Credit unions get feisty with Big Six banks

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Canada's credit unions, an often overlooked corner of the financial sector, are about to get a lot more vocal and aggressive as they attempt to take market share from the big banks, while also fighting Ottawa on controversial tax changes that threaten their business.

Several large credit unions have overhauled their marketing strategies in recent months, stepped up lending efforts to attract more home and auto loans, and are opening their wallets to gain a higher profile across the country. The push includes a new set of attack ads in Ontario that take shots at the $30-billion profit Canada's six largest lenders made last year, and revamped branches in B.C. aimed at luring younger clients away from the major banks.

The strategy comes at a crucial time for the country's credit unions, which are co-operatives that are owned by their members instead of being traded on the stock market.

Credit unions were granted a key regulatory change last summer when new rules were introduced to allow them to expand beyond provincial borders and operate as national financial institutions.

Such changes will pave the way for the more aggressive credit unions to expand. However, they also come as the sector was dealt a significant blow in last week's federal budget when Ottawa eliminated a key tax break designed to help them compete with banks. Since credit unions can't access the stock market to raise capital, as banks do, they have been taxed less since the 1970s. Ottawa has decided to phase that out.

The move caught the sector off guard, and the industry plans to fight the move in Ottawa, becoming a lot more vocal than it has been in years. "Sometimes the rules need to be different between big and small to achieve a competitive balance. I think this is a great example of that," said Gary Rogers, vice-president of financial policy for Credit Union Central, which represents 348 credit unions with 5.3 million members and $153-billion in assets.

At the same time, several of the larger credit unions have been bolstering their efforts against the banks.

In Ontario, one of the province's largest credit unions has launched TV ads this month that take thinly veiled jabs at the banks for making huge profits from customer fees. The move is designed to raise the profile of credit unions in Ontario, where the major lenders are entrenched.

"The research said people were frustrated with the big banks. They charge too much and there's nothing really I can do about it," said Brian Torsney, president of Play Advertising, based in Burlington, Ont. His firm designed the ads for First Ontario Credit Union, which depict a scene from a therapy group where bank customers are discussing their addiction to paying fees. "This sense of powerlessness is what we seized on," he said.

The ads, which use actual members of First Ontario, appear to have struck a chord. While shooting the spot: "There was one guy who was way over the top, he said: 'It was making me angry and I just didn't see a way out, and I was smashing dishes.' And I said, okay, well we don't need to go quite that far."

Meanwhile, B.C.'s Vancouver City Savings Credit Union, Canada's largest credit union, unveiled two new branches in the past year with significantly spruced up decor and amenities, including boardroom space for local businesses and members to meet. Two more of the renovated branches are planned in the year ahead as Vancity prepares to spend more on infrastructure. "As we go  through our renovation cycle, we're going to continue," said Tamara Vrooman, chief executive officer of Vancity, which has 58 branches in the province.

Vancity is also looking at partnering with other credit unions across the country to expand under the new federal regulations."This is a good time for credit unions to show what makes us different," Ms. Vrooman said. "While we haven't had nearly the same kind of disruption in our banking system as in the United States in Europe, it's still shaken us a bit what's happened throughout the world and people are looking for an alternative."

Advertising campaigns and branch renovations aren't the only areas credit unions are stepping up their competition. Credit unions have been undercutting banks on mortgage rates in recent weeks, attempting to lure business away from the Big Six as a price war develops on rates. They are also getting aggressive in other areas, such as auto lending.

Westminster Savings Credit Union in New Westminster, B.C., recently struck an agreement with Chrysler Canada Inc. to provide financing for leases on new cars. The partnership with Chrysler gives Westminster an important alliance as it fights for a slice of the auto lending market. Banks have increasingly been looking to auto leasing as a growth area. Toronto-Dominion Bank spent $6.3-billion in 2010 to buy the former leasing arm operated by Chrysler when the company had to retreat from the business as it restructured. In 2012, Royal Bank of Canada spent $3.8-billion to buy the Canadian operations of Ally, which gave it a bigger footprint in the auto lending market.