Across the state, credit unions — the not-for-profit cooperatives that provide banking services to businesses and consumers — are preparing to take advantage of their newfound ability to compete with banks and accept some of the $15 billion in deposits from municipalities, school boards and other government bodies.
"We're going to reach out to the local entities that we currently have relationships with. We're going to target more of a niche approach, and then look to branch out to other entities where we have branches in our markets," said Andrew L. Jaeger, president and CEO of the Credit Union of New Jersey, based in Ewing.
Jaeger said he already has heard from one entity, which he declined to name, interested in deposit accounts.
Earlier this year, Gov. Chris Christie signed into law changes to the state's Governmental Unit Depository Protection Act of 1970, commonly known as GUDPA, to allow New Jersey's approximately 1,500 local governmental entities — from libraries, to community colleges, to sewer authorities — to deposit funds with credit unions. But the rules are still being written by the state Department of Banking and Insurance in a process that's expected to last until the second quarter of 2012.
Since credit union membership is restricted to defined groups — employees, communities or institutions — the not-for-profits will be permitted to accept those deposits from only a limited number of government entities, depending on each financial institution's individual bylaws. Once approved by the state, credit unions plan to start the push to market their higher interest rates and lower fees to entities.
And since it's a new line of business for credit unions, Jaeger said, his organization and others in the Garden State are still in the product development phase as they await the final regulations on requirements they need to meet to qualify as public depositories.
At the home base of the state's largest credit union, Affinity Federal Credit Union, in the Basking Ridge section of Bernards, executives say they've long been hearing from municipalities seeking the opportunity to use the organization's services. But Donna LoStocco, vice president of member experience at Affinity, said once the state completes the rule-making process, they will court new business.
"I'd really like to contact, certainly, the entities that have contacted us first and showed interest, and let them know we're ready to have conversations," LoStocco said. "There's different types of municipal accounts, and I need to understand which types of accounts they have in mind for the credit union, and see if that makes sense."
Banks, for their part, are not content with sitting back and letting credit unions take away customers and market share.
"We're pretty confident … that our banks are going to continue to fare pretty well in that regard," said John E. McWeeney Jr., president and CEO of the New Jersey Bankers Association. "Many of our banks have such long-standing relationships with these clients over the years, and we do provide a high level of service."
Banks' willingness and ability to invest in bonds issued by local governments and the suites of banking services they offer give banks an edge on the competitive marketplace, bankers say.
Chris Martin, chairman, president and CEO of The Provident Bank, which has 81 branches across the state, said his bank's long list of loyal municipal clients avail themselves of services such as cash management accounts, in addition to deposits. In many instances, banks discount product bundles that would cost local governing bodies more if the packages were broken up and money moved to another financial institution.
"We try to cultivate a relationship with the municipality and try to make it all encompassing, so it's not just the municipality looking for the best rate for the short period of time," Martin said. "We help create a relationship that is mutually profitable, as opposed to the one-trick pony of just getting a rate for a two-month period."
As for the financial professionals in local governments who take care of taxpayer money, they're watching to see how credit unions — which have long touted their slightly higher interest rates and lower fees than banks — might fit into the picture.
But one hurdle credit unions will have to overcome is a common perception among people who serve on government bodies, as well as consumers, that the cooperative not-for-profit organizations are just for vacation clubs, said Joseph P. Monzo, chief financial officer for South Brunswick Township and other smaller municipalities.
"They're a bank," said Monzo, who also serves on the New Jersey League of Municipalities' finance and taxation subcommittee. "If I was approached by a credit union, I would look hard at what services they can offer. If they can offer a competitive rate, I'd have no problem moving my money over, because I think — I hope — I'd get better customer service from them than from a larger bank. Many towns are becoming disenchanted with the banking services they're getting from the bigger banks. They're cutting services, and they're cutting rates at the same time."
In recent years, counties have felt the crunch of the cap on tax increases and lower revenues from the realty transfer fee because of a depressed real estate market during the recession and drawn-out recovery. John Donnadio, executive director of the New Jersey Association of Counties, an advocacy group based in Trenton, hasn't heard much feedback from membership, but he said counties will consider the feasibility of any mechanism or resource made available to local governments.
"In theory, it could provide additional competition and better investment vehicles for county government. It's another resource where they (counties) can potentially save a couple of dollars, or make a couple extra dollars here or there," Donnadio said. "At the county level, we've got some sophisticated administrators and finance officers that could really run Fortune 500 companies, and I can certainly assure they will take a hard look at this."
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