Bank fees push customers to area credit unions

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Consumers frustrated with bank fees and services helped area credit unions add more than 35,000 new members last year, according to an analysis of federal data, national surveys and interviews with industry experts.

The more than 40 credit unions in Butler, Champaign, Clark, Greene, Miami, Montgomery and Warren counties finished 2011 with a record 491,160 members, and its assets shot up by more than 20 percent from the previous year, according to data from the National Credit Union Administration. The bulk of the growth occurred among just a few of the larger credit unions.

Financial experts and credit union groups said many consumers are switching to credit unions from banks, because they have fewer fees and offer higher interest rates on checking and savings accounts and better customer service.

“The anti-banking sentiment over increased fees has a lot of consumers questioning whether their financial institution is the right place to be,” said Patrick Harris, spokesman with the Ohio Credit Union League, which represents 382 credit unions.

But banking service experts said the overwhelming majority of consumers still prefer banks, because they value their convenience and infrastructure.

Membership in the roughly 40 credit unions in the area last year was up about 7.6 percent from 455,798 customers in 2010 and 11.3 percent from 441,440 in 2009, according to National Credit Union Administration data.

Overall assets held by the credit unions in the region also increased by 20 percent last year to $4.46 billion from $3.73 billion in 2010.

Their assets totaled only about $2.92 billion in 2008.

Credit unions are very similar to banks, but they are owned by their members and they are non-profit organizations, which means they do not pay federal income taxes, said James Larsen, professor of finance with Wright State University.

Because credit unions are depositer-owned, exempt from federal income taxes and do not have the marketing and advertising budgets of major banks, they can offer higher interest rates on deposits and charge lower fees for services such as checking accounts, Larsen said.

Historically, they also have been able to provide loans with lower interest rates.

“(Credit unions) were designed to meet the needs of individuals, while banks were designed to meet the needs of commercial interests,” Larsen said.

Although credit unions only account for about 7 percent of all deposits in Ohio, many are growing their memberships because they are luring customers through word-of-mouth and frustration with bank fees and policies, said Harris, with the state Credit Union League.

Banks still preferred by most consumers

Ohio’s credit unions now boast about 2.69 million members, and membership has grown in at least 10 consecutive fiscal quarters, he said.

Credit unions added 1.3 million new customers in 2011, and membership nationwide hit a record 91.8 million, according to the credit union administration.

Credit unions and community banks last year benefited from consumer backlash against bank fees and unmet customer expectations, according to a study released late last month by J.D. Power and Associates, a California-based market research firm.

About 9.6 percent of customers surveyed said they switched their primary banking institution during the past year to a new provider, and credit unions and small banks acquired 10.3 percent of new customers, up from 8.1 percent in 2011, the survey found.

“Fees were specifically cited as the primary reason people shopped and switched banks,” said Michael Beird, director of banking services for J.D. Power and Associates. “What I also did find was that over half the people who said they left because of fees were really not happy with the service of their prior bank.”

Jennifer Tschudi, 30, of Kettering, said she joined Wright-Patt Credit Union in October and closed her account with Bank of America because the company was not meeting her needs, and she was dismayed by its September announcement that it would charge a $5 monthly fee for debit card use.

Public outcry led Bank of America a month later to cancel plans to charge the fee, but the proposal sparked a movement called “Bank Transfer Day,” which helped credit unions across the country welcome 441,000 new customers in September and October.

Tschudi said she made the switch based on the recommendation of friends and family members, who said credit unions are structured to benefit members and they have exceptional customer service.

She said the decision has paid off.

“I put my money in savings and the more people who join, the more money they get and they share profits,” she said. “Wright-Patt actually gave me money in my savings account, not as interest but because of profit-sharing.”

Wright-Patt Credit Union, the largest credit union in Ohio that was founded in 1932, ended 2011 with 219,935 members, up from 160,062 in 2008, according to federal data.

Tracy Fors, Wright-Patt’s marketing and business development director, said recently proposed bank fees were “the straw that broke the camel’s back,” and many consumers decided they wanted to join credit unions because their operating philosophies differ from banks.

“Other financial institutions can come and go, and their decisions are based on numbers,” she said. “We have a vested interest in the Dayton community, and we cannot be bought or sold.”

But James Thurston, spokesman with the Ohio Bankers League, said Ohioans are turning to banks in greater numbers than ever before.

He said Federal Deposit Insurance Corp. data show deposits at Ohio banks and thrifts increased by 12 percent in the fourth quarter of 2011.

“When you look at total market share, consumers seem to have voted with their feet and prefer the product range and service they get from their local community bank,” he said.

Beird, with J.D. Power, said his study found that consumers still prefer the convenience of large banks because of their numerous branch locations and technology, such as mobile banking.

“As long as customers get value out of their bank, fees are not a show-stopper,” he said.

Contact this reporter at (937) 225-0749 or cfrolik@coxinc.com.