R.I. credit unions gain from big-bank exodus

LINE OF CREDIT: Karl Kozak, president and CEO of Pawtucket Credit Union, saw his institution experience a 25 percent hike in new members during October. / PBN PHOTO/MICHAEL PERSSON
LINE OF CREDIT: Karl Kozak, president and CEO of Pawtucket Credit Union, saw his institution experience a 25 percent hike in new members during October. / PBN PHOTO/MICHAEL PERSSON

This holiday season, Rhode Island’s credit unions may add an unexpected new name to their Christmas shopping lists: Bank of America.
Since the North Carolina-based banking giant announced its now-aborted plan to charge customers a $5 monthly debit card fee in September, credit unions here and across the country have seen a surge in new customers outraged by the perceived greed of large banks.
“I have not seen anything like it,” said Arthur Paul, vice president of marketing for People’s Credit Union in Middletown, which saw a 72 percent increase in new members from Sept. 25 through Nov. 12. “Maybe if we run a campaign you will see a little bump, but not sustained like that.”
An estimated 4,500 Rhode Islanders joined credit unions between Sept. 1 and Oct. 15, 50 percent more than joined during the previous six-week period, according to the Credit Union Association of Rhode Island.
Although Bank of America’s proposed fee, which the company later abandoned in the face of customer backlash, was credited with starting the migration to credit unions, it was accelerated by the viral “Bank Transfer Day” campaign and anti-corporate sentiment nurtured by the Occupy Wall Street movement.
Bank Transfer Day, which urged people to leave large banks for smaller local institutions by Nov. 5, was particularly popular with credit unions, which across the country reported 40,000 new members and $80 million in new deposits on that day alone, according to the Credit Union National Association.
“In the beginning it was just Bank of America and then we started to hear it about the other large banks,” said Karl Kozak, president and CEO of Pawtucket Credit Union, which reported a 25 percent spike in new members during October. “People were pretty vocal about it.” Although they lack the footprint and ATM networks of national banks, credit unions say they can provide lower fees and better interest rates because they don’t have to produce quarterly profits for stockholders.
Rhode Island has 24 credit unions with 327,000 total members and $4.2 billion in assets. Credit union deposits account for 7.9 percent of total deposits in the state, according to the Credit Union Association of Rhode Island, but could push through the 8 percent barrier if current trends continue into the new year.
Bank of America’s unpopular fee proposal came in the wake of a new law added to the Dodd-Frank financial-reform bill that caps the fees banks can charge merchants for debit-card transactions.
The loss of revenue from these interchange fees has prompted a number of banks to pass their costs along to depositors in the form of new user fees for account-holders. Some commentators have suggested Bank of America could end up better off without some of its smaller customers.
A Bank of America spokesman declined to comment on reports of customer losses to credit unions.
“There was a very good sense among Rhode Island credit unions that we didn’t want to hammer Bank of America – they were a victim of circumstance,” said Tim Draper, vice president of marketing for Navigant Credit Union in Smithfield. “The reason they did what they did was Dodd-Frank fixed something that wasn’t broken.”
Navigant, which added 400 new members in October, nearly double the previous October’s total, seized on the public disgust over new banking fees with marketing campaigns that emphasized their no-fee accounts. “We are not out to kill our competition, but we said, ‘Let’s feature some of our strengths and our campaign centered around our feeling that a debit card should be free,’ ” Draper said.
While credit unions have all the momentum now, many wonder whether some of the new members that have joined in protest will eventually slink back to the big banks when the uproar has subsided and the temptation of a larger ATM network returns.
To prevent that from happening, credit unions are using a variety of strategies to consolidate their gains.
While some are pointing to their low fees, others are emphasizing their traditional price advantages on auto loans and credit cards. Others are focused on improving their online-banking tools.
“Now that people have said, ‘I like what you are all about’ the onus falls back on the credit union to show them that there are other ways you can save,” said Robert Kimmett, senior vice president for public relations and marketing at the Credit Union Association of Rhode Island.
On how the increasing use of online banking has reshaped the market, Kimmett said the cost of developing effective online portals for all financial institutions has decreased, reducing some of the advantages big banks used to enjoy from their extensive branch networks.
At Navigant, Draper said his credit union does not need to change what it is doing to hold onto and increase its new membership.
“We think we can sustain those gains long term,” Draper said. “And we are pretty confident that there will be opportunities down the road where people are frustrated with where they are.” &#8226

No posts to display