PHOENIX-Three months after instituting a $3 per month "membership dues" for members, the $1.2-billion Arizona Federal Credit Union said member pushback has been minimal as it has emphasized the value of "participation" in the credit union.
Effective Jan. 1, AZFCU began charging people to be members, although the fee is waived for those under age 18 and for Representative Payee accounts. In addition, it instituted a "membership restoration" fee, also effective Jan. 1, of $25 for former members to rejoin.
Steve Kelley, senior director of marketing, told Credit Union Journal Arizona Federal avoided outside publicity for its new policy, but said it made certain members knew what was coming and why.
"We made a dramatic, and probably unprecedented, change in how we interact with our members," he said. "We have not written any press releases; it is between us and our members."
Driving its decision, said Kelley, was recognition it had had as many non-participating, low-relationship members as it had those who were getting the most out of the relationship as they possibly could, adding, "The goal was to change the ratio.
"We have 160,000 members, and certainly no one woke up in December and hoped their credit union would start charging them dues," he said. "We went into it with our eyes open. It is an intentional, strategic move on our part that had nothing to do with revenue and had everything to do with membership and participation. It is a single piece of a much larger strategy. Certainly some members have expressed concern, and others have chosen to terminate membership. We take it upon ourselves to make membership worth far more than $3 per month, and we feel we are doing so."
A 'Very Good Package'
The roots of the pricing decision go back to 2011, when Arizona Federal added a comprehensive identity protection and identity theft recovery program. Kelley said the benefit was provided for free to all members, describing it as a "very good package" that "compares favorably" to programs that charge $15 per month or more. The service included active credit monitoring and updated credit scores.
As 2012 drew to a close, the CU began its shift. As new members joined they were told about the $3-per-month dues assessment. Kelley said it explained to new members what it means to be a member, what products and services were available, and what it would cost.
"We put every new member in an Everything Account, which is checking and savings together, and pays the same dividend rate as our Money Market account for balances up to $10,000," he recalled. "We go way beyond a switch kit and use a third-party service to move their checking account over."
An open letter to members outlining the new dues structure was sent on Dec. 1, 2012. Kelley said inactive members who only had a $25 share account were proactively contacted via mailings and phone calls.
"We did not want anyone to be caught unaware, and just see the money was gone," Kelley said. "Same with someone who just had one loan-we did not want them to see dues deducted. We mobilized our staff to get out ahead of this to educate people as to their opportunities as a member and allow them to take advantage of the privileges of membership.
"We did not do this blind," he added. "We do not want to lose members, we want them to be active members. This is not a 'fee them up' strategy, we do not want anyone to pay dues for something that they do not see as value."
Encouraging Participation
According to Kelley, Arizona Federal believes the concept of member-ownership is "critical" to being a financial cooperative, as demonstrated by the fact it shares the proceeds at the end of the year with all participating members.
On Dec. 31, AZFCU returned $3 million to roughly 77,000 contributing, participating members who had completed a certain number of transactions. The minimum payment was $12.82, average payment was $36.
"We want the members to consider this an institution that they are an owner of and treat us that way. We want them to come to us when they need lending of any kind, credit cards, insurance, investments and financial planning, and our auto purchasing service. All of those add in to the value of membership, and we think they add up to more than $3 per month, plus the potential for a return on investment at the end of the year. Members are investing, in the hope of getting something back, either in products and services or a distribution at the end of the year."
The new dues have seen some backlash from some who questioned the need, considering Arizona Federal's recovery in recent years. Prior to the financial crisis, in 2007 its net worth ratio was 10.96% ("well capitalized"). In 2008 it lost $115 million, and its net worth ratio plummeted to 4.75% ("undercapitalized").
Its woes continued in 2009, as it reported a net loss of $33.4 million and net worth dropped to 3.2% ("significantly undercapitalized"). In 2010 it had a net loss of $10.3 million, including $3.2 million in assessments, and a net worth ratio of 2.89% ("significantly undercapitalized").
The last two years have seen a remarkable turnaround. In 2011 it had net income of $45 million, with a net worth ratio of 6.42% ("adequately capitalized"). Net income for 2012 was $44.4 million, with a net worth ratio 9.72% ("well capitalized").
How Success Is Being Measured
In the end, Kelley said, the dues strategy reflects a belief membership is worth paying for. He complimented the leadership he said was displayed by the CU's board of directors in the initiative, stating, "It was clear from the outset there would be those who would criticize the things we chose to do, but because they saw the greater good they were willing to weather that storm. I cannot imagine being able to do this without such a high level of support."
To measure the success of the dues program, Kelley said AZFCU uses the same scorecards it has always used, including services per member, loan production, average balance and percentage of members with an active checking account.
"Certainly we are monitoring all of those very carefully to see how we move the dial," he said. "We are comparing new members who came in under the new terms to measure the quality of relationships over time."
So far, he said, the CU is seeing stronger numbers from every standpoint, including a "defined uptick" for the new members.
"It is too soon to tell the overall impact on the existing membership, because it is a large ship and takes a while to turn, but our goal was to get people's attention and get some changes made and we see changes taking place. Now it is on us to deliver on our promise."
