10/31/2011 - EDITED TO ADD: Since this story went to press, several major banks have dropped plans to charge debit-card fees, including Regions and SunTrust. Wells Fargo and Chase, which were "testing" the idea, also have announced it's a no-go.
Consumer dissatisfaction with major banks made big news last month when Bank of America announced it would be charging many customers a $60 annual fee to use their debit cards. The reason, according to the bank, was passage of the Dodd-Frank Act (full name: The Dodd-Frank Wall Street Reform and Consumer Protection Act), which limited debit card swipe fees and changed overdraft fee protection from opt-out to opt-in, cutting into some of the bank's more profitable services. (B of A's most recent financial statement showed the bank made a profit of $6.2 billion in the third quarter of 2011.)
Other banks — including Birmingham, Ala.-based Regions, which has several branches in metro New Orleans and a heavy presence in Baton Rouge — announced they would be following B of A's lead. Regions will add a $48-per-year fee for many customers to use debit cards for purchases; SunTrust, a Georgia-based bank with branches in Mississippi, will charge $60.
Most customers just fumed, but Los Angeles-based art gallery owner Kristen Christian did something about it: She invented Bank Transfer Day. On and before Nov. 5 (Guy Fawkes Day in England), people who are unhappy with their banks are being urged to move their accounts to a credit union or community bank.
In a statement, Christian said, "I was tired — tired of the fee increases, tired of not being able to access my money when I need to, tired of them using what little money I have to oppress my brothers and sisters." Her Facebook page for the event has more than 63,000 "likes." (Despite some media reports, Christian says Bank Transfer Day is unaffiliated with and independent from the Occupy protests in New York and other cities, including New Orleans.)
How does a credit union differ from a bank? Perhaps most significantly: a credit union is a not-for-profit organization. Rather than shareholders, credit unions are run by locally elected representatives, and each member has a share in voting. And though monies in a credit union account don't have the same FDIC protection that a bank account carries, they are federally insured by a different government agency, the National Credit Union Administration (NCUA). Otherwise, most credit unions offer many of the same services as a bank does, including credit cards, direct deposit, home and auto loans and CDs and IRAs.
Thousands of small depositors pulling out their money from banks may make the depositors feel good, but it's unlikely to make much of a difference to global banks, says W.J. "Dub" Lane, chairman of the department of economics and finance at the University of New Orleans. "The banks were squeezed into this due to legislation," Lane says, "and they were looking for other options to make up the money. But I haven't seen an analysis on whether $5 a month will be better or worse in terms of making up the fees."
Not that banks these days seem to need small investors. An Oct. 24 story in The New York Times outlined the issue: With fewer loan and investment opportunities, banks today are deposit-rich and investment-poor. Donald Sturm, owner of the Colorado-based American National Bank and Premier Bank, told the Times, "We just don't need it any more. ... I don't want to take deposits in and lose money."
Credit unions are beginning to reap the benefits.
"The B of A announcement seems to have struck a nerve," says Mark Wolff, senior vice president of the Washington D.C.-based Credit Union National Association (CUNA). "Right after the Bank of America announcement, we saw an eightfold increase" in hits on a CUNA website, ASmarterChoice.org, which was set up earlier this year to delineate the differences between banks and credit unions. Despite this, CUNA has no official position on Bank Transfer Day, Wolff says.
Not so the Louisiana Credit Union League (LCUL), which represents 200 credit unions in the state, 60 of them in the New Orleans metro area.
"We've ordered [Bank Transfer Day] T-shirts for our whole staff," says Anne Cochran, president and CEO of LCUL. Cochran says there's been a "spike of interest" in Louisiana credit unions since the fee increase announcement. In March, 3,000 hits on ASmarterChoice.org were from Louisiana. In October, the number was 11,500. Actual numbers of new accounts, Cochran says, won't be known until data are compiled in November.
A story in the Oct. 24 Credit Union Times newsletter quoted an official of the Washington state-based Boeing Employees Credit Union (BECU), who said new accounts at BECU had doubled in the month since Bank of America announced its new fees. Other credit unions reported the same, though "we don't have any aggregate data yet on members or deposit growth," says CUNA's Wolff.
In New Orleans, Lane says he knows of one local credit union that saw a doubling of account openings over the last month, but "it's all anecdotal at this point. But they attributed that to people getting fed up with these fees."
Carol Kaplan, the senior director of public relations for the American Bankers Association (ABA), says the ABA has "always supported choice for customers," but adds, "My primary advice to bank customers who are considering cutting ties with their institution is to 'shop' their own bank first before going to the trouble of changing. Many people don't realize that just as their cable or phone company has many different plans to choose from, their bank may have a new product that better meets their needs."
J.D. Power and Associates, which tracks consumer satisfaction with the banking industry, has found consumer satisfaction to have gone down each year since 2007 — with the exception of this year, which saw a slight uptick. But the Power survey was taken in April, months before the debit card fee increases were announced — and despite the upturn in overall satisfaction, those in the survey indicated a continued deep dissatisfaction with banking fees, which was their primary gripe.
Meanwhile, satisfaction with credit unions is either on the decline or holding steady, depending on who you believe. A December 2010 study by the American Consumer Satisfaction Index found customer satisfaction with credit unions had gone down (but was still above that of major banks), while the group Prime Performance found only one percent of credit union customers to be dissatisfied. Prime Performance also surveyed small and large banks, and found a correlation between bank size and overall satisfaction: the smaller the bank, the happier the depositors.
Convenience is also an issue. The ABA's Kaplan says, "Banks tend to have a wider range of products and services, along with more convenient locations and ATMs," adding banks "quite often have interest rates that are competitive with credit unions." But Wolff points out that many credit unions are enrolled in the Co-Op Network, which allows free use of 28,000 ATMs nationwide. Others have their own solutions; the Greater New Orleans (GNO) Federal Credit Union, which has four branches on the Southshore and one on the Northshore, has an arrangement wih Capitol One Bank that allows GNO members to use Capitol One ATMs at no charge. And Cochran mentions the Shared Branching Network, a cooperative system that allows customers to make deposits and withdrawals in-branch between credit unions.
The ABA also cautions potential switchers to investigate whether they'll end up swapping one fee for another, but CUNA's Wolff says 80 percent of credit unions offer free checking, and the "vast majority" of credit unions don't charge for debit card usage.
Can anyone join a credit union? No, but "a lot of people don't think they're eligible to join one [a credit union]," says CUNA's Wolff. "But we think just about everybody today can find a credit union they're eligible to join."
Among New Orleans credit unions, some have limited enrollment based on employment or residence, but the restrictions are somewhat elastic; the New Orleans Firemen's Federal Credit Union, for instance, offers membership not only to active and retired firefighters, but employees of hundreds of other companies and residents of several parishes. The GNO Credit Union offers accounts to "anyone who lives, works, worships, or attends school in Orleans Parish," as well as members of their families regardless of residence. Many local colleges — including Tulane and Xavier Universities — also offer their own credit union membership to their employees and students.
For those interested in keeping their money circulating within their own city or community ("locavesting"), credit unions offer a distinct advantage: traditional bank lending has fallen over the last year, while credit union business lending has increased by five percent.
"They are Main Street institutions," Wolff says.
— Charles Maldonado contributed to this story. A comparative list of fees at banks in the metro New Orleans area accompanies this story online at www.bestofnew–orleans.com.
SIDEBAR 1 OF 1 (can use second photo)BY THE NUMBERS
Number of credit unions
Metro New Orleans: 60
Number of people who belong to a credit union
Nationally: 91 million
Louisiana: 1.19 million
Sources: Credit Union National Association; Louisiana Credit Union League