The head of a North Jersey credit union says increasing consumer frustration with banks is helping credit unions gain a greater foothold in the Garden State.
Bank of America last month said it would start charging a $5 monthly fee to customers who make purchases using debit cards. The bank said the fee, which will be instituted next year, is necessary because of new federal rules limiting the processing fee financial institutions can charge retailers when a customer pays with a debit card.
Lourdes Cortez, president and CEO of North Jersey Federal Credit Union, said the fee is just the latest annoyance for a consumer population growing increasingly wary of big banks.
"I think consumers are getting pretty fed up, to be honest with you," she said. "I think they are getting to the point where they're tired of paying fees to have access to their money."
Cortez said those frustrations have brought new customers to her credit union. NJFCU has added a gross total of 4,000 new members this year, bringing its membership ranks to 31,000.
Cortez said credit unions are in a better position to capitalize on banking customer dissatisfaction thanks to a stepped-up marketing campaign by credit unions and organizations such as the New Jersey Credit Union League.
"What our industry has done in the past couple of years is really gone out there and made an effort to explain the differences (between credit unions and banks), to promote the products and services we offer, and to get involved in financial literacy programs," she said.
One way credit unions are different from banks, Cortez said, is that credit unions are nonprofits, meaning any profits are returned to members in the form of lower loan rates, higher interest rates on deposits or lower fees.
"When potential customers look at credit unions, they're realizing that the board consists of volunteers," she said. "It's our members that actually serve on our board, and each member has a vote. So they're not dealing with stockholders. That makes a big difference."
John McWeeney, president and CEO of the New Jersey Bankers Association, said that's not the only difference between banks and credit unions: Banks, he said, have to pay income taxes, while credit unions don't. Banks also have to comply with the federal Community Reinvestment Act, a bill that requires banks to lend and invest locally, but also results in stacks of paperwork for banks.
"When you ask a banker about credit unions, they'll tell you it's an unlevel playing field," he said.
McWeeney said there undoubtedly are market shifts taking place, but he said it isn't a one-way migration from banks to credit unions, it's also bank to bank or even credit union to bank.
"The good news for consumers is they have a lot of choices," he said.
McWeeney said there are 117 banks with New Jersey headquarters, in addition to large banks that are based elsewhere, but have numerous branches in New Jersey.
Cortez said she expects continued membership growth, but that's not to say credit unions haven't been hit hard by the recession.
"As a financial institution, expenses continue to rise and our margins continue to narrow," Cortez said.
Lower profits mean there's less to give back to members, so Cortez said credit unions like hers will need to seek out new ways to provide benefits for members.
"We need to look at innovation," she said.