More Transparency=More Credit Union Accounts
By many measures these are both the best of times and worst of times for credit union membership. On the one hand credit union accounts exceeded the 100 million mark and there has been a sharp increase in members identifying credit unions as their primary financial institution in the aftermath of the Mortgage Meltdown; on the other hand membership declined in 2014 at credit unions with $500 million or less in assets and an estimated 85% of credit union members also have accounts with banks.
Two things are going on here: First, as I argued yesterday, the industry as a whole has not done a good enough job of distinguishing its brand from banks or of demonstrating the value of its brand.
A second reason is that it’s harder to switch financial institutions than it should be. More should be done to let consumers seamlessly dump their bank for better service. Our relatives in England are providing an example of how this might work and credit unions should push for adoption of a similar model in the U.S.
In 2011 a UK Government commission on banking reform proposed making it easier for consumers to switch banks. After an infrastructure investment of more than a billion dollars and some arm twisting a system started in 2013 under which It takes no more than seven business days to switch accounts to a new bank. Members choose when they want the transfer to take place and the switch is handled between the two banks.
As someone who believes that a truly free market is often the best way to cure bad business practices the results have been moderately encouraging, According to Reuters”the number of Britons switching bank accounts grew by 12 percent to 1.16 million in 2014, marking progress in the government’s push to boost competition,” The ultimate goal of some in Britain is to make switching banks as easy as switching cell phone providers.
The key point is that there are things that can be done to make walking away completely from a bank and into the waiting arms of a friendly neighborhood credit union easier if regulators are willing to provide a nudge. I refuse to believe that 85% of people would still bother with bank accounts if they didn’t think that switching everything to their credit union would be a hassle.
A second idea that I am stealing from our British forefathers is something the CFPB can and probably will help with.
Tesco is Great Britain’s Wal-Mart. It has used great service and low prices to dominate the super market industry in England; nevertheless it has so far proven unsuccessful in its efforts to establish itself in retail banking. One of its top executives has a simple formula for the company’s supermarket success and why it has struggled to translate this approach to banking:
“If you look at supermarkets in the UK, it’s a perfectly good example of a market where there are a relatively small number of large players, and yet it’s highly competitive,” Higgins says. “There are very high levels of switching, because the market’s very transparent, and there are no obstacles to moving”. In contrast in banking customers often don’t realize how “raw a deal they are getting”
The answer is more transparency. Which brings us back to the CFPB, It appeared that one of the first initiatives the CFPB was going to undertake was to simplify account opening disclosures. In 2011 Raj Date issued the following statement:
“The CFPB has the ability to simplify checking account disclosures – an idea that some consumer groups and some banks have already been developing. Making the costs transparent is good for consumers and good for competition. It allows consumers to compare the checking account options from large banks, community banks, and credit unions and pick the one that works best for them. “ (Here is the complete article http://www.telegraph.co.uk/finance/newsbysector/epic/tsco/11412311/Tesco-Bank-chief-The-main-difference-between-supermarkets-and-banking-is-the-lack-of-transparency.html )).
My guess is that this initiative was pushed to the back burner because of the need to implement Dodd Frank’s mandates. Now that the frenzy has subsided the CFPB should put forward proposals that couple traditional account agreements-which are and should remain extensive legal contracts-with basic fact sheets that let members make comparisons between accounts.