I hope I don’t get into any trouble for saying this, but I’m a big fan of credit unions. It’s for two reasons, one of which I won’t admit to in public. The other is this: I believe that the key to being a successful financial institution is doing what’s right for the customer, and not just your bottom line. And time and time and time again, credit unions (more so than banks — sorry, banks) have demonstrated this trait.
But I do worry sometimes about the marketing tactics that credit unions employ. For example, I’ve never been a big fan of the bank-bashing that CUs (or maybe more accurately CU associations) do.
Another concern I have is that credit unions are trying to attract the “wrong” customers (yeah, I know — members). It might be worse — that it isn’t that they’re attracting the wrong customers, but that there’s no rhyme or reason to who they’re trying to attract.
Here’s what got me thinking about this. CUNA published an article about a recent Filene Research Institute study which found that:
Bank customers pay substantially more in overdraft fees and other account fees than credit union members, with low-balance bank customers taking the brunt of that burden. Low-balance accountholders, which the study defines as accounts with a balance under $1,500, paid $165 per year in overdraft fees if they were customers of a bank, whereas low-balance credit union members paid $42 in those same fees.”
I’m sure that many credit union people will read this, pat themselves on the back, and think: “See, we don’t screw people over like the big banks do.”
This might not be a popular notion, but: MAYBE THEY SHOULD.
What will consumers — make that the “low-balance accountholders” — do when see this data? Naturally, they’ll switch institutions. The result: Low-balance accountholders — those with the highest propensity to overdraw on their accounts, and maintain less than $1,500 in their accounts — will account for an even greater percentage of credit unions’ membership base.
Is this what credit unions want? Are these the consumers credit unions are trying to attract as they try to lower the average age of their member base?
I have yet to meet a credit union professional who doesn’t believe that providing financial education to their member base is an important that their credit union offers. But who says that this education has to be delivered in the form of brochures and Web site pages? What if the “lesson” was a high fee for not being disciplined in managing one’s finances?
The opportunity for CUs — as I see it — is to assess OD fees in a less predatory way than the banks come off as doing. For example, why not implement fees on a sliding scale — the first time is forgiven, the second instance the member has 24 hours to deposit the funds to cover the overdraft, and then in subsequent instances the member pays an increasing fee.
If credit unions are truly more concerned with helping members better manage their financial lives — and I believe they are — then it means helping those customers make BEHAVIORAL changes. Not simply charging them less than other institutions do for their undesirable behavior.