Why debit card fees are good for consumers

Transparency in financial services, for the most part, is an oxymoron. The less consumers understand about money and how to manage it, the more banks profit.  So, there is a huge incentive for bankers, brokers, financial advisors and the like to be misleading or hide behind a shroud of complexity.  This is no secret.  

Given that total transparency in the financial services industry, as demanded by vulnerable consumers and a progressive government, is unrealistic, one would think that even a taste of it by its proponents would engender excitement.  Apparently, that is not the case.  Recently, when banks, led by Bank of America, revealed that they planned to charge customers a $5 monthly fee to use their debit cards, public outrage ensued.  So much for moving toward that utopian, consumer-friendly market in which banks actually reveal their fees and choose not to be so conniving!  

The fact that banks are now canceling their $5 charge policies seems like a great win for consumers, but in my opinion, it is not for two reasons.  First, banks will go back to being less transparent and finding more insidious ways to make their profits.  The public outcry over the charge has actually validated, in a way, their notorious, clandestine activities.  Second and most importantly, customers are now less likely to join a credit union, a financial institution that focuses on what is best for its members, not for Wall Street.  Banks realized, although quite late, that if they proceeded with the charge, they would lose a lot of their deposits and business to credit unions. 

In conclusion, when I heard that banks were planning to implement this debit card charge, I rejoiced saying, “What a great opportunity to move consumers from banks to credit unions!”  It seems like this will not happen as I had hoped.  I doubt another pain point so excruciating and publically detested will surface any time soon and therefore promote the credit union cause.  Unfortunately, consumers have once again tricked themselves into believing that the banks have capitulated under pressure and have done the “right thing”.  The truth is that the banks will find another clever way to get their money, and it is much easier to do that when you are still their customer. 

Read ABC News article. 

Marketing challenges hinder growth of credit unions

Everyone should be a member of a credit union instead of subjecting themselves to the often harmful whims of a commercial bank. If you are not a member of a credit union, you are giving away your hard-earned money. Do yourself a favor and join as soon as possible one of the 8,000 plus credit unions in this United States (46,000 around the world).  

I will not go into detail about the many benefits of joining a credit union.  (I have already talked about them in previous posts, one of which includes a hilarious video, by the way.)  However, I will say that, in general, credit unions have lower interest rates, provide better service, and care more about you as an individual.  In short, the relationship you will have with your credit union is similar to the relationship you have with your own mother.  Ultimately, she has your best interest at heart and so does the credit union.  

Naturally, you would think that disgruntled consumers would be leaving their banks in droves.  Not quite.  Membership of credit unions grew just 1.4 percent in 2009 and 1.6 percent the year before. Despite the fact that large commercial banks precipitated the financial crisis and continue to gouge their customers, credit unions have not been able to seize this golden marketing opportunity and significantly increase membership.  

Why the modest gains?  A recent The New York Times article explores some of the major challenges credit unions have in marketing themselves, starting with the misleading and sometimes fear-invoking term credit union.    

More articles on credit unions:

• Credit unions no longer a safe haven?
• The numbers don’t lie: a side-by-side comparison of credit unions and banks
• Two credit unions seized by the government
• I finally joined a credit union: Delta Community Credit Union
• Why you should join a credit union now
• Speaking engagement brings a pleasant surprise

Credit unions no longer a safe haven?

In this ever-changing and tumultuous world of consumer credit, no borrowers are completely safe from the whims of frantic lenders--even the so-called safe ones. Often considered the best option for consumer loans, credit unions are becoming more like their rogue cousins: commercial banks. 

Based on recent e-mails and comments sent to me from frustrated consumers, credit unions are beginning to adopt and to implement changes to their credit card accounts, including increased interest rates and stricter terms.  This comes as a surprise given that amid the widespread outrage against commercial banks, credit unions have been touted as the safe alternative.   

One such customer wrote me:

The numbers don’t lie: a side-by-side comparison of credit unions and banks

Simply put, credit unions are better than banks—assuming that you want to keep more of your money.  You’ve heard me say it, but I haven’t provided comprehensive, empirical data that proves it until now. 

This morning, I received a press release by the Georgia Credit Union Affiliates that highlights the major differences between credit unions and banks as reported in a recent comparison index.  For example, in Georgia, the average interest rate for credit cards in 2008 was 11.53 percent for credit unions, compared to 12.41 for banking institutions. Furthermore, a Georgia credit union member who finances a new $25,000 car through a 60-month loan will likely save almost $400 in interest the first years as compared to a bank. 

If you are a die-hard numbers person, read the cogent excerpts from the report below, proving that credit unions in Georgia are better options for consumers: 

Two credit unions seized by the government

Credit unions are great alternatives to banks; however, they are not immune to the toxic mortgage-backed securities that are making life miserable these days.

On Mar. 21, The Washington Post released an article about the recent seizure of two large companies that provide critical banking services to the credit union industry and function as central banks for the credit union system.  These two companies, U.S. Central Corporate Federal Credit Union, based in Lenexa, Kan., and Western Corporate Federal Credit Union, based in San Dimas, Calif., invested funds for thousands of small credit unions.  A large portion of these investments were in mortgage-backed securities, which have since threatened the solvency of the two seized companies. Projected losses may exceed their available capital. 

I finally joined a credit union: Delta Community Credit Union

Last week, I attended the grand opening of a new, full-service branch of Delta Community Credit Union (DCCU), Georgia’s largest credit union with more than 183,000 members and almost $3.0 billion in assets.  The grand opening of its Duluth location is the credit union’s 18th branch in the metro-Atlanta area.  

I was invited to attend the ribbon-cutting ceremony and accepted with great enthusiasm, especially since DCCU is my new credit union as of last week.  I was thoroughly impressed with the event, which showcased a beautifully designed, state-of-the-art facility complete with a cozy training room for financial education.  I was even more impressed with the company’s mantra, which stresses “always doing the right thing”.  Still more extraordinary was the fact that the dedication ceremony started off with a solemn prayer.  I suppose we wouldn’t be in such an economic maelstrom if everyone were a member of a credit union.  

Why you should join a credit union now

If you are not a part of a credit union, you should be.  Especially in these crazy times, a credit union is like a breath of fresh air, a respite from the financial miasma caused by many of the for-profit, retail banks. 

Simply put, credit unions are member-owned, not-for-profit financial institutions that provide many of the same financial services that banks do, including checking and savings, loans, credit cards and ATMs.  However, they have added benefits such as better interest rates, reasonable loan terms, educational training, special products, and top-notch customer service. 

Speaking engagement brings a pleasant surprise

Yesterday evening I addressed a trade group of executives in the hospitality and travel industry.  The founder of the organization invited me to talk to its members about some of the latest developments in the credit card industry and to offer practical steps that its members can take to improve or maintain their credit in this difficult economy. 

I thought my presentation was boring; I basically talked for forty-five minutes straight.  Everyone was focused on me as if in a trance.  I later found out that audience members were shocked by the information I shared. Every now and then, I saw a face twist, an eyebrow raise, or a head shake from side to side. After my lecture, several people approached me with questions. I stayed for almost two hours answering questions from concerned consumers. Some invited me to come speak at their organizations.  I misinterpreted the audience’s attentiveness for boredom.