Did Bank Transfer Day catch on - does it still have momentum? We take a look and talk to an SDSU finance professor about credit unions.
November 7, 2011 1:06 p.m.
Dr. Tony Cherin,Professor Emeritus, Department of Finance, SDSU
Paul Lewis, CEO SD Medical Federal Credit Union
Related Story: Bank Transfer Day And Credit Unions
CAVANAUGH: This is KPBS Midday Edition. I'm Maureen Cavanaugh. Taking money out of a bank and putting it in a credit union was the focus of bank transfer day last Saturday. Occupy San Diego activists promoted the idea and staged a rally and march in downtown San Diego. So we're wondering how many people really transferred their accounts and what does a credit union offer that's different from a traditional bank? I'd like to welcome my guests, Paul Lewis is CEO of San Diego medical federal credit union. Paul, welcome to the show.
LEWIS: Thank you very much.
CAVANAUGH: And doctor Tony Cherin is professor emeritus in the department of finance at SDSU. Welcome.
CHERIN: Thank you for having me.
CAVANAUGH: Now, let me start with you, Paul. Was Saturday a busy day at the credit union?
LEWIS: Saturday was pretty much a day like normal. We did have new accounts opened. And I thought some other -- and they had new accounts open. And everybody talked about bank transfer day, and everybody used that as as I reason for why they were opening accounts. I'd have to call it a success. It was not very busy, though. But it was a success. New people did come in.
CAVANAUGH: Now, your credit union offered an incentive for people to actually change from their bank to your credit union. ; is that right?
LEWIS: Yes, we did
CAVANAUGH: And you weren't alone in that. It was something that several credit unions did across the county.
LEWIS: Yeah, I think there were some others. But I don't know what the results of those are. It's kind of hard for us because we have a closed membership. So we only sent the message out to our members who are already members. So we didn't get a whole lot of response from that.
CAVANAUGH: San Diego medical federal credit union is not like, let's say, San Diego County credit union where everyone living and working in San Diego can become a member. Who can become a member of a specialized credit union like yours? What kind of customers do you take?
LEWIS: That's correct. Many of the handlinger credit unions in the area are virtually open membership. Anyone can join. Our membership is restricted to medical employees in the county of San Diego, and the military. We got our start in San Diego Balboa hospital. And we still have a branch there. And so that's one of our core memberships right there. So you have to be a member in the medical field or in the military, and then you request join our credit union
CAVANAUGH: Doctor Tony Cherin, the idea for bank transfer day came out of the occupy movement. Has there ever been an organized push like this to change to credit unions that you can remember?
CHERIN: Not in my recent memory, no.
CAVANAUGH: What's the history behind credit unions? Tell us a little bit about how they got started and what they are in relationship to banks.
CHERIN: Well, as your other guest suggested, the way these institutions got started was with a field of membership that either worked or prayed together. And then most recently, what's happened as your other guest indicated, that many credit unions rather than having a field of membership that was solely relegated to people that worked or prayed together, that people that lived in a geographic area could be members. So the field of membership now has gone from a working and praying situation to a geographic situation. So if you live within a certain geographic region, you now have what is call aid community charter as opposed to a field of membership that is solely for as your other guest suggested, medical personnel and military
CAVANAUGH: I was speaking to some people over the weekend, and I think the idea that you have to belong to a certain class like the Navy or the medical profession or something like that to join a credit union is still a rather wide-spread notion. When did that begin to change, doctor Cherin?
CHERIN: Well, I'm not sure that the average person walking down the street still doesn't think that way.
CHERIN: In other words, they think that perhaps that they can't join a credit union because it is the field of membership is still restricted to employees or perhaps a church group or something like that.
CAVANAUGH: How many? Do you know, doctor Cherin, how many credit unions there are in San Diego County?
CHERIN: Right off the bat, you know, I don't know the exact number. But I would say it's probably in the range of somewhere between 20 to 30.
CAVANAUGH: Paul Lewis?
LEWIS: Right, right now, there's 19.
LEWIS: 19 credit unions
CHERIN: Yeah, I knot close.
LEWIS: You very close.
CAVANAUGH: And are most of them very specific? Or are most of them the geographical thing that doctor Cherin was talking about?
LEWIS: It turns out that most of them are geographic. So if you wanted to join a credit union, you have a wide choice. You can go to all sorts of credit unions in this area.
CAVANAUGH: This is, I think, the pivotal question. I know it was on a lot of people's minds over the weekend, and perhaps still now. How difficult is it to transfer your account, if northbound that's what you want to do. If you have all of your savings and checking accounts at a bank, is it a long process? Is it a difficult process to do that?
LEWIS: No, it's actually quite simple
CHERIN: Very simple.
LEWIS: On the deposit side, it's very, very simple. You just go into a credit union, find out if you fit the field of membership, and there are websites, by the way, where you can search for credit unions and see if there's one that suits you. You go into the credit union, sign the application, then you can open a check account, any of the deposit accounts that you want to open. Those are very simple to do, doesn't make very much time at all
CAVANAUGH: Paul, how about if you have more elaborate, if you can say that, accounts with a bank? If you have CDs and perhaps you have a mortgage with a certain bank and so forth? I would imagine that would be a lot more difficult.
LEWIS: That takes a little bit more time. A CD has a maturity, so you'd have to wait for it to mature, then you can transfer the funds over. That's not really a big problem. In term was mortgages and loans, that takes more time because you would have to reapply at the credit union. And so that would take a lot of time and in the long run, that's the best thing to do because in general credit unions have better rates than the banks do. By the way, many credit unions now are offering business accounts. My credit union is not. But even businesses, you can transfer them over to credit unions as well
CAVANAUGH: Well, Paul gets us to the -- another heart of this whole discussion, doctor Cherin, and that is the reason why anybody would be doing this. The credit union national association reports at least 650,000 consumers across the nation joined credit unions in the past four we thinks alone. What do you think the reason is for that, doctor Cherin?
CHERIN: Well, I think one of the major reasons was that some of the larger banks, particularly bank of America and Wells†Fargo, decided to in order to recoop some of the exchange fees that they were losing to apply a $5 a month fee to debit cards. And that got a lot of people I think thinking about doing something else in term was their banking experience as opposed to the big larger banks
CAVANAUGH: Is it just that kind of simple reaction?
CHERIN: Well, I think part of it is as you suggested earlier, I think it's a spin off or an artifact of the occupy movement. People now are looking at large banks as being managed by administrators that get very high salaries and don't do a whole heck of a lot of work. And the whole greed kind of thing, and I think that was also perhaps a reason why people started transferring their funds from traditional banking institutions to credit unions.
CAVANAUGH: Now, we reached out to bank of America right after they made the decision because of people outcry to pull a proposed debit usage fee. And spokeswoman Anne pace told us they are taking consumer concerns seriously.
NEW SPEAKER: Consumers have voiced their concerns over the past couple of years. If you look at changes that bank of America has made, we've changed our overdraft fee structure, we have started to offer clarity commitments related to our credit card and mortgage product. And this is all in an effort to be clearer and more transparent with our customers.
CAVANAUGH: That is bank of America spokeswoman, Anne pace. And Paul you want to respond to that?
LEWIS: Yeah, this happened to have been one trigger event. And I commend bank of America and the other banks for rescinding that fee, which was an irritating fee to many people. But the reality is that banks are in a position where they have to raise fees. So they're raising fees wherever they can. The reality is that credit unions charge less in terms of fees, they have better loan rates, and higher deposit rates. Is this a great opportunity for us to get out there and say, hey, we're an alternative. You can come and join a credit union. You can get a better deal with credit unions
CAVANAUGH: Doctor Cherin, do you agree that bank vs to raise fees?
CHERIN: Banks have to raise fees because again banks are own bide stock holders. And stock shoulders expect a certain rate of return that -- on the money that they invest in the stock of the bank. Credit unions don't have stock shoulders. The stock holders, full, are the members of the credit union, the depositors. So if there are earnings in the credit union, those earnings come back to the depositors in the form of, as Paul says, lower loan rate, higher deposit rates, and/or perhaps a new branch here and is there so you're giving more convenience, if you will, to the member of the credit union.
CAVANAUGH: I'm wondering how you expect banks to respond to this. We're talking 650,000 consumer, as I said, across the nation, change to credit unions in the past four weeks. You don't expect banks to take that lying down, do you?
CHERIN: Well, I don't know. 650,000, while it sounds like a pretty large number, if you look at the total amount of asset it is held by banks relative to the total amount of assets held by credit unions, that 650,000 does not represent a huge chunk of loss in my mind
CAVANAUGH: Do you think there are things that basics across the nation should consider, change, to make the experience better for customers?
CHERIN: Well, you mentioned -- was is that directed at me?
CAVANAUGH: Yes, it is.
CHERIN: You mentioned that banks had taken into account some of these changes that they're making, but I think Paul would agree with me, some of these changes were mandated by dock frank in the new financial institutions law. For instance, the clarity on credit card statement, things like that. They had no choice about that. They had to do that. So I'm still not of the opinion that banks are saying to themselves, oh, boy, we better be nice now because these credit unions are coming in and really taking our customers away
CAVANAUGH: So doctor Cherin, how many people -- I mean, how much of a switch would it take to make any kind noticeable dent in the banking industry?
CHERIN: Well, I don't know, Paul may be to correct me on this, but I think if you look at the total amount of assets held pie the commercial banking industry relative to credit unions, it's something like 95 to 5 or something like that. 5% in the banks and about 5% may be in credit unions and other deposit ors
LEWIS: Yes, that's exactly right. Credit unions hold about 5% of the deposits of the kitchen. That's all
CAVANAUGH: So it would take some sort of massive switch
CAVANAUGH: In order to get the attention, the real attention of banking institutions; is that correct?
CHERIN: In my mind, yes.
CAVANAUGH: I think, Paul Lewis, CEO of San Diego medical federal credit union, I think if people are trying to weigh whether or not to do this, one of the things they think about is is it going to be as convenient for me as a credit union? Im going to be able to use an ATM? Am I going to be able to use a number of the phone apps that banks are now issuing? Is it going to be easy for me to get myiard accepted all over the place? Is it going to be as easy for me to travel? So how do you talk to people who come to you with those concerns?
LEWIS: Yes, that's a reasonable concern. And the reality is, be we are just as good as banks in all those areas. I can't say that every credit union has all of those services, but many, in fact most credit unions do. My credit unions has all those services. Of we have home banking. You can do Internet banking with our credit union so that you can access that anywhere. Our credit cards are master cad, they're just as good as the bank's credit credit cards. We have an ATM network that rivals any bank network. We belong to co-op financial services, and they are a company that we are an owner of that has a branch network of 28,000 ATMs nation-wide. Those can be accessed by our numbers and by any credit union members who are a member of that service for free. There's no charge to the member whatsoever. So we can do everything, and we do everything, that the banks do. So there's no reduction in services when you Joan a credit union.
CAVANAUGH: Doctor Cherin, I wonder, do you think that there is still a feeling among consumers that there's something a lot more dicey about having your money in a credit union than there is in having it in a traditional bank?
CHERIN: Oh, I think there may be that perception. But I think it's an ill-founded perception, as Paul has suggested. There is absolutely nothing that credit unions can't do that banks -- the only area, the only slight area would be in wholesale banks. In other words, commercial lending as opposed to retail lending. And many credit unions do do business loans as well
CAVANAUGH: I'm going to wrap this up by asking both of you, if I may, starting with you, doctor Cherin, where do you think this movement is going? Do you think this is something that we're going to see more and more people switch to credit unions in the next few months? Or do you think it's going to fizzle out?
CHERIN: Great question. Who can tell? If I look at my crystal ball, I would say that eventually -- it will Peter out. But I think we'll get some more members, more than the 650,000 that we've gotten recently in the past four weeks. I just do not -- I think unfortunately that bank customers still think in terms of convenience, in terms of bricks and mortar branches than they do in terms of being able to bank online, go to ATM machines and do all of those things that they can do without a bricks and mortar branch. But I think some people, you know -- I think -- let's put it this way. I think more and more people will be comfortable with the credit union idea as technology advances and online banking proceeds. But there's still an awful lot of customers that think I got to go down to the branch, and I upon the branch nearby. And of course, credit unions are never gone beat down a B of A or a Wells†Fargo in terms of their branching.
CAVANAUGH: And Paul Lewis?
LEWIS: I pretty much agree with everything that he said. I think this particular impetus with this particular fee will fizzle in a fairly short amount of time. But when I think -- I think people are going to wake up to the fact that there are other fees that the banks are raising, and that credit unions are in fact a better deal. We offer a better deal. We offer better rates. We offer lower loan rates, our services are credit, our convenience is fine because it's electronic. And we serve the members very well because the members are actually our owners. We treat them very well, and there's a community atmosphere in many credit unions. So I think that this is a beginning rather than an end. And as more and more people wake up, I think it's going to work well for credit unions
CAVANAUGH: I want to thank my guests. I've been speaking to fall Lewis, and professor emeritus at SDSU doctor Paul Cherin. Thank you so much.