Fury at banks sends windfall to credit unions

Fury at banks sends windfall to credit unions
Wednesday, October 19, 2011
By Charlotte Observer

CHARLOTTE — Charlotte-area credit unions have seen an increase in phone calls and new members in the last two weeks as people upset about new fees at big banks look for new places to park their money.
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Several credit unions have launched advertising campaigns promoting their fee-free offerings, hoping to capitalize on the wave of consumer discontent since Bank of America announced its $5 monthly debit card fee late last month.

"It's been wonderful," said Nicol Morris, chief operating officer of the Charlotte Metro Federal Credit Union, which has about 33,000 members.

She said the credit union saw a 350 percent increase in online account creation, along with a 90 percent increase in calls.

"They are extremely fed up with the continued talk about fees, whether it's in regard to checking or the debit card fee," she said.

Charlotte-based Bank of America is one of several large banks that have launched or tested new fees. The banks say the fees are necessary because of lost revenue from new federal regulations implemented as part of the Dodd-Frank financial reform law.

Banks still command the vast majority of assets and generally provide more services and products than credit unions.

Marketing an alternative

A petition at Change.org protesting the fees now has more than 225,000 signatures. Five Democrats in Congress said last week they're asking U.S. Attorney General Eric Holder to investigate the banks for possible collusion.

President Barack Obama has also spoken out against the fees.

Credit unions have been quick to market themselves as an alternative.

The first credit union in the U.S. was established in 1909, but the system is rooted in democratically governed German banking institutions that were formed in the mid-1800s, according to the National Credit Union Administration.

They became popular in the 1920s as an easier source of consumer credit, and they grew steadily from the 1940s through the 1960s, and rapidly in the 1970s as legislation insured deposits and allowed expanded services.

Unlike banks, credit unions are nonprofit organizations owned by their members. They generally offer lower rates and fees. A recent association survey showed that 80 percent of credit unions have free checking accounts.

About 93 million people are part of the country's roughly 7,500 credit unions.

"We want consumers to know they can fight back against big banks by saying no to more fees," said Bill Cheney, president of the Credit Union National Association trade group in a statement last week.

"They should give credit unions a close look and take advantage of credit unions' emphasis on service over profits, typically with fewer and lower fees overall."

Quick to respond

Locally and around the country, the marketing seems to be working.

Representatives at Lancaster, S.C.-based Founders Federal Credit Union have been opening accounts for people leaving big banks daily, said Nicki Nash, senior vice president for marketing and community relations.

The credit union has run newspaper ads and posted on social media sites, touting free checking and debit cards.

"We've gotten great response," Nash said. "They're very pleased, obviously. They're relieved that we're not looking to charge for that."

Charlotte-based First Legacy Credit Union is considering billboards and wrap-around ads on city buses, marketing director Nancy Stroud said. First Legacy has seen increased interest and landed new members to join its ranks of about 10,000 in Mecklenburg and surrounding counties.

Sharonview Federal Credit Union, based in Fort Mill, S.C., is taking a slightly different tack.

It is considering a campaign to convince members who have a savings account to move over other services from banks, said Bill Reynard, vice president of marketing.

While it's still too early for data on total deposits, Credit Union National Association spokesman Mark Wolff said those experiences have been mirrored around the country.

"The evidence that we do see certainly indicates that there's been a real surge of interest," he said.

The association's recently designed site, aSmarter Choice .org , which helps people find credit unions near them, has seen its Web traffic more than double, he said, and its Facebook page has gone from 1,100 "Likes" to more than 3,800.

Smaller banks have gotten in on the action as well.

Charlotte-based NewDominion bank has launched a marketing campaign for its free debit cards.

Fifth Third bank, which has the fourth-largest market share in the Charlotte area, announced last week it's extending hours for part of the week through the end of the month to make it easier for people to switch their accounts to the Cincinnati-based bank.

Hurdles for credit unions

Despite the preponderance of free checking accounts, credit unions still face sizable obstacles.

Credit unions maintain only a 6 percent market share of total assets between banks and credit unions, at about $917 billion versus $13.3 trillion at banks, according to the National Credit Union Administration and the FDIC.

One reason is that each credit union has different rules about who can join. Some are employer-based, and others are based on geography. The confusion leads people to believe that they can't join, Wolff said.

"There's a perception hurdle," Wolff said.

Banks, however, tend to have a wider range of products and services, along with more convenient locations and ATMs, said John Hall, spokesman for the American Bankers Association.

Despite their reputation, credit unions don't always have the better rates, Hall said.

Analysts generally agree that big banks such as Bank of America aren't likely to lose substantial market share. Still, smaller banks and credit unions stand to gain significantly.

"For Bank of America, losing thousands of customers is not a huge deal," said Claes Bell, who covers banking for research firm Bankrate.com. "For a smaller bank, picking them up can be huge."