Credit Union Success May Have a Down Side

One of these days consumers may get so angry that they decide to revolt over the shoddy (and getting worse) treatment they are receiving as they seek out affordable, efficient, and convenient everyday financial services. It is no longer unusual for a consumer to go to the mail box one day and find a completely new (and of course higher) fee schedule with no explanation given. It will now cost three dollars to make a telephone transfer between existing accounts. And there will now be a $25 penalty for an NSF check. Consumers may also learn when making an in-person deposit that their financial institution has decided to automatically place a nine-day hold on any out-of-town checks deposited that are over $5,000 regardless of the balance already in the account or past history with the financial institution. Or the issuer of the check in question. Consumers are also seeing their favorite branch either close, or turned into a completely automated set up with no staff on the premises. Or lobby hours in branches reduced forcing consumers to use the frequently crowded and congested drive-up lanes. In some cases the annual charges for such basic services as safety deposit boxes, personalized checks, ATM surcharges, and wire transfers have also escalated even when the competition holds steady. There’s much more, but even from these few examples it is easy to see why more and more consumers are lucky to have a credit union alternative and can thus avoid the banks described above. Only problem with that conclusion is it is not banks being cited here but actual credit unions. Surprised? Don’t be. Look around and compare some credit unions with some nearby banks, line item by line item. Members are doing just that. Something is happening and it is not all necessarily good from a credit union viewpoint. To be fair, for the most part, credit unions continue to be the best deal in every respect important to the average consumer, from competitive rates to knock-your-socks-off service. Most credit unions still come out on top when compared to banks. But not all. The differential gap is closing in too many CUs. There are some credit unions that had best watch how they treat their members, or those members will eventually become bank customers. Members have a choice and will choose what’s best for them not the credit union. But as troubling as all this is, something even more serious has surfaced. After learning that I was involved with credit unions, a young attorney I recently met put it this way: “What’s happening to the credit unions? They always used to beat the banks on rates. Not any more. When we bought our first house, no local bank could touch the killer rate we got on our mortgage from my wife’s credit union. We ended up doing all of our banking at that credit union. Banks couldn’t beat any of the rates or charges,” he said. He continued: “As our family expanded, we went back recently to finance a larger house and found the situation reversed. This time it was the credit union (same one but larger and with a new name that we used for our first house) that couldn’t come close to the deal we could get at any bank. Why is that? Aren’t credit unions still not-for-profit” Good question, one that deserves a lot of thought and needs to be addressed by credit unions especially by those that are no longer matching or beating what’s offered by banks. My long answer to the young lawyer was that credit unions have indeed changed. Not the structure. Not the purpose. Not the basic philosophy. However, credit unions do offer more and better products and services than ever before. They provide more convenience both from a technology as well as from a bricks and mortar perspective. And they are attracting top notch senior management talent. They are working hard to educate their volunteers. They are changing their charters and their names and expanding to serve entire communities rather than just those connected to a single sponsor. They are merging. They are marketing. Aren’t these all good developments from a member and prospective member viewpoint? Absolutely! But they also cost money. Like higher salaries for top talent. Like bigger marketing budgets as the mainstream media replaces direct mail. Like stand-alone and impressive new headquarters buildings and more and more full-service branches. Like becoming more involved in the community. When credit unions were little more than a cigar box in the back of a factory or tucked away in the corner of a military installation, their costs were low. What the small number of members served could expect from their credit union was not much. As members’ financial needs changed and they became more demanding, some credit unions refused to change. They are now gone. Those that did change to better serve their members found that it came with a price. Credit unions becoming full-service financial institutions, offering a market basket of state-of-the-art products and services, to thousands and thousands more members, saw their cost of doing business escalate rapidly. It is a lot more expensive to run a credit union that is growing, adding facilities, improving its technology, attempting to serve an entire community, and is going head to head with the competition. Even n-f-p’s can experience a “profit” squeeze when the cost of doing business rises faster than bottom line income. Did all this satisfy the young lawyer? I doubt it. I felt he walked away feeling that all financial institutions have had increased operating costs not just credit unions. And that credit unions should find ways to satisfy members and still always be the best deal in town like they always were in the past. I agree. Do you? But how? Comments? 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