WASHINGTON-Will the big banks' retreat on debit fees take some of the steam out of consumers' intentions to transfer their funds and make the switch to credit unions?
That remains to be seen, and analysts interviewed Credit Union Journal were divided as to what the abandonment of the new fees will mean.
"This doesn't take us back to ground zero," said CUNA's chief economist, Bill Hampel. "This takes us back to the day before the big banks started announcing big fee increases. The banks have done substantial damage to their reputation over the past several weeks of this process and...this takes away some of the intensity that some people have about switching away from a bank, but I don't think it eliminates it completely."
In the week leading up to the much publicized Bank Transfer Day on Nov. 5, Bank of America caved to public pressure and reversed its plans to implement a $5 debit fee on all users beginning in January. It followed a number of other big banks, such as Wells Fargo, Chase and Regions, in announcing they, too, would cancel plans to implement such monthly fees.
"Consumers voted with their money and Wall Street institutions finally got it-but only after waking their customers up to the fact that they are being treated like numbers, not people," NAFCU President Fred Becker said in a statement. "Recalling debit fees now is like trying to get toothpaste back in the tube. It simply does not work."
But others believe the fact the banks have cancelled the new fees will take some of the wind out of the sails of any migration to credit unions.
Jim Wilcox, a Filene Research Fellow and professor of financial institutions in the Haas School of Business at U.C. Berkeley, noted that "to the extent that originally the imposition of these fees was going to cause people to leave banks and head toward credit unions, that stimulus has all been removed."
The closest historical precedent within the financial services industry appears to be some banks earlier attempts to charge consumers "teller fees." On the other hand, many compared the debit fee rollback to the "New Coke" debacle of the 1980s and Netflix's plan earlier this year to split its streaming and its DVD-by-mail services into two separate companies. That plan was eventually scrapped, in part due to a similar public outcry.
Grudgingly Unmoved
But consumers have also shown that they will, grudgingly, go along with some costly new practices, such as the almost-ubiquitous practice of airlines charging for checked bags. "In this particular case, it may be that what we're seeing is a temporary rollback and that in fact these fees will stick eventually," said Wilcox. "And they may stick via credit unions as well. This is particularly bad timing; the banks have more than the usual public relations problem-they've got a genuine business predicament."
CUNA Mutual economist Dave Colby noted that the rollback may make it easier for consumers to stay at the big banks, to the detriment of credit unions. "It's a smart move by the banks," said Colby, adding, "For the bad customers they're losing money on, they get $60-per-year or you leave. That's a pretty good deal. Basically the banks retain their best customers and deep end those relationships with marginal customers. Let's be realistic: if the bank was making money on these customers they would have kept them."
Wilcox and others pointed out that the poor economy and Occupy Wall Street movement have heightened the public's sensitivity toward anything bank-related, but Daniel Penrod, an industry analyst with the California and Nevada Credit Union League noted that the most important thing for CUs is just getting new members in the door. Those consumers may not be ideally profitable members at first, but have the potential to become more so as the economy levels out.
"Credit unions have had an awareness issue since their inception, and the more people that experience a credit union and can be advocates for it are going to create strong relationships down the line," he said.
For his part, Wilcox downplayed Bank Transfer Day. "I'd be very surprised if there's a massive influx of new members," he said. "I think this whole uproar has caused people to evaluate where they really want to have their debit card and checking account. ... Some people will move, most will not. And part of the reason is that it is really costly in terms of time and attention to be moving your checking account."
Five Percent Growth?
But CUNA's Hampel remains optimistic consumers have been pushed to the point of taking the time and expense to move.
"The $5 Bank of America fee was in a certain sense the straw that broke the camel's back," said Hampel. "That nudged the people behind Bank Transfer Day to get it started. It wasn't like there wasn't a huge bale of straw already on the camel's back, and the rest of that bale is still there."
The compound effect of word of mouth could pay off for CUs down the road, he added.
"We've had about 1% membership growth for the last few years," said Hampel. "It wouldn't surprise me to see 5% growth over the next year. That's five million people; it could be huge. I'm not predicting that, but this is the sort of thing that could make that happen."
