CU Community Credit Union member Rinnie Henry makes a withdrawal from teller Taylor Riffe. Henry is eligible for a rebate of up to $500 a year when she uses her card for non-PIN transactions. The credit union added the cash-back promotion to increase its revenues from interchange fees and to reward its members.
Credit unions report growth
Maria Hoover
Posted online
Credit union membership is on the upswing nationwide – and some local institutions are sharing in the growth.
Federally insured credit unions added more than 450,000 members during the third quarter, rising to 91.4 million individuals, and membership increased by nearly 1 million in the first nine months of 2011, according to data released Dec. 1 by the National Credit Union Administration.
While credit unions often provide services similar to those at banks, credit unions are not-for-profit financial cooperatives through which all accountholders, or members, are essentially owners with voting privileges, and earnings are returned to members via lower interest rates on loans or higher interest rates on savings.
In the Ozarks, membership for the 10 largest local credit unions, based on 2010 assets, has risen roughly 3.5 percent in the last year, according to Springfield Business Journal's list of the area's largest credit unions published in the Dec. 12 print edition.
Some credit union leaders say interest in memberships has risen steeply in the last few months as large national banks have threatened to add fees in an effort to cover expected revenue losses under the Dodd-Frank Act.
Expensive regulation In September, Charlotte, N.C.-based Bank of America’s announcement of plans to start charging its debit card users a $5 monthly fee starting in early 2012 followed similar moves by competitors such as Regions Bank, Wells Fargo and Chase Bank. The institutions cited regulations that took effect Oct. 1, cutting by roughly half the amount that banks with more than $10 million in assets can charge in interchange fees for debit card transactions. The cap is now 21 cents, plus five basis points, per transaction, or roughly .05 percent of the transaction value, according to the Federal Reserve Eighth District Office. Last year, the average interchange fee collected by banks was 44 cents per transaction.
By Nov. 1, however, Bank of America and its competitors abandoned their plans to add fees for debit purchases.
“We have listened to our customers very closely … and recognize their concerns with our proposed debit usage fee,” said David Darnell, Bank of America co-chief operating officer, in a statement at the time.
For Larry MacMillan, backing off of the proposed fee wasn’t enough. In November, MacMillan left Bank of America and joined TelComm Credit Union. MacMillan, an assistant manager at Dollar General, said he’d been with Bank of America since 1996.
“When they talked about (adding) the fees, that didn’t make me happy,” he said. “Then, I was trying to do a refinance on my house, and they kept dragging their feet.”
MacMillan said he’d lost his primary job and was seeking to refinance his mortgage to help him financially.
In the end, Bank of America declined the loan based on a single late payment, which MacMillan said resulted from a payment arriving on the weekend and not being posted until the next business day. After that, he started exploring his options and stopped in at TelComm and was pleased with the professionalism and friendliness of the staff.
“The interest rates were excellent, credit card transfers were excellent, and there was just no way I could say no,” MacMillan said.
Already, he has transferred his Capital One credit card to TelComm to take advantage of lower rates, cutting his interest rate roughly in half. He also likes what he sees with the credit union’s mortgage rates, but with his recent promotion and a new roommate to share expenses, he’s holding off on refinancing his mortgage.
TelComm President and CEO Don Ackerman said the credit union started seeing a boost in new members in September and October, before Bank Transfer Day – a Facebook-led protest in opposition to debit card fees at large corporate banks – on Nov. 5.
“The threat of increasing fees to use their own money just seemed to upset a lot of consumers,” Ackerman said. “Consumers are having a tough time right now, and it’s kind of like kicking them when they’re down.”
In the last year, membership at TelComm has increased 5 percent, or 754 members, to 15,531.
“We get roughly 140 or 150 new accounts a month. It can fluctuate from month-to-month. But as of the end of November, it was 180, which is a pretty significant increase,” Ackerman said, noting that feedback from those new members indicates at least 30 percent of them joined primarily because of dissatisfaction with existing and proposed bank fees.
“A lot of financial institutions are looking at other revenue fees to increase their bottom lines … because people aren’t borrowing money now like they have in the past, so it kind of forces financial institutions to become more aggressive in lending, maybe, or causes them to look at expenses and cut back, or to increase revenues (and) look at areas where they can create new fees or increase their fee structure to bring in more income,” Ackerman said.
A cash rewards program launched Oct. 6 at CU Community Credit Union in response to the corporate banks’ proposed fees aims to help the credit union increase its revenues from interchange fees and give something back to customers, said Vice President of Marketing Tanja Kern.
Through the CardCash program, accountholders can earn up to $500 a year for everyday debit card purchases, when they run the debit cards as credit – requiring a signature – instead of debit with personal identification numbers.
“We needed to figure out a way to increase our card income,” Kern said. “It’s important for us to be profitable, but we don’t have shareholders to satisfy like banks do, so our strategy was to go on volume.”
CU’s negotiated interchange fees – which are based on several factors including type of transaction – average 1.35 percent of the amount of each transaction, Kern said.
The higher the volume of transactions, the more the credit union stands to earn from interchange fees. Kern said the CardCash program rewards the transactions that are run through as credit, even though the money is withdrawn the same as when PINs are used, because the credit transactions are less costly for the credit union than the debit fees. All CU Credit union debit card holders are automatically enrolled in CardCash, Kern said.
SBJ list data show CU Credit Union membership is up roughly 2.6 percent from a year ago. Kern declined to disclose how many members have joined in the last few months, but she said new accounts are up 30 percent to date in the fourth quarter compared to the third quarter.
Not fee-free Because credit unions serve members, instead of stockholders, revenues are used to benefit members, sometimes through lower interest rates on loans or higher interest rates on savings accounts. There are, however, some fees charged by banks and credit unions alike.
“Every financial institution has to have some type of fee structure in place, for example an insufficient fund or overdraft fee,” Ackerman said. “We get charged a fee from the Federal Reserve, so we have to try to pass some of that expense on so we don’t end up eating the whole expense of having an item returned.” Ackerman said TelComm’s insufficient funds/overdraft fee is $24.
CU Community Credit Union’s fee schedule includes a nonsufficient funds/overdraft fee of $23, though Kern said the institution will work with members to potentially reverse the charge if it’s an isolated incident.
While debit transactions that are run as credit at CU Community Credit Union are always free, only the first 12 PIN-based transactions in a month are free. Any additional such transactions are $1 apiece, Kern said.
Rinnie Henry, a CU Credit Union member since 2004, is glad to have extra money through the CardCash program.
“I always use the debit card, and I’ve always run it as a credit card, because I could never remember the PIN number,” said Henry, who is retired and runs a small home-based quilting business. “Now, I can get something back for that.”[[In-content Ad]]