Should Credit Unions Charge Membership Dues?

Arizona FCU just imposed a $3 monthly “contribution” on all members. Is this a smart strategy that attaches value to the concept of membership? Or will it backfire?

Credit unions have long debated whether or not they should charge membership dues. Perhaps members would value what their credit union offer if it wasn’t free and they had to pay something for it — at least that’s how the argument goes. The less consumers pay for something, the more they seem to take it for granted.

One credit union is putting this theory to the test. A few months ago, Arizona Federal Credit Union started imposing a $3 monthly membership fee (they call them “dues”) on all members 18 and older.

“Beginning in 2013, we’re asking all of our members, our owners, to make a small, ongoing contribution to the capital of our cooperative in the form of $3 monthly membership dues,” Arizona Federal wrote on its Facebook page.

Reality Check: This isn’t a voluntary “contribution.” It’s mandatory.

Arizona Federal already has one of the more aggressive fee schedules in the credit union industry. Among the 50 different fees they charge: a $3 per month for ATM cards and $2 per transaction for using ATMs outside the AFCU network.

If you’re a CFO, it’s easy to understand why Arizona FCU needs to charge fees. They’ve had a rough go in recent years. In 2007, they had nearly $2 billion in assets and a cap ratio north of 12%. But beginning in Novembers of that year, they experienced 42 consecutive months of net reductions in capital reserves while incurring $400 million in loan losses. By 2009, the credit union’s cap ratio was under 2% — critically undercapitalized. After some radical measures and severe pruning, Arizona Federal now sits at $1.3 billion with 9% capital and 165,000 members — 45,000 fewer than they had at their peak.

Read More: Why Are Credit Unions Tax Exempt? Do You Really Know?

So okay, it’s pretty clear the credit union was on the brink of disaster, and it needed to take severe action to turn things around. But the future looks pretty promising for Arizona Federal these days. Why would they institute a membership fee now when it doesn’t appear they really need it?

“We realize that applying (or explaining) this business model in a financial services context is unusual, which is why we’ve been sending out communications reintroducing ourselves,” the credit union explains in its defense. “For those people just looking for a bank, it might be too different or not worthwhile for them.”

Do members see the value in paying membership dues? Does this encourage them to appreciate the services Arizona Federal provides, and the ways in which the credit union is different from banks?

In a word: No.

“As I investigated Arizona Federal’s decision and people’s response to it, it became clear that consumers have no clue as to what a credit union is, how it works, or what it means when one becomes a member,” observes Tom Glatt, Jr., a leadership consultant in the credit union industry.

As evidence, Glatt points to comments from the general public left on an article about Arizona Federal’s membership fee on popular finance site Beyond the deep themes of negativity pervading the comments, it’s clear how little people know about credit unions.

One commenter thinks Arizona Federal is doctoring its financial statements and hiding losses to “keep shareholders from fleeing the stock.”

Yep, that’s right: This person thinks credit union “shares” are publicly traded in a stock exchange!

Another person, trying to address the misconceptions of the earlier commenter, only botches it up even worse:

“Every customer of the CU owns at least one share and every employee and all the way to the top own shares of the CU. Some are paid only with shares as a bonus at the end of the year. The shares can be converted into cash by selling it back to the CU. The value of the shares depends on the profit-abilities of the CU. Most CEOs of CUs pad the numbers to receive accomplishment reward shares and that is the reason to always report profit at a CU. Yes, there are share internally traded all the times and the value fluctuate on daily bases too. When the CU wants to borrow money from outside, it issues shares certificate as collateral pledge of all the members at the CU. The credit rating agencies look at those internal shares all the time and judge the health of the CU.”

Oh brother… Not one thing in that entire paragraph is correct.

Keep in mind, the regular readers of a personal finance site like are supposedly more savvy, more sophisticated money managers.

Read More: Dividends: A Huge Differentiator for Credit Unions

Another comment: “I believe that Wall Street keeps a record of every penny that goes in or out of AZ Federal Credit Union minute by minute, otherwise they will be called outlaws and shut down by FDIC.”


Ken Tumin, publisher of and author of the article that prompted these ridiculous comments, says he’s “sure the credit union officials hope that members will see enough value in the credit union’s services and rates to make the membership dues worthwhile.”

But Glatt isn’t optimistic. “Despite the hoopla surrounding Bank Transfer Day and increased national press comparing ‘punitive’ big banks versus ‘friendly’ credit unions, consumers still don’t get it,” he concludes with evident frustration.

It Doesn’t Pencil Out

“Let’s say you bought a 5-year CD from Arizona Federal this past December,” observes another commenter. “Next thing you know, they start a monthly fee for membership? So now you are stuck paying that for the next five years?! You’re locked into a loss for which you never contracted.”

Great point.

In its defense, the Arizona Federal points to its dividend distribution plan where a portion of profits are returned to members based on their level of activity with the credit union.

“On December 31, we distributed $3 million in PLUs (‘Paybacks for Loyalty to Us’) payments to members,” a representative with the credit union explains. “When Arizona Federal does well, all of us have an opportunity to share in the rewards. That’s just one of the benefits of being a member/owner of a financial cooperative.”

But members aren’t buying it.

It’s like saying, “Here’s your $12 annual dividend. But now we’re going to start charging you $3.00 a month.”

“No matter how you justify the math, you’re still taking my money…” a member griped on the credit union’s Facebook page.

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