Members 'Very Satisfied' With Their CU Plunges In New Survey

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The number of consumers expressing high satisfaction with their primary financial institution has fallen to the lowest level in almost two decades, with credit unions registering the sharpest drop, according to the 2003 American Banker/Gallup Consumer Survey.

Over all, respondents who said they were very satisfied with their primary financial institution fell to 55% from 63% last year.

All categories registered a drop in highly satisfied customers from the 2002 survey: 54% v. 61% for banks, and 55% v. 58% for thrifts.

But credit unions had the biggest falloff-63% from 76%.

Industry insiders and analysts agree that well documented problems in the handling of mortgage refinancings were the major reason for the overall decreases. But some speculated that more impersonal service and increased bureaucracy irked customers of credit unions as the largest became more like banks.

"As credit unions get bigger, it's a constant challenge to try and retain that personalized feel," said Jay E. Johnson, an executive vice president at Callahan & Associates Inc., a credit union consulting firm in Washington. He noted that some larger credit unions have struggled with service in the past year as they become more bank-like to increase efficiency.

"They have set their own bar pretty high for member satisfaction," Johnson said, "so that's become their member's expectation."

For example, he said, customers who are used to the hands-on service at branches can feel miffed when remote delivery channels such as telephone call centers and online banking are introduced.

Education Should Pay Off

"A lot of these credit unions are focusing on educating their members on how to use the different channels so that they are not so confused or intimidated by them," Johnson said. "I think once they get more comfortable...you'll see the very satisfied numbers come back up."

CUNA President Dan Mica said service has not gone downhill at larger credit unions. But consolidation may have influenced consumers' perceptions, he said. "I'm sure it causes come consternation."

Such feelings may have led some consumers to open accounts at smaller institutions. Twenty percent of respondents said they had opened an account at a small bank or credit union in the past year, and 8% said they had seriously considered doing so.

But over all, the refi boom was the main reason customers think service has deteriorated, analysts and insiders said.

Borrowers refinanced $1.45 trillion of mortgages last year to take advantage of historically low interest rates, according to the Mortgage Bankers Association of America. That helped the home loan industry set $2.5 trillion production record last year.

To keep up with the demand the mortgage industry expanded its work force by 16% last year, to 406,800, according to the Bureau of Labor Statistics. But many companies-including the nation's largest thrift company, Washington Mutual Inc. of Seattle-have conceded that they still struggled to handle inquiries and applications.

"Millions poured into the doors of all financial institutions with requests for mortgage refinancing, and credit unions and banks alike just couldn't handle them as quickly as they could have in milder times," said Mica. "Names were taken, and people were called back-but instead of a day it was sometimes weeks, and people were frustrated."

In addition, he noted, many borrowers were promised specific interest rates if their mortgages closed within 30 days. But the overwhelming volume caused frequent delays, which led to higher rates being applied to loans.

Brenda Marlin, an associate director of the American Bankers Association's marketing network, said that banks, like credit unions, may have been blamed for the delays caused by appraisers and title companies during the refi boom.

"If any of these touch points went awry in anyway, it could be perceived that the bank was the instigator of the dissatisfaction," Marlin said.

Still, she noted, customers did wind up with lower rates. That could account for the fairly high percentage of respondents-41%-who said they were somewhat satisfied with their primary financial institution. Only 4% said they were not satisfied.

The Effect of Low Rates

Observers pointed out that low rates also meant meager returns on CDs and other deposit instruments. For instance, in April the average rate on a $10,000 12-month CD was just 1.453%, according to Informa Research Services. Five years earlier it was over 6%.

Hal W. Oswalt, the president and CEO of Brintech Inc., a bank consulting firm in New Smyrna Beach, Fla., said such low returns may have been particularly irritating to seniors.

"Someone who's a net depositor-such as an older customer who may not be borrowing anymore-has only felt the negative effects of low interest rates," Oswalt said. "A lot of these people have not been satisfied with their returns, and this may have affected how they feel about their financial institutions in general."

Bearing that out, the percentage of respondents 65 and older who said they were very satisfied fell to 58% from 71% in 2002.

The overall effects of the weak national economy, exacerbated by continued job losses, may also have soured consumers, said James Chessen, the chief economist at the American Bankers Association.

Additional Stress

Many people are feeling more stressed because they are living paycheck to paycheck or have lost their jobs, Chessen said. "That means they may miss more loan payments or risk more overdrafts, running into trouble with their bank." The tension "gets carried forward in their evaluations of their bank."

In the second quarter, past-due credit card accounts were 4.04% of all credit card receivables, down just slightly from the all-time high of 4.07% in the previous two quarters, according to ABA data released in September. But delinquencies in home equity loans rose 46 basis points from the first quarter, to a record high of 2.48%.

Consumers may feel particularly anxious about those delinquencies. If they default on a home equity loan, they run the risk of losing their homes, Chessen said.

Jeffrey C. Gerrish, the chairman of Gerrish & McCreary Consultants LLC in Memphis, said some consumers may have been responding to corporate scandals in giving their primary financial institution less than exemplary marks.

"It's a bit of a knee-jerk reaction, but nobody's happy with corporate entities these day," Gerrish said. Financial institutions "may have been lumped in."

In fact, corporate scandals were the main reason given by consumers who said that their confidence in the U.S. banking and financial system had decreased this year. Some 45% pointed to corporate scandals, 40% said the economy, 29% the stock market, and 14% the threat of terrorism

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