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By Sam Brownell
Two weeks ago we ran Creditunions.com's top stories of 2009, including one, "Gen Y Perspective: Why My PFI isn’t a Credit Union," about why one of my colleagues uses PNC as her primary financial institution (PFI). Like Lydia, I am a Gen Y'er. Like Lydia, I grew up using my parents' local bank, Cambridge Trust Company. Like Lydia, I moved to Washington, D.C., after graduating from college and set up an account with PNC. Like Lydia, I did this because I demand convenience from my PFI, would like a robust online banking suite, and want an institution that offers me competitive rates. But unlike Lydia, I have since switched my PFI to Lafayette Federal Credit Union. The similarities in our stories are just as important as the differences and credit unions should be aware of both.
Lydia's article almost perfectly described me (maybe there is something to this Gen Y mumbo jumbo). When I moved to Washington, D.C., I was looking for a new financial institution and wanted my PFI to be convenient, have a solid Internet suite, offer competitive rates, and (my one additional requirement) include free checking.
It would be impossible for me to over-emphasize the importance of convenience and free checking. They were probably all I wanted, at least they were all I thought I wanted. There was a PNC branch across the street from my apartment building and another one a block from where I worked. It offered free checking. The decision had been made for me.
So if Lydia and I have similar, if not identical, demands of our PFI, why have I changed from a bank to a credit union while she hasn't? It is because, unlike Lydia, I had an experience with a big bank that both put me in the market for a new PFI and made me willing to adjust my expectations for convenience and Internet banking if it meant I could put my money in a financial institution I could trust.
After a couple of months with PNC I decided I wanted to impose constraints on my spending so I would be more financially responsible. I set up two separate checking accounts with PNC. I dedicated one account to hold the bulk of my pay checks and planned to use it to pay rent, utilities and cell phone bills (the remaining amount I would save or invest). With the second account I gave myself an allowance of $300 from every paycheck for food and entertainment.
After about a month, I discovered I had been too ambitious in my goal of only spending $300 every two weeks on food and entertainment (or I have a false perception of my fiscal responsibility). I used my debit card approximately four times when I had insufficient funds. I was charged upward of $180 in overdraft fees.
I had a similar experience with the community banks I had used in the past. With those banks, I would go in and talk to the branch manager and usually only pay one fee for each day I used the card without sufficient funds to cover my charges. I went to PNC with this proposal but they flatly refused to rescind any of the overdraft charges. I told them if they refused to refund any of the charges, I would close my account on the spot, which I did.
I recognize that I overdrew my account with PNC and had a responsibility to pay the associated fees. I agreed to that when I set up the account. However, I feel they should have had the foresight to see that all they needed to do was waive some of the fees, which they could have easily recouped over a long relationship with me.
Choosing Lafayette Federal Credit Union
After this experience, I switched my PFI to Lafayette Federal Credit Union (LFCU). I decided on LFCU because it satisfied most of my previous requirements: it had a branch that is convenient, offered free checking, provided a decent online banking suite, had competitive rates, and, most importantly to me now, I trusted that it would treat me fairly.
My trust in LFCU came from two things: my experience and knowledge.
When I setup my account at the branch, the assistant branch manager, Franklin Henriquez, talked me through everything and even addressed my biggest problem with PNC (without me even bringing it up) by offering to let me opt out of overdraft protection and courtesy pay programs. It is a local institution and has a community charter, so I know it has an incentive to care about its community.
Second, and much more important to me, I know what a credit union actually is. Perhaps some do it better than others, but I genuinely believe, as member-owned cooperatives, credit unions are responsive to their members' wants and needs. After all, their members own the company. With a credit union, I know that if I am paying a fee, it is to run the institution that is working to serve me. A credit union isn't going to gouge me with exorbitant fees to make a profit because it is a not-for-profit. Also, (much to Keith Leggett's chagrin) credit unions don't pay income tax, so I know that they have a competitive advantage over banks, which, as a member-owner, will benefit me in the form of lower fees or better rates.
This leads me to my ultimate point, credit unions need to take better advantage of the current climate and clearly differentiate themselves from banks. If I didn't know the difference between a bank and a credit union, I wouldn't have ended up being a member of LFCU. Simply put, banks have more extensive branch networks (read: are more convenient), have better Internet banking suites, offer competitive rates (for someone with no money - but hopefully will someday), and typically offer free checking. I could have opened an account with Bank of American or Citi Bank (both of which have branches within a block of my apartment), but I chose not to because I had no reason to believe they wouldn't treat me the same way PNC did. I also could have joined a local community bank, which I would trust to treat me better than the PNCs of the world, and probably would have if I didn't know about credit unions.Instead, my knowledge that I would become an owner of my credit union, that they are locally focused, and that they have a competitive advantage over banks all led me to put my money with a credit union. When it comes to convenience, products, and rates, banks can compete with credit unions (and often beat credit unions) but the institutional structuring of a credit union can provide a level of trust that banks simply can't guarantee. It is this aspect of your value proposition that you should market to all generations especially Gen Y, or "generation debt," as we continue to feel taken advantage of by big banks.
January 11, 2010
7/26/2012 04:07 PM
I think this article is right on the money. Credit Unions have advantages over banks because of their smaller cost structure. That means less fees for mebers. Community banks may be able to offer more products, because they have access to more capital to invest, typically. But, either option is far better than only banking with a large golbal bank.
The article is so on target - the comments below are valid and the response appropriate - it can't be about waiving fees - if that is all it is then no real difference. It is about attitude, which comes from structure - this is your financial institution, working for you - not A bank, working for someone else - and that does matter.
Very well written article! Its great to see that more people understand and appreciate the benefit and value of credit unions!
Jason, I may not have done enough to clearly explain this in my article but, I believe that credit unions have a lot more to offer than just waiving fees. It just so happens that PNC's refusal to waive my fees is the catalyst that lead me to look for a new financial institution. Once I was in the market for a new PFI, I knew I wanted to save my money with a credit union because, as a collectively-owned not-for-profit financial institution, they are structured in a way that provides me with a sense of trust that banks simply can't provide. I didn't choose Lafayette Federal Credit Union because they offered to let me opt out of overdraft protection (you are right I could do that at any bank), I chose Lafayette Federal Credit Union because it is a credit union.
I appreciate the article and it gives us a lot to consider, but I hope that Credit Unions have more to offer than waiving fees for irresponsible behavior. Pretty soon PNC will likely be forced to allow their customers to opt-out of overdraft coverage as well. I do not believe that puts us on even ground.
My point is...what if free checking goes away? Then what is the differentiator that will rise to the top of your list?
Rosie, free checking could potentially be a deciding factor for me. If one institution offered free checking and the other didn't or required a balance higher than I expected to have, I would most likely choose the institution that offered free checking. I personally care a lot more about free checking than internet banking. Weighing free checking against the trust associated with using a credit union gets more tricky, it would be pretty close. It would probably come down to convenience in a scenario in which a bank offered genuinely free checking and a credit union didn't.
I'm interested in the fact that free checking was a "must have" for you. Given the impending loss of interchange and EOD revenues that FIs have historically used to fund loss leaders like free checking accounts, we may be fast on a road back to the day when the available checking product was a maintain-a-minimum-balance-or-pay-a-monthly-service-fee paradigm: take it or leave it.What will that do for you?
Sam,I pretty much agree with all your points. For me, I know that I'd consider switching if I found a CU that had the tech services I currently have. And I closed an account at First Union for pretty much the same reason.Now, I have found that CUs and community banks have a lot of similarities. The biggest being that they tend to know their customers and their needs better. I believe that banks lose their way as they become more sales and procedures oriented. Most banks started out with the same focus as CUs, customer focused
Rosie,I think if no one offers free checking then it probably wouldn't be replaced by anything on my list of preferences. I would probably just care more about convenience. Although I may start shopping based on the financial institution that requires the lowest minimum balance necessary to receive free checking.
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