Mounting news reports of massive bank fees and poor customer service would make many believe that banks are losing their stranglehold on the American consumer, however Jim Blaine State Employees Credit Union ($25 billion, Raleigh, NC) President isn’t buying it.
“We’re (credit unions) losing this fight despite the stories on sneaky bank fees and angry consumers,” Blaine says. “Credit unions and consumer advocates are losing the war against financial literacy and consumer advocacy, and the problem with fees is that the consumer can’t get a grip on an apple to apple comparison cost. Fees are the very visible irritant, but the problem is that the consumer cannot make a comparison.”
He uses auto financing as the perfect example of how sneaky fees can easily overtake a vast majority of consumers. “If confronted with two ways to finance your next car which would you choose, manufacturer or bank financing at 0% or financing through your credit union at 2.5%?”
Blaine says that what some consumers may not know is that what you see is not what you get with those 0% offers, whereas at a credit union costs are up front. “We see what appears to be a good deal with the 0% rate and allow ourselves to be sprinkled with the pixie dust and go with what we believe will save us money, when in reality is costs us more in the end.”
Consumers Getting Lured By Credit Card Rewards
Airline miles and merchandise for simple credit card use may be an attractive offer but Blaine warns that many consumers are paying far more than they should for tickets and trinkets.
“Approximately 75% of our members carry a monthly balance on their credit card,” Blaine says. “Everyone has the best of intentions of paying off that balance but truthfully, we typically end up carrying over the amount.”
“What happens with the rewards and airline miles is that the banks can charge a very high interest rate on their card, because there’s no usury cap,” he continues. “The consumer ends up paying an average of 14% or more every month on their balance but hey; they are getting their miles.”
Blaine says that that shiny distractions of airline miles and “toys” have diverted consumer’s attention away from the fact they are most likely overpaying when instead they could have a credit card that is protected by a usury cap from a credit union.
“Credit unions cannot charge a higher APR than 18% on loans,” he says. “We don’t offer any exciting rewards but when the member carries over that balance the next month he or she is only paying 7% versus the much higher rate that their friends pay at the bank--for their miles.” He adds that airline miles and rewards can be great, but that buyer should beware about how much those items actually cost in the end.
In fact Fox Business News recently reported that some banks will actually charge customers to redeem reward points and miles. Jackie Buchanan, President/CEO of Genisys Credit Union ($1.5 billion, Auburn Hills, MI) says that as a credit union, Genisys encourages members to use their debit card, not penalize them for redeeming points they earned. “We do have a debit rewards program whereby the member earns 1 point for every two dollars spent,” she says. “The member can redeem points for travel reimbursement, gift cards, gas cards, and merchandise. We have a very successful debit card program because we market it often and because we run low usage and other debit card related campaigns.”
The $35 Cup of Coffee Effect
Some bank fees are overt, whereas others are hidden in a foxhole waiting to pounce. Blaine says that bankers are similar to a deer hunter looking for the kill. “It’s actually not fair. The banks are like a deer hunter; the one with the gun who knows he’s out to hunt, whereas the consumer is like the deer. We don’t even know we’re playing and are in the wild unarmed.”
Banks have laid a delicate trap Blaine says. “They tell their customers to take the overdraft privilege under the guise that they are taking care of you. Meanwhile the consumer ends up going for that cup of coffee that ends up costing him $35.”
He says that one problem with these fees is that while they are disclosed, details are embedded in a lengthy disclosure that many consumers do not have to time scrutinize.
“How do we fix this,” Blaine asks. “As a credit union, we’re trying to establish a safe harbor for the consumer so you don’t have to worry about fine print, yet the consumer is still susceptible to pixie dust.