As banks squeeze, alternative lenders are gaining traction

NEW YORK ― Alternative finance firms, from credit unions to online and pawn lenders, are gaining traction as banks turn off the tap for easy cash and start charging fees for services that customers have had for free.

Some 60 million Americans — close to a fifth of the adult population — were under-banked or un-banked in 2009, according to the Federal Deposit Insurance Corp. That number is likely to rise as banks choke off free checking, and adjust to new rules that cut into their revenue.

Bank of America, Citigroup Inc, J.P. Morgan Chase, Wells Fargo & Co, PNC Financial, Suntrust and others are beginning to charge for once-free services, making a bank account more of a luxury to those living on a tight budget.

“Credit unions are an alternative source for the kind of services a bank provides,” said Professor Lawrence White of New York’s Stern School of Business.

“I’m hoping they would see the un-banked as part of their mission. That would be the most socially worthwhile thing they could do.”

Credit unions, which are effectively not-for-profit co-operatives, are stepping up to offer cheaper alternatives to the short-term, high-interest loans provided by payday lenders.Demand for short-term, small-dollar loans from credit unions rose 52 percent in the second quarter, National Credit Union Administration data showed. More aggressive selling by these unions will have seen that rise further in the third quarter.

Livonia, Michigan-based Co-Op Services Credit Union has begun a “Shred My Card” campaign offering $105 to people who open a free checking account with a direct deposit and who cut up their bank debit card.

“We want consumers to know they can fight back against big banks by saying ‘no’ to more fees. They should give credit unions a close look,” Bill Cheney, Chief Executive of the Credit Union National Association, said in a statement.

The credit unions are also lobbying to have their business lending cap more than doubled to 27.5 percent of assets so they can better target small businesses unable to access bank funding.