Banks Bemoan Site’s Credit Union Loan Offer

Forget about the coupons and free turkeys that some retailers will use to draw in shoppers for the coming holiday season.

Glendale-based CUShopper Inc.--part e-tailer, part marketing company--hopes to lure customers to its Web site and telephone call center by tapping into the power of the nation’s 10,000 credit unions.

Using the slogan “better buying through membership,” CUShopper has created a marketplace in which consumers can buy everything from jewelry to computers to exotic cruises. They can pay through credit cards or checks, or apply on the spot for a credit union loan at rates typically lower than those offered by department stores and some credit cards. About 95% of all transactions involve credit union financing, a company official said.

Consumers who are not already members of credit unions can be forwarded to a call center that will help them find a credit union to join--regardless of whether the customer has an obvious affiliation with that credit union’s other members.

For consumers, the site offers the opportunity to buy some high-end items, often at favorable interest rates. For credit unions, which handle only a fraction of the U.S. loan business, it can potentially boost their consumer loan portfolios.

But not everyone who talks about CUShopper and its Web site (www.cushopper.com) is filled with holiday cheer.

A spokeswoman for the banking trade association complained that the site offers yet another chance for tax-exempt credit unions to increase memberships beyond their traditional “communities of interest”--at the expense of banks.

And officials with some consumer groups and debt counseling services urge consumers to use caution when filling their holiday wish lists at the site, especially given the record level of consumer debt already accumulated nationwide.

The privately held company, with 120 employees, has tried several other business plans over the past several years. But company co-founder and chairman Adam Wicks Walker said it has now found one with substantial growth potential.

Inc. magazine named CUShopper to its just-released list of the 500 fastest-growing private companies in the U.S. The company reported sales growth between 1995 and 1999 of 2,706%--leaping from $326,000 to $9.15 million, placing it No. 66 on the list.

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Even with a double-digit finish this year, Walker already has his eyes on a greater prize: a higher posting on next year’s list. And he’s banking on the buying power of credit union members to get him there.

“We’ve gotta move up that list,” said an only half-joking Walker, who turned 28 three months ago. “We want to be a billion-dollar company.

“Credit unions have been hanging their hats on auto financing,” he added. “This has been an unleveraged opportunity for a hundred years.”

In many respects, the Web site functions like any other e-tailer, listing a wide variety of products from cordless phones to Apple computers. The real difference comes at the checkout line.

Consumers who are members of the 1,800 credit unions nationwide that have signed up for the service are given the option of submitting a loan application to pay for the purchase.

Consumers who are not members of participating credit unions can purchase using credit cards, but are also given information about how to join a credit union.

When I called the CUShopper customer service line, for example, I told the representative I was not a credit union member. No problem--customer service suggested I could join the 200,000-member Hughes Aircraft Employees Federal Credit Union, even though I have no affiliation with Hughes.

And that’s just the sort of thing that rankles people like Charlotte Birch, a spokeswoman for the Washington, D.C.-based American Bankers Assn.

“This is the kind of aggressive marketing which suggests there is no concern for their ‘common bond,’ ” said Birch, referring to the section of the Federal Credit Union Act of 1934 that says credit union members should be part of “groups having a common bond of occupation or association.”

Regulators have since relaxed those rules, prompting lawsuits from the banking industry. In 1998, Congress weighed in, passing legislation that allowed credit unions to continue admitting members beyond their traditional “field of membership.”

A spokeswoman for the Hughes credit union said technically, shoppers at CUShopper would join a Santa Monica-based shopping cooperative, open to any consumer. Because that cooperative was acquired by the Hughes credit union, members would have the option of joining the Hughes credit union, which already has a loan portfolio of $1.3 billion.

Even though banks controlled an estimated 79% of total U.S. assets in 1999 (compared to 5.8% for credit unions), bankers continue to bemoan business lost to member-owned credit unions.

They say that credit unions’ tax-exempt status, and the fact that they do not have to adhere to the federal Community Reinvestment Act, gives them an unfair business advantage.

And sites like CUShopper, which can help boost credit union membership even higher, don’t exactly make them any happier.

“I don’t know if they’re pushing the edge or not,” Birch said. “But it’s not anything that people here would be smiling about.”

But Monique Gaudry, chief executive of the Burbank-based CareConnections Federal Credit Union, is smiling. Not so much about business past, but about the promise of things yet tocome.

Gaudry’s small credit union, which serves hospitals owned by the nonprofit Catholic Healthcare West chain and other health providers, signed up with CUShopper less than a year ago.

So far, out of 12 loan applications submitted to her credit union through CUShopper, only one has been approved.

“Most people who were applying had terrible credit,” said Gaudry, whose credit union has about 6,200 members and a loan portfolio of $13.1 million.

“So far it has not been successful for us due to the credit records of the applicants. And we’re not that tough.

“It’s a pity because their products are fabulous,” she said, “they really are.”

Yet because CUShopper has now branched out into marketing cars (through an arrangement with IMotors), “That’s going to change the picture,” Gaudry said. “I’m confident that this is going to pick up.”

For most of the consumer products sold (except cars), CUShopper acts as a retailer, reaping the profit over the wholesale prices it pays for its goods. For the so-called service offerings, including travel services, the company acts as a marketing agent and receives a fee.

The company has only officially been called CUShopper since September 1999. Before that, the company, founded in 1994, used several names including Universal Matrix Inc., American Members Advantage Inc., and Members Computer Source, and had a variety of business plans, mostly marketing-related.

Michael Hopkins, executive editor of Inc., said it’s not unusual to find companies like that on his list of fleet-footed firms.

“Part of the start-up process involves spelunking around for opportunities,” Hopkins said. “They grope around often and they change their line of business. Nobody follows their business plan, ever. That’s a fallacy.”

Walker is convinced that the current plan is a winning strategy.

With about $25 million so far in venture capital money from companies like J.H. Whitney & Co., JenStar Partners and Youngtree Partners, CUShopper is currently going after another $20 million to help fuel even further growth.

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Next year, he said, the company may go public.

CUShopper’s prices may not be the lowest you’ll find (for several items we checked on, they were not.)

Walker said he tries to keep his prices “on par with the market.”

But he added: “People really save money on the financing.

“We want more people to recognize the value of our offer,” Walker said. “We’re selling against higher interest rates. We are selling the credit union value proposition.”

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Valley@Work runs each Tuesday. Karen Robinson-Jacobs can be reached at Karen.Robinson@latimes.com.