LAKE BLUFF, Ill. – If the Federal Reserve's annual bank fee study had included credit unions this year, credit unions would have blown the banks away. According to the most recent data from Moebs $ervices, Lake Bluff, Ill., the median fees at CUs are much more consumer-friendly than the median fees at banks. Moebs $ervices is a credible source of financial fee data given that it is the firm that has been conducting the Federal Reserve's fee study since 1989. "Credit unions and small banks are still the best deals for the consumer," said Mike Moebs, chairman of Moebs $ervices. However, the fee gap between banks and CUs, especially at the ATM, has shrunk considerably in the last 10 years said Moebs. There is very little difference in ATM fees when looking at small banks compared with credit union median ATM fees. Right now small banks ($100 million and less) are charging $2.13 at the ATM, compared to a $2.00 median CU fee, almost a statistical wash according to Moebs. At $2.25, bank median ATM fees aren't much higher than the $2.00 CU median ATM fee. "Ten years ago that gap would have been closer to $1," said Moebs. The differences in ATM fees between banks and CUs is more pronounced when looking at the larger institutions. Large banks (over $1 billion) charge $2.75 at the ATM, compared to their large CU counterparts which charge just $2.00. Credit union share draft account fees are also lower than banks', though Moebs said large CUs have been inching closer to banks in this area. To put the gap into perspective, however, an NSF at a large bank is $25, compared to $16.25 at a large CU. The bank median NSF is $20, while the CU median NSF is just $15. Despite charging higher fees across the board, banks bring in less fees as a percent of their total assets than CUs. In 2000, CUs collected 1% of their assets in fees, while banks collected 79 basis points said Moebs. The CU/bank fee comparison will become more important if legislation sitting in the Senate Banking Committee, which would include CUs in the annual Fed fee survey, is passed. Though CUs are clearly beating the banks in the fee-friendly game, they can do better on the relationship side, said Moebs. "I think the big difference is banks are more relationship oriented. Our numbers show, and it's been fairly consistent, that about 25% of the time banks will waive checking account fees, whereas credit unions will waive them just 4% of the time," said Moebs. The bounced check and the accompanying NSF is where banks are clearly more relationship-oriented than CUs, said Moebs. "Banks will look at an NSF and if that customer has a loan with them and this is the first overdraft, they will pay the creditor. Well over half of credit unions won't even consider it. They'll just bounce the check," said Moebs. Paying the check instead of bouncing it is key said Moebs because that bank customer looks more favorably at the bank for a number of reasons, not the least of which is saving them the embarrassment of an NSF. Moebs said with 86-88% of U.S. households not reconciling their checkbooks, there are a lot of members innocently writing bad checks. "Credit unions have to stop bouncing so many of their members' checks. We've been preaching that for 20 years. Every credit union that adopts that policy sees their fee income appreciate considerably. Their members like them more," said Moebs. Moebs may be onto something based on the CUs Credit Union Times talked with. Some of them were on the verge of launching a service that would do what Moebs' advocates. "That's something we're going to look at. It's often referred to as courtesy fees. You don't do it necessarily for everybody. This kind of fee could strengthen a relationship," said Tom Graham, president/CEO of Kinecta FCU. Graham said the service would be for profitable members, as opposed to members "cherry picking" certain CU services. He said the service would save members not only the embarrassment of bouncing a check, but also the fee creditors such as a supermarket or department store charge for NSFs. "Credit unions have not put a lot of emphasis on fees. I think that's changing not only with us, but with credit unions in general. Our board has talked in terms of abuse fees or behavioral fees," said Graham. Jim Blaine, president/CEO of State Employees CU, Raleigh, N.C. said he doesn't dispute that 25% of the time a bank will pay a bad check, but he questions what kind of customers they are doing that for. "I don't disagree with that, but you won't find banks doing that for all their customers," said Blaine, who said banks are probably using profitability analyses to drive their decisions. "We don't discriminate against our members. We give everybody the best rates and services we can. We think they're all great. I'm very skeptical of profitability models. To me their a trap," said Blaine. Kirk Kordeleski, president/CEO of Bethpage FCU, N.Y., said the concept of not bouncing a "good" member's check is sound, but finding out which ones are from "good" members isn't always easy. And taking it a step further, finding out which share drafts were for important items such as a mortgage, can be even tougher. "The problem is we're processing our checks through Empire Corporate. If a member writes a $1,000 check, we see the check number and the $1,000. We don't know if it's a mortgage payment of some other payment," said Kordeleski. "We do hold checks when we know a member's payroll is coming in the next day or so and they haven't bounced more than two checks in that year," said Kordeleski. John Hehli, CFO for Royal CU, Eau Claire, Wis., said the CU is planning a new service to push share drafts through in certain cases. Hehli said the CU will only offer it to certain members. Not all the requirements were set at press time, but at a minimum the member must have had a share draft account at the CU for at least a year and no NSFs in the past six months. "We are currently working on a program that we should roll out in the fourth quarter," said Hehli. Charles Grossklaus, president/CEO of Royal CU, said Royal CU gets more fee income than the average CU because of its high penetration of share draft members. Some 45% of the CU's members have a share draft account, where fees are most prevalent. "Our fee income is probably higher than most credit unions across the country. We're community chartered and are more dependent on our fees," said Grossklaus. Grossklaus' CU has 11 branches that are open until 7 p.m. The CU also operates some branches seven days a week. These hours put a strain on resources, making fee income important said Grossklaus. The CU's NSF fee is $20, higher than the credit union median of $15 and right on target with the bank median fee of $20. Grossklaus said a bounced check starts an expensive process and the members doing it should have to pay the bill, so the rest of the members don't. But this new program will give members who write the occasional bad check a break. Grossklaus' CU also has a unique fee that charges members $1 a month if the member's debit card account is inactive. He said that helps with the ongoing maintenance of an inactive debit account. Relationship pricing works both ways though, said Grossklaus. The CU has been successful with giving an extra .25% on CDs and taking .25% of a loan rate for members with five or more relationships. Bob Bream, president/CEO of United Airlines FCU, Chicago, said CUs are going to have to get deeper into relationship management to take "relationship action" on things such as becoming more NSF-friendly. "If we were further along in the relationship management business, I can tell you it's something we would seriously consider. But we have 80,000 checking accounts. I want to make sure the logic built into the program is sound. I think banks have more of this, but the typical bank customer is more affluent, therefore this relationship marketing process is more popular with them," said Bream. [email protected]