The financial services regulatory environment is in flux. Major proposals are being debated, marked up, and prepared for implementation even as we speak. Credit unions are rightly concerned about the development of a new regulatory agency and the consequences of regulations that would inhibit their ability to serve consumers.One approach credit unions are utilizing to mitigate this risk is illustrating to policymakers how they are different from other players in the financial services industry.
This research brief compares the fees on deposit products between credit union and bank customers. Researchers Victor Stango, a professor of economics at the University of California, Davis, and Jonathan Zinman, a professor of economics at Dartmouth College, report the following key findings:- Average annual costs on bank checking accounts are more than twice as high as those on credit union share draft accounts.
- Some of the bank/credit union difference can be explained by a greater number of fee-incurring transactions on bank checking accounts.
- The greatest component of annual costs of both bank and credit union accounts is the overdraft fee, which is roughly one-third lower at credit unions.
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These results are encouraging and surprising. Given that most consumers know little of and care little for the difference between credit unions and banks, pricing often becomes the consumer’s primary decision tool. Forget for a moment that my former credit union’s free share draft account was not enough to convince many eligible consumers to switch from a regional bank their parents had done business with forever. A dose of reality hit me when another regional bank, Barnett, mocked by CU employees for its long list of fees, was able for a time to beat many local CUs on car loan and CD rates. It became apparent that their fee income enabled them to beat us on core business. (Barnett became Nations, then Bank of America.) The challenge for today’s credit union leaders is to develop strategies to remain competitive on pricing while establishing the kind of differentiation that resonates with and captures the hearts and wallets of qualifying consumers. Simultaneously, CUs need to continue the tax exemption to ensure a small amount of price difference. A single regulator will further erode is not obliterate CU and bank differences. There may be a chance to shine under the proposed national consumer protection agency. U.S. consumers’ lives will be adversely affected by a lack of credit unions. Becoming indistinguishable from banks or going out of business entirely will be the same for consumers. Filene followers and other leaders need to see beyond the economics and issues of 2009 and 2010 to ensure that future generations will know and appreciate the credit union difference. The continued presence of a viable credit union choice is necessary to keep down and reasonable the costs of consumer and small business banking, and to assure the presence of a nonprofit commitment.
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Dan,
Great comments. I’d encourage you to stay tuned for the upcoming report “Customer Experience and Credit Union Opportunities: A Collaboration with McKinsey & Company.” This report also uncovers some of the challenges for credit unions as a result of being the best at the “member experience.”
The year ahead will be tough, but the findings from these reports yield the “opportunity” for credit unions to continue their evolution to serve members for yet another 100 years. I believe if history is a predictor of the future, credit unions will thrive in the face of adversity.
Cheers from Filene! Mark
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When do you plan to release your report this week on Customer Experience and Credit Union Opportunities: A Collaboration with McKinsey & Company?”
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