wages for hospital workers--has dropped rates on personal loans to 10% from 16% and is offering low-rate cash advances to people who want to pay off high-rate credit card debt. "It (was) sort of an early Christmas present," said President Sue Longson.
* The credit union for Farmers Insurance Group's 33,000 customers has cut the rate it charges for used-car loans and small, unsecured lines of credit.
"Most of our special programs are geared toward smaller borrowers, because they're the ones bearing the brunt of the recession," said Skip Adams, Farmers' credit union president.
Analysts say that credit union members are enjoying benefits that non-members can't get for a variety of reasons.
Most credit unions enjoy lower costs than traditional lenders because their employer sponsors usually subsidize operations with free or low-cost office space and advertising. The majority of members make deposits through payroll deduction plans, reducing processing costs and eliminating the need for expensive branch networks.
Credit unions also have the ability to change programs virtually overnight because they are typically small, less bureaucratic organizations.
"And finally, there's the fact that credit unions don't have to worry about generating profits for shareholders," said E. Gareth Plank, a banking analyst for Mabon Securities Corp. in San Francisco. "Any money they make is kept inside the 'family' and can be passed along through lower interest rates on loans and higher dividends on savings accounts."
Of course, all this flexibility has its cost. While credit unions offer their members higher rates on their savings accounts and lower rates on their loans, many are too small to provide the array of services that large banks do--credit cards, safe deposit boxes, in-house trust departments and the like.
The trend for credit unions to slash rates and offer other bonuses isn't entirely altruistic. Many workers have cut back on their spending because of the recession, leaving some unions awash with cash that no one wants to borrow.
"It sounds kind of funny, but people today have to be enticed to borrow money," said Jeff York of Vista Federal Credit Union, which recently began offering a $101 cash rebate to any Walt Disney Corp. employee who borrows $2,500 or more. "Our program doesn't just make sense for members. It makes sense for our business too."
Regardless of why such bonuses and concessions are being offered, credit union members appreciate the help--especially those who are facing pay cuts or even unemployment.
Mary Miranda, for example, recently applied for a small loan from the Los Angeles teachers' credit union after being told that she'd be put on an unpaid, seven-week-long furlough because of school district cutbacks.
"My rate was going to be 12%, but the credit union cut it to 9% before the paperwork was even done," said Miranda, an administrative assistant. "When you're looking at being out of work for two months, every little bit helps."
Credit union officials hope that their help in these tough times won't soon be forgotten. And by cutting their loan rates and offering special incentives, they hope to snare new customers who will borrow or save more when the economy turns around again.
"Credit unions work like any other business--the hardest part is getting people to come in through the front door," said Jack Blake of the Credit Union National Assn., a trade group with headquarters in Madison, Wis. "But once you get someone to make their first deposit or take out a loan, they'll keep coming back."
The strategy seems to be working.
Olivia Rosales, a lawyer in the California attorney general's office, said she joined the state employees' California Bear Credit Union after her bank said it would not honor warrants the government issued in lieu of paychecks last summer. The credit union was one of the few institutions willing to cash the IOUs.
Rosales now has a checking account and two savings accounts at California Bear and plans on taking out a car loan from the credit union soon.
"I'm hooked," she said.
"The rate the credit union pays me (on savings) is a lot better, and I only pay $3 a month for my checking account. My old bank used to nickel-and-dime me to death."
Where Americans Save
Consumers have about $3.3 trillion in savings. Although deposits in credit unions have risen 70% over the last 10 years, most people still keep their money in banks.
1992 Banks: 53.5% Thrifts: 24.2% Savings bonds and money market accounts: 15% Credit unions: 7.3%
1982 Banks: 42.8% Thrifts: 38.2% Savings bonds and money market accounts: 14.7% Credit Unions: 4.3%
SOURCE: Credit Union National Assn.