Consumers frustrated with the cost of doing business at banks helped credit unions in the Miami Valley add more than 35,000 new members last year, according to a Springfield News-Sun analysis of federal data, national surveys and interviews with industry experts.
That represents a 7.6 percent increase in members and pushes the percentage of people in the region who are members of a credit union to more than 30 percent.
Similar customer data isn’t compiled for banks — which compete with credit unions — but James Thurston, a spokesman for the Ohio Bankers League, attributed the credit union growth to improvement in the economy.
Financial experts and credit union groups said many consumers switch to credit unions from banks because they have fewer fees and offer higher interest rates on checking and savings accounts.
The more than 40 credit unions in Butler, Champaign, Clark, Greene, Miami, Montgomery and Warren counties finished 2011 with a record 491,160 members, and their assets increased by more than 20 percent from the previous year, according to data from the National Credit Union Administration.
The bulk of the region’s growth came from its largest credit unions.
Springfield’s largest, International Harvester Employee Federal Credit Union, remained around the same size, according to a spokeswoman.
Members haven’t spiked at Athena Credit Union, the former union for Springfield City Schools teachers. But it has seen an increase in checking accounts, said Kathy Allen, its CEO.
“The anti-banking sentiment over increased fees has a lot of consumers questioning whether their financial institution is the right place to be,” said Patrick Harris, spokesman with the Ohio Credit Union League, which represents 382 credit unions.
National anti-bank movements like “Bank Transfer Day” and “Move Your Money” have recently been echoed by local credit unions in a cooperative social media campaign called “Don’t get banked over.”
But banking service experts said the majority of consumers still prefer banks because they value their convenience and large range of options. In recent decades, major banks have invested heavily in infrastructure, from branches to ATMs to smartphone apps that do everything but spit out cash.
According to experts cited in Consumer Reports’ February 2012 cover story, containing infrastructure costs has allowed credit unions to avoid fee hikes and interest yield drops. This places banks in a consumer category much like Apple computer today: all the bells and whistles are there, but you will pay for them.
“We provide so many more services, so much more expertise” than credit unions, said John Kozak, chief financial officer of Security National’s parent company, the Newark, Ohio-based Park National Corp. “If you’re going to say (credit unions) are going to grow very, very fast compared to the banking industry, I would say that’s probably not the case.”
Credit unions are similar to banks, but they are owned by their members and they are nonprofit organizations, which means they do not pay federal income taxes, said James Larsen, professor of finance with Wright State University.
Because credit unions are depositer-owned, exempt from federal income taxes, and do not have the marketing and advertising budgets of major banks, they can offer higher interest rates on deposits and charge lower fees for services such as checking accounts, Larsen said.
“(Credit unions) were designed to meet the needs of individuals, while banks were designed to meet the needs of commercial interests,” Larsen said.
Thurston, the bank advocate, takes issue with credit unions’ tax-exempt status and referred to a 2003 Government Accountability Office study that he says offers reasons why that status should be revoked.
“Credit unions serve a more affluent clientele than banks, despite the fact that their tax exemption is partly based on them serving people of lower means,” Thurston said.
The big switch
Switching to credit unions is a nationwide trend, according to a study released late last month by J.D. Power and Associates, a California-based market research firm.
About 9.6 percent of customers surveyed said they switched their primary banking institution during the past year to a new provider, and credit unions and small banks acquired 10.3 percent of new customers, up from 8.1 percent in 2011, the survey found.
“Fees were specifically cited as the primary reason people shopped and switched banks,” said Michael Beird, director of banking services for J.D. Power and Associates. “What I also did find was that over half the people who said they left because of fees were really not happy with the service of their prior bank.”
One Springfield resident left his bank after taking issue with how they handled an accidental overdraft of two cents.
“They just didn’t want to help,” said Ron Jordan, who joined Wright-Patt Credit Union. “They would rather have their $33 (overdraft fee) than my business. ... Wall Street will bail them out. Or somebody will — with my money.”
Tracy Fors, Wright-Patt Credit Union’s marketing and business development director, said recently proposed bank fees were “the straw that broke the camel’s back,” and many consumers decided they wanted to join credit unions because their operating philosophies differ from banks.
But Thurston, the bank advocate, said Ohioans are turning to banks in greater numbers than ever before, with deposits at Ohio banks and thrifts increased by 12 percent in the fourth quarter of 2011.
Beird, with J.D. Power, said his study found that consumers still prefer the convenience of large banks because of their numerous branch locations and technology, such as mobile banking.
“As long as customers get value out of their bank, fees are not a show-stopper,” he said.
Springfield’s local-seeming bank
Perpetual Federal Savings Bank has the largest market share of deposits in Champaign County, with 44 percent.
Part of a larger chain of mostly Ohio banks, Security National holds the largest share of Clark County’s deposits — about 28 percent, according to FDIC data.
Security National’s publicly traded parent company, Park National, maintains $7.1 billion in assets, compared with $2 billion held by Wright-Patt Credit Union. As credit unions go, Wright-Patt is massive, among the top 50 in the nation. As banks go, Park National is small-to-mid-size.
“We try to be the local bank in each of our communities,” said John Kozak, Park National’s chief financial officer. “We try to be about the best corporate citizen in our communities. ... In some ways we’re much closer to a credit union than to those big New York banks. But, notably, we are paying a nice chunk of our profits to the U.S. Treasury every year, as well we should.”
Park National tends to report about $30 million a year in taxes on corporate profits, but it’s unclear how much of that money is going to which jurisdictions. By law, government agencies can’t disclose companies’ tax information.
Still others are concerned about banks’ transparency following the financial crisis responsible for the current economic slump, said Ellis Jones, a college professor and consumer advocate.
“I used to tell people to go to their banks and ask them where their money is being invested,” Jones said. “Technically, (banks) should be able to tell you. It’s a simple question. It’s a straightforward question. But with the current financial system, banks are invested all over the place. They don’t have any transparency. ... And when you don’t have transparency, you don’t have accountability.”
Jones, a visiting professor of sociology at Holy Cross College in Worcester, Mass., writes books about consumer decisions and their impact on society and the environment.
“When you have your money in a bank, the money isn’t actually sitting in the bank. It’s hard at work,” Jones said. “In this case, the question is, what is it working on?”
Even banks like Park National, which are focused on lending directly to customers as opposed to buying complex securities, weren’t immune to the trend. The company had invested in $107 million in subprime mortgage securities, according to documents prepared for its investors, representing 2 percent of deposits.
The value of those securities tanked, so the company took $100 million in Troubled Asset Relief Program money.
The bank hasn’t yet repaid the money, bank executives said. There are plans to repay it in 2012.
Park National has about 75 percent of its assets tied up in loans it’s made directly and 25 percent in investment securities, according to a presentation for its investors.
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