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Credit Union Business Grows as Consumers Sour on Banks

by Jilian Mincer

The big banks may have dropped the debit card fees, but the credit unions are the ones picking up the business.

Long touted by consumer groups as a more consumer-friendly option than large commercial banks, the nation's not-for-profit credit unions saw a significant jump in new members and deposits last month as momentum in the Occupation Wall Street campaign has increased, and many of the big banks rescinded, debit card fees.

The credit unions pulled in some 650,000 new customers since September 29, when Bank of America announced it would add a $5-a-month debit card fee, an industry trade group reported. Deposits from new customers surged to $4.5 billion, according to the survey released Thursday of 5,000 credit unions by the Credit Union National Association.

The deposits from these new customers were about as much as credit unions' get from their entire base of existing customers in a typical month.No one knows whether the trend away from big banks will slow after the social media-inspired "Bank Transfer Day" on November 5, an orchestrated effort by consumer groups to push the credit union alternative. (photo: timothy.actwell)

Credit unions are chartered as not-for-profit cooperatives owned by their members. Like other financial institutions, they are regulated and deposits of up to $250,000 are federally insured. There are almost 7,800 credit unions in the United States.

A Bank of America spokesperson said the bank's deposit data is not current and won't be available until January. So there are no figures to show whether it lost accounts.

THE LOYALTY PROBLEM

A Harris Interactive poll released Thursday showed that big banks are having problems with customer loyalty. The study found that 17 percent of those who use large banks are not likely to stay with their provider. Almost 90 percent of credit union clients plan to stay put compared to almost 60 percent of big bank clients.

No one knows whether the trend away from big banks will slow after the social media-inspired "Bank Transfer Day" on November 5, an orchestrated effort by consumer groups to push the credit union alternative. But at least some frustrated consumers say they are moving, even after the recent concession on debit charges. They still are looking hard at new charges.

"The $5 fee was the last straw," says Cheryl Pomeroy, 56, an Oak Park, Illinois small business owner who closed her Bank of America account and plans to open a credit union one instead. "If a lot of people do this, it will change."

Membership grew at four out of five credit unions last month, according to CUNA, and in many cases the number of new accounts opened was more than 50 percent higher than the typical monthly amount.

"For years banks counted on consumers being complacent because the hassle of switching was way too high," says Ed Mierzwinksi, U.S. PIRG consumer program director. "This one caused consumers to break their tether to their banks."

As the banks have drawn negative attention in recent weeks, credit unions have been targeting frustrated consumers, running advertising campaigns and promotions to attract new accounts. Many of the ads emphasize that their accounts don't have fees. And frustrated consumers seem to be getting the credit union message.

One of the institutions, the Suncoast Schools Federal Credit Union, headquartered in Tampa, Florida, said the number of new checking accounts increased in October by 92 percent to 5,535 compared to 2,876 in October 2010.

"We're hearing that consumers are fed up with being nickeled and dimed on their checking accounts, and they're ready to move," says Patti Barrow, vice president of marketing for the credit union, which has 500,000 members.

BANKS LOOKING FOR FEES

The banks said the change was necessary because of the Durbin amendment, a provision of the Dodd-Frank financial reform legislation that limited debit card swipe fees that have historically provided significant revenue for the banks.

In recent months, many big banks had announced that they were dropping free checking and adding debit card fees and requiring minimum balances for certain benefits. The public debate escalated at the end of September when Bank of America announced that it would charge customers $5 a month if they made any purchases with debit cards.

The banks' plans to recoup lost income with new consumer fees ran into a wave of criticism, including some from President Obama and numerous consumers groups. The Occupy Wall Street campaign has harnessed some of that frustration and a social media-inspired "Bank Transfer Day" scheduled for November 5 has fueled the debate.

John Hall, a spokesman for the American Bankers Association, encouraged consumers to talk with their financial institution before making a change. "There might be a better product at your own bank," he says.

For strapped consumers the new fees on bank products are hard to swallow. Shari Reimann, 41, of Coral Springs, Florida was thinking about closing one of her two checking accountants because her bank had raised the monthly fee from $8.95 per account to $12. When debit card fees were added: "I went ballistic," she says. That's when a colleague recommended a credit union.

The not-for-profits have played a relatively small role in the nation's financial life in recent years. Indeed, Bill Cheney, president of CUNA, says one of the biggest challenges is informing people about how they work. He says that many people don't realize that they could join some credit unions; they don't have to work for the company where it may be located. That's one reason it launched a consumer Web site in March called aSmarterChoice.org.

The site has seen hits climb to 4,000 a day from 1,000 a day since Bank of America's fee announcement on September 29. Another obstacle, he says, is that people assume that they'll have limited ATM access if they use a credit union. The CO-OP Network has 28,000 surcharge-free ATMs.

(Editing by Linda Stern and Richard Satran)

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