Credit Unions Worry Banks With Growth of 'Checking'

Credit unions' share draft accounts are growing, and bankers aren't happy about it.

A new survey shows that credit unions reported a 6.7% increase in share draft account balances-their equivalent of checking deposits-in the first quarter this year. That's the largest three-month increase ever.

The percentage of credit union members who have share draft accounts rose to a new high of 42.4%, according to the survey by Callahan & Associates, a Washington credit union consulting firm.

The firm's president, Chip Filson, said the numbers show that credit unions are attracting more of members' business-what marketers call share of wallet.

"Credit unions are becoming more widely viewed as a primary financial institution to their members," said Mr. Filson. "As credit unions become more central to their members' lives, we expect to see this growth continue."

The numbers concern bankers who see the increase in checking use at credit unions as a sign that the nonprofit institutions are making inroads into the core consumer banking market.

"They're offering the same services as we are, and they're not subject to the same taxes," said J. Lamar Roberts, chief executive officer of First National Bank of Pasco, Dade City, Fla. "It's an uneven playing field."

Because the banking industry is at war with the credit union industry, news of credit union success isn't taken lightly by bankers. A national battle over whether credit unions can expand their common-bond membership ranges is expected to be decided by the Supreme Court.

The Callahan survey covered the 1,307 credit unions with $50 million or more of assets that are required to report quarterly financial data to the National Credit Union Administration. This part of the industry holds $252.6 billion, or 76%, of U.S. credit union assets.

Julie White, Callahan's marketing coordinator, said the survey shows that current credit union members are using their services more, not leaving banks.

But some credit unions don't dispute that their checking accounts are drawing away competitors' customers.

"We have the best checking account in town," boasted Gary Welch, acting chief executive officer of the California Credit Union in Los Angeles. California Credit Union, a $557.5 million-asset institution, had a 48.7% increase in checking account balances in the first quarter. Mr. Welch said he attributes the growth to an increasing backlash against automated teller machine surcharges. The credit union's free checking program offers an ATM card with 10 free transactions at banks' machines before it starts charging for "foreign" ATM use.

But an official at Affinity Federal Credit Union, Bedminster, N.J., said its 89.4% increase in checking account balances shouldn't get anyone too excited.

Bryan Clagett, Affinity's marketing manager, said the huge jump came from the direct deposits of employee bonuses at AT&T Corp. and Lucent Technologies, the credit union's main sponsors.

Share drafts are shunned by some credit unions because managements do not see them as cost-effective, Ms. White said. But "if there's a big enough demand from members, credit unions will pick it up."

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