Community Banks, Credit Unions Benefit from B of A's Debit Fee Fallout

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Community Bank in southwest Florida is taking advantage of the recent PR nightmare large banks like Bank of America have created for themselves by instigating debit card fees. The $750 million-asset bank is offering to pay people $5 per month to open a checking account instead of charging for debit transactions. In just a couple of days, it's become the most successful promotion in the bank's two-year history, and the institution partly has the bad mood of consumers to thank.

"We've gotten dozens of account openings per day," says Trevor Burgess, CEO of the bank holding company, which introduced the $5 reward program on Tuesday.

Burgess is one of the founders of Community Bank, which has 17 branches in and around Manatee County. The bank has invested in troubled community banks in the region, which was hard hit by the real estate collapse.

Through a focus on personal, local service -- the bank takes deposits from local clients and makes loans locally -- Burgess says Community Bank has grown rapidly and has a high enough demand for new loans that it's able to actually pay people to open savings accounts. "The economics of this are the opposite of what they are for the big banks," he says.

Community Bank's not alone among smaller institutions in noting a change in consumer mood and a spike in activity since Bank of America announced it would charge customers who use debit cards for purchase. While B of A has taken most of the heat in the press, other large banks such as Wells Fargo and Chase are also testing similar fees. The large banks say the new fees are a result of economic conditions and interchange fee restraints from the Dodd Frank law.

Since community banks and credit unions aren't directly affected by the Dodd Frank law, they stand to benefit from any consumer anger over the new fees.

"The fees have really hit a nerve for consumers," says Cindy Cantrell, executive vice president of retail operations and marketing for Bank of Tennessee, a $656 million-asset community bank based in Johnson City, TN, who says the bank's call center has been "inundated" and that a lot of the bank's employees are getting calls from people they know asking about debit fees. "We've had a lot of people come into our [branches and offices] to make inquires as well."

Credit unions have also reported a spike following B of A's announcement.

"This interest is coming from people who are upset with their bank, whether B of A or one of the other big banks," says Mark Wolfe, a senior vice president for the Credit Union National Association, who says many of the group's members are reporting a surge of inquiries and new memberships since the B of A announcement. "One credit union executive characterized it as 'the opportunity of a lifetime for us.' Some credit unions tell us they are seeing 20, 40, 50 percent and even triple digit percentage growth in new accounts over typical levels."

For example, since the announcement, LA Financial Credit Union says it has seen requests for membership skyrocket. The credit union, which is open to anyone who lives or works in Los Angeles County, says it received 175 applications in the two weeks following the B of A announcement, compared to 27 in the same period in 2010.

In a statement, Renee Mackanin, a vice president at the credit union, said the credit union "sent an email blast and letter to members reassuring them that we still offer free checking and will not institute debit card fees. The positive response has been overwhelming."

There's also a boom emerging for technology that enables faster account openings. At the BAI conference, BECU, for example, mentioned that online account opening helped it accommodate an influx of new members following the B of A announcement.

Cassandra Brown, an avp for the Credit Union of Atlanta, says the credit union will begin offering online account opening in 2012 to accommodate a spike in new members, and it is also expanding its mobile banking capabilities to serve members who are coming in from banks. "We've grown $4 million in assets since the end of August. That's unusual for us," Brown says (the credit union has a total of $71 million in assets).

Brown says concerns over new transaction fees charged by large banks, including for debit transactions, are playing a role in the uptick in new members at the credit union. "People are saying they are making a 'run' on their bank," she says, adding there's been notable migration from Wells Fargo (the Atlanta CU shared a footprint with the former Wachovia Bank, which was purchased by Wells Fargo during the banking crisis) in anticipation of that bank charging debit fees. "We're also getting a larger share of our existing members' purses" as people consolidate various bank accounts into the credit union because of concerns over fees.

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Comments (1)
Over the past few years the debit card has become the central mechanism around which a bank's relationship with its deposit account customers revolves. The Durbin Amendment and other regulations radically alter the profitability of these accounts in their current form. It is likely to change the payment mix with greater focus on prepaid, credit and debit PIN over debit signature cards. But when considering how best to address the changes in the payments landscape, it is critical that banks do not lose sight of an important truth: it is the depository relationship as a whole that is the source of value, and not necessarily the deposit product that is used. By applying payment intelligence to their approach, banks may be surprised to discover alternative, more customer-friendly means to subsidize the revenue hits that these new regulations bring. Whatever their chosen response, banks must ensure that customers and their needs remain the centre of attention.

Jim Schlegel
Sr. Product Manager
ACI Worldwide
Posted by Jim S | Monday, October 17 2011 at 10:22PM ET
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