Credit unions reap from consumer discontent with banks

Saturday for some people is Bank Transfer Day. It's a Facebook-driven campaign urging people to close their accounts at big banks and put their money in credit unions and small community banks.

Many Minnesotans and people across the country seem to have done that already. The nation's credit unions have added 650,000 new members since the end of September. More than 10,000 Minnesotans opened new accounts with credit unions in October. That's roughly on the same scale as the national change.

Credit unions figure the nation's banks did a tremendous favor by riling up consumers over debit card fees. It gave a boost to ongoing credit union campaigns to woo customers away from banks.

In a TV ad by Minnesota's number two credit union, Affinity Plus, a customer enters "First National Gargantuan Bank" and quickly notices customers getting stripped of their money — and clothes.

Affinity CEO Kyle Markland says the year-old "Ditch Your Bank" marketing campaign is paying off. "Historically, we were adding about 1,000 new members a month and now we're adding 2,000 new members a month," Marklund said.

Bank-bashing became popular nationally at the end of September, when Bank of America announced it would charge customers a monthly $5 fee to use a debit card. And even though no other major bank slapped that fee on Minnesota customers, Marklund said consumers here got the message of the backlash.

"That they needed to make a change and break though the apathy and hassle of changing a checking account," Marklund said. Some credit unions report new member sign-up rates were up 20 percent; some say 100 percent.

Melanie and Mark Baumhover of North St. Paul ditched U.S. Bank. They moved their checking accounts to the Wings credit union. Melanie was unhappy with US Bank's service.

"The last straw for us was really the monthly fees we were going to incur if we didn't meet several criteria that they had," she said. Nationwide, credit unions have about 92 million members. In Minnesota, they have about 1.5 million. But credit unions are monetary midgets compared to banks. Bank deposits are about twelve-times larger than those of credit unions.

As of June, the nation's credit union had about $825 billion in deposits. Banks had nearly about $9.8 trillion in deposits. Credit unions typically offer higher deposit and lower loan rates than banks do. And credit unions hit customers with fewer fees.

The Minnesota Credit Union Network said households save about $140 year if they belong to a credit union. Credit unions can afford that because they're not-for-profit cooperatives owned by their members. And as not-for-profit organization, credit unions escape taxes.

Bankers say that's unfair.

"The fact 30 percent of their income is not going to taxes is a huge advantage and it is difficult for banks to compete with that," said Tess Rice, general counsel for the Minnesota Bankers Association. Despite the fuss over bank fees, Rice said Minnesota banks haven't been seeing widespread defections to credit unions.

"There are 400 banks in Minnesota of all sizes and the bankers that I know are trying to help their communities and the idea they are trying to rip off their customers is just really abhorrent to them," Rice said. "They don't keep customers by ripping them off. They are trying to be fair."

Analysts said banks are looking to increase consumer fees because they face lower profit margins on loans. Also, because of federal mandates limiting transaction fees, banks are losing billions of dollars from debit card fees charged to merchants.

TCF Bank said it's not worried about losing customers as it prepares to move most customers to a checking account plan that can hit them with about a $10 monthly fee.

Customers can avoid the fee by keeping $10,000 with the bank or carrying out at least 15 transactions a month, aside from ATM withdrawals. Eligible transactions include deposits, automatic payments, debit card purchases and check payments.

TCF spokesman Jason Korstange said the bank loses money on customers who keep low balances and do few transactions.

"A $125 account does not make us any money," he said. "So, we have to charge for it. We're in the business of making money. We're not a nonprofit."

Korstange said TCF expects that most customers won't have to pay the monthly account fee and will stay with the bank.

"As far as a large exodus of our customers, no, we're not terribly concerned about that," he said.

Consumer advocates said banks will pursue new fees relentlessly. "While we may have prevented or stopped banks from charging consumers a debit card fee, consumers must be aware that they're going to try to add on a fee someplace else," said Pamela Banks, general counsel for Consumer Union.

In other words, banks may have blinked on the debit card fee issue. But they still have an eye on consumers' wallets.

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