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Survey on switching banks Consumers in control

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LONDON (8/9/12)--Forty percent of consumers in the world lost confidence in the banking industry in the past year, according to a new global survey by London-based Ernst and Young. They are less loyal and are switching banks--many to more than one financial institution.  It is the year that customers are taking control of their banking relationships.

That could bode well for credit unions, which already are experiencing unparalleled growth in membership. Credit unions must ensure that disgruntled bank customers can make the switch to low fees and better rates and better member service at credit unions.

Among the survey's findings:

  • Less than half  (44%) of bank customers say their bank adapts products and services to meet their needs; 70% say they are willing to provide banks more personal information but they expect tangible improvements in the suitability of products and services they are offered.
  • About 22% want lower costs and better service, with improving fees and charges a top priority, followed by strengthening online and mobile banking.  But they want more than a better deal; they want flexibility to shape the relationship, contacting their bank when and how they choose. They prefer online channels for simple transactions but demand high quality personal service for more complex transactions and advice.
  • Banks must choose the model (low cost competition, high touch service, accessibility) for where and how they compete.
Ernst and Young urged banks to give customers more flexibility, help customers to shape their experience, and shape business models around customer needs.  It made several suggestions for each area. Credit unions can monitor how banks react. If banks take the suggestions to heart, credit unions know their competitors will be focusing their efforts in the marketplace to these areas.

Give customers more flexibility:

  • Make pricing and service promises transparent. Banks will need to rebalance fee structures for clarity for customers and sustainability for regulators and investors.
  • Offer segmented levels of service: Customers can opt to buy into certain products and services, earn upgrades through loyalty in terms of longevity, share-of-wallet or value generated by the customer.
  • Move from multi-channel to omni-channel distribution. Customers care more about convenience than channels and want a fully integrated banking experience that combines advantages of all the channels. Omni-channel distribution can leverage data gathered from all channels.
Help customers to shape their experience:

  • Encourage customer self-service. Banks need to influence customers' decisions to manage their revenue effectively, which means improving how they provide information and advice. Target self-directed customers and encourage greater self-service through financial planning tools, demonstrations of "how people like you are investing," or ranges of product and pricing bundles.
  • Shift marketing from "push" to "pull." Word of mouth is gaining importance and direct selling is waning.  Recruit satisfied customers as advocates. Recruit online affinity groups as marketers by letting them select and shape the communications they receive.
  • Develop flexible loyalty programs. Loyalty programs are a growing trend in some markets. Most customers want financial rewards. Although costly, there are benefits in loyalty and advocacy. Tailor programs for affinity groups and let customers choose rewards based on their value to the bank.
Shape business models around customer needs:

  • Make low-cost digital channels customers' preferred choice. Determine which services customers want to handle through branches and encourage--not force--other transactions to move to digital channels, using price incentives, if necessary.
  • Prioritize investment on critical customer interactions. Focusing operational improvements on these will optimize the impact on attrition, dormancy and loyalty, and benefit their costs to serve. Target limited capital spending budgets for maximum effect on customer satisfaction.
  • Use innovative technology to deliver the retail bank of the future. The use of cutting edge technology is vital to all other implications identified, including breaking down silos, creating omni-channel distribution, developing innovative rewards for loyalty and giving customers the ability to personalize products and services. Banks will need to partner with technology innovators.
The study also identified 10 critical customer interactions.

  1. Changes to fees and charging structures;
  2. Account switching;
  3. Account opening or closing;
  4. Life events (marriage, birth and so on);
  5. Change-of-account details;
  6. Complaint handling;
  7. First time into the debt collection process;
  8. Lost or stolen card;
  9. Setting up a payment; and
  10. Buying a new product.

CU System briefs (08/08/2012)

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  • DETROIT (8/9/12)--Michigan police are searching for five men responsible for placing skimming devices at ATMs over three counties--Wayne, Oakland and Livingston counties--and stealing more than $500,000 from the bank accounts of hundreds of people (Detroit Free Press Aug. 7). The devices blend in with the ATMs so well they are difficult to detect. They contain a camera that captures information such as the card number and the personal identification number as it is inserted into the ATM. The scammers withdraw between $40 to $500 from victims' accounts, choosing smaller amounts to stay under the maximum daily withdrawal limit. The scammers have hit at dozens of banks in the counties, said the Oakland County Sheriff's Office …
  • DES MOINES, Iowa (8/9/12)--Coopera CEO Miriam De Dios was recognized by two credit union industry organizations for her work in helping credit unions reach and serve the Hispanic market.  She was awarded a World Council of Credit Unions (WOCCU) Young Credit Union People Program (WYCUP) scholarship  at the 2012 World Credit Union Conference in Gdansk, Poland July 15-18. The Iowa Credit Union League nominated her for the scholarship.  She also has been elected to serve on the board of directors of the Network of Latino Credit Unions & Professionals, a group of credit unions and professionals dedicated to promoting credit union membership among Hispanics. The board comprises 13 members who serve two-year terms. Coopera, owned by Affiliates Management Co., the Iowa league's holding company, is also a strategic alliance partner of the Credit Union National Association    …
  • DOWNEY, Calif. (8/9/12)--Financial Partners CU, a $788 million asset credit union based in Downey, Calif., celebrated the spirit of innovation July 31 at the Columbia Memorial Space Center by announcing a scholarship created to help encourage the desire for education in sciences among community students.  Downey has a history of innovation in the aerospace industry. The center is on the site of the builder of many World War II aircraft, rockets, Apollo space module, the Space Shuttle, and more.  Financial Partners' current and past members were among the pioneers of aviation.  The credit union was established in 1937 by eight employees of the American Aviation Co. "Sponsoring this exhibit, community events and the Innovation Scholarship are natural connections to our roots and the community we live in," said Financial Partners CU CEO/President Nader Moghaddam …

Man gets nine years for fraud in CUs collapse

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CLEVELAND (8/9/12)--A local businessman from Albania was sentenced Tuesday in a federal court in Cleveland, Ohio, to nine years in prison for his role in a fraud ring that brought about the collapse in 2010 of Eastlake, Ohio-based St. Paul Croatian FCU.

Arben "Benny" Alia, 35, of  Eastlake, who owns a local bar and grill and had pleaded guilty to money laundering, also was ordered to pay $3.5 million in restitution to the credit union. Alia is a native of Albania and is not a U.S. citizen.  After serving his prison term, he will be deported (News Herald Aug. 7).

The National Credit Union Administration (NCUA) placed St. Paul Croatian FCU into conservatorship on April 23, 2010, and shuttered it the following May 1. Its collapse cost the National Credit Union Share Insurance Fund about $170 million.

The credit union's former CEO, Anthony Raguz, pleaded guilty to issuing more than 1,000 fraudulent loans totaling more than $70 million to 300 account holders and  accepting more than $500,000 in bribes, kickbacks and gifts from the borrowers. (News Now May 14 and 31). His sentencing is scheduled for Nov. 20.

Alia was one of more than 19 individuals arrested in the case. He was one of the organizers but not a supervisor, and a gambling addiction contributed to the offense, said his attorney.  Alia took out his first loan in 2005 from St. Paul to buy a restaurant, which he sold the following year. He continued to work there until he bought Milano's Bar and Grill in 2009. He agreed to forfeit his bar, liquor license and a 2007 Mercedes.

The alleged ringleader in the loan fraud scheme, Koljo Nikolovski, 49, of Eastlake and Skopje, Macedonia, was sentenced in May to 18 years in prison. He allegedly obtained about $2.9 million in loans at the credit union from 2003 through 2005 (News-Herald May 12).

U.K. Gen Y survey 83 dont recommend their PFI

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LONDON (8/9/12)--If Gen Yers in the United Kingdom are like their counterparts in the U.S., banks might be in trouble with this age group:  83% of young adults age 20 to 29 surveyed in the U.K. said they would not recommend their primary financial institution (PFI). Credit unions have an opportunity to learn from banks' mistakes and capture this market.

Seventeen percent of the Gen Yers surveyed said their PFI was worthy of their personal endorsement, according to The Young Money survey conducted by London-based financial services consultant MRM. It set out to measure the attitudes of Gen Y toward financial subjects such as banks, money and home ownership. Credit unions weren't mentioned in the survey, but many U.S. credit unions are taking measures to attract the demographic to increase membership for the future.

Big banks are a "turn-off for 20-somethings," said MRM Director Michael Taggart, who cautioned that if banks fail to win their loyalty and trust today, "they are storing up big problems in years to come" (TheFinancialBrand.com Aug. 8).

Those surveyed indicated these turn-offs:

  • 22% had gone to their PFI only to find it closed;
  • 10% said they hung up prematurely during a call to the bank because they were frustrated or angry. Those ages 20-24 were more likely to do this than those ages 25-29;
  • 10% couldn't access their account after failing an attempt to verify their identity;
  • 7% complained about the bank in social media channels; and
  • 3% said they had resolved an issue with their bank through social channels.
The group expressed these worries about their finances: 

  • 45% (54% of those age 25-29 and 38% of those in their early 20s) said they will never have enough money to buy a home;
  • 38% said they have little job security, which makes it difficult to buy a home, while 14% said they did not want to be tied down to a property;
  • 14% said that owning property is actually a poor investment;
  • 18% had a negative outlook on a home's investment potential; and
  • 10% plan to stay home and live with their parents rather than purchase a property.
Gen Yers largely live from paycheck to paycheck, with respondents indicating that they knew of someone in their 20s who:

  • Went without food in order to cover expenses or make money (22%);
  • Had taken out a payday loan (19%); and
  • Had sold their hair to balance their checkbook 3%).
Credit unions can learn from the survey:

  • Make sure members know where to go to communicate with you, that your communications are up to date, and that your staff are trained in resolving difficulties clearly in their member service to create loyalty.
  • Use social media channels to communicate with this group, but make sure the technology is working and user friendly.
  • Offer products aimed at helping this group save and invest their money wisely. Educate them about the advantages of owning a home and about the disadvantages of payday loans. Offer budgeting information to help Gen Y better pace its saving and spending.

Twelve students join Googolplex youth editorial board

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MADISON, Wis. (8/9/12)--Twelve students who live in America and Japan were selected to serve one-year terms as youth editorial board members for the Credit Union National Association's (CUNA) website toolkit called Googolplex: The CU Guide for Student Moneymakers.

"Peer-to-peer sharing is what the younger generation is all about," said Rena Crispin, CUNA's Googolplex managing editor. "We rely on the feedback we receive from our youth editorial board members to help us develop financial literacy tools that speak directly to children and young adults. Our youth board is a vital part of providing financial education at a young age."

Googolplex is a youth-focused element of CUNA's website content and toolkits, which guide credit union members through financial decisions at every stage of life. Googolplex features interactive games, videos, blogs and other content dealing with money matters and real life issues to promote financial literacy for youth aged 6-18.

Youth editorial board members write critiques of stories and games in age-specific sections of Googolplex's award-winning, three-in-one website each month. At the end of their terms, each board member writes an original story for Googolplex.

The Clubhouse Crew for 5-Spot, aimed at elementary school students, includes:

  • Ashlyn, Keesler FCU, Florida;
  • Colby, Keesler FCU, Kentucky;
  • Kimberly, Landmark CU, Wisconsin; and
  • Sean, Keesler FCU, Misawa Air Base, Aomori Prefecture, Japan.
The Super Youth Team for AJ's, intended for middle school students, members are:

  • Allison, SAFE FCU, South Carolina;
  • Emily, Keesler FCU, Louisiana; and
  • Talia, First American CU, Wisconsin.
The Teenage Panel advising C-Note, focused on high school students, consists of:

  • Alex, West Virginia Central CU, West Virginia;
  • Bryan, Numark CU, Illinois;
  • Daniel, Kinecta FCU, California;
  • Jacob, Hughes FCU, Arizona; and
  • Marta, United Educators CU, Minnesota.
"Our youth board members give us feedback that helps their peers feel welcome and validated whenever they use Googolplex on their credit unions' websites," said Susan Tiffany, CUNA  director of consumer periodicals.

For more information, use the links.

Manager of defunct CU charged with fraud

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NORTH  PHILADELPHIA, Pa. (8/9/12)--Federal prosecutors Tuesday charged the former manager of now-defunct Borinquen FCU (BFCU) in North Philadelphia, Pa., with conspiracy to defraud the government.

Ignacio "Nacho" Morales, 40, also was charged with embezzling more than $2.3 million from the credit union, which led to its closure (bizjournals.com and The Philadelphia Inquirer Aug. 7).

Morales allegedly used the money in attempts to purchase cocaine and real estate, federal authorities said.

BFCU served low-income Hispanics in North Philadelphia. The National Credit Union Administration assumed control over the credit union in June 2011, but shuttered it within two weeks and liquidated its assets, the Inquirer said.

Chartered in 1974, BFCU had assets of  roughly $6 million and served 8,600 members.

In addition to the conspiracy to defraud the government embezzlement charges, Morales also is accused of making false reports on federal credit institution entries, filing false income tax returns, engaging in monetary transactions in property derived from specified unlawful activity, and attempted possession with intent to distribute more than five kilograms of cocaine.

CUs take measures as auto loan delinquencies drop

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SCHAUMBURG, Ill. (8/9/12)--Consumers continued to make timely automotive loan payments in the second quarter, lowering the average delinquency rate across all lending organizations, including credit unions, captive finance arms, finance companies and banks, Experian Automotive announced Wednesday.

The analysis indicated that the 30-day delinquency rate was 2.52%, compared with 2.59% in the second quarter 2011. The 60-day delinquency rate was 0.58, down from 0.6% in second quarter 2011.

Vehicle repossessions also dropped, coming in at 0.43% in second quarter 2012, compared with 0.59% for that period last year. That is a 27.9% drop year over year.

"Consumers continue to do an excellent job of paying back their vehicle loans in a timely fashion, and that's good news for everyone in the industry," said Melinda Zabritski, director of automotive lending for Experian Automotive. "Both 30- and 60-day delinquencies are at historic lows, and the percentage of money at risk has dropped as well. This gives lenders needed stability, which filters through the auto industry to consumers in the form of easier-to-obtain loans."

Second-quarter total balances of loan portfolios also rose for all types of lending organizations, reaching $682 billion, compared with $646 billion in second quarter 2011. Despite this strong growth, overall loan balances still lag behind prerecession levels, said Experian Automotive. In second quarter 2007, outstanding loan balances reached $701 billion.

"Automotive loan portfolios continued their strong comeback in second quarter 2012, as delinquencies continued to drop and total dollar volumes continued to rise," Zabritski said. Noting the high interdependence between the automotive loan industry retailers and financial institutions, "this continued strong performance for loan portfolios is good for automotive retailers and consumers alike," she added.

Nationwide, 29.1% of all credit union loans in June were auto loans, according to the Credit Union National Association's (CUNA) Monthly Credit Union Estimates. New-auto loans were 10.2% of all credit union loans--down from 10.5% in June 2011. Used-auto loans constituted 18.9% of all credit union loans--up from 18.3 the previous June, CUNA said.

Credit unions work harder to help their members avoid delinquencies on loans. For example, Neighborhood CU, a $314 million asset credit union based in Dallas, gives members six months to walk away from their auto loans if they lose income due to unforeseen circumstances (thefinancialbrand.com July 26).

Its Vehicle Return Program is one of four components in a bundle of supplemental insurance options on auto loans the credit union offers in a package called the MPower Vehicle Protection Plan. It also recently began offering 72-month auto loans with a 2.74% annual percentage rate and 90 days of no down payments.

Dutch entrepreneurs form CUs in bank credit crunch

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AMERSFOORT, Netherlands (8/9/12)--Shunned by banks, Dutch entrepreneurs are planning to set up "credit unions" to obtain loans, a Dutch newspaper reported on Wednesday.

The first credit union in the Netherlands will begin operation in September under the name Midden-Nederland, according to the Financieele Dagblad.

The financial organization was formed when a group of entrepreneurs shared a mutual frustration: a lack of credit from banks. Members of the credit union include a removal company, a pensions advice agency and a wine wholesaler.

Members who apply for a loan will be subjected to a rigorous approval process. Start-ups that receive funds will be assigned a coach--a member of the credit union who is experienced in business or finance.

Plans also are in the works for other credit unions, the Financieele Dagblad said.

Videos testimonials turn mainstream in CU marketing

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MADISON, Wis. (8/9/12)--Credit unions are increasingly turning to video to capture testimonials from members about the great work credit unions do and to record consumer dissatisfaction with bank fees and service.

McGraw Hill FCU, East Windsor, N.J., is using video and social media to spearhead an industry-wide movement that demonstrates how credit unions provide financial wellness in ways that contrast with large banks.

"We Hear You" provides a nationwide platform for consumers to create and share video stories about their personal experiences with credit unions and large banks.

The contest is open to everyone, including members of any credit union. Entrants can post videos in which they tell their stories about how their credit union helped them or how they were frustrated with a bank that may have charged them unnecessary fees or imposed misleading account terms.

The $293 million asset credit union has provided some inspiration to potential entrants through its original "We Hear You" video. To view it, use the link.

The contest offers $1,500 in prizes.

Some credit unions tie video into their financial education efforts. For example, Dupaco Community CU, Dubuque, Iowa, has teamed with Mediacom cable, to challenge consumers to create 30-second videos sharing their tips on saving more and spending less.

The "Shift into Thrift" Video contest is intended to inspire thrift through peer-to-peer sharing of ideas for financial success, said Dupaco Community.

Leagues also are using videos to get across the credit union difference and document testimonials from members. In the Aug. 3 edition of its Weekly Conversation newsletter, the North Carolina Credit Union League featured a video of Ashville, N.C.-based Oteen VA CU member Jane Nunziato describing how the credit union helped her and her husband obtain a low-interest loan to obtain a hearing aid.

"We don't have health insurance right now, so the only way we were able to get a low-interest loan was through the Oteen VA CU," Nunziato said in the video.

The North Carolina league has an extensive library of videos that demonstrate how credit unions help their members. Jeff Hardin, director of communications with the league, travels around the state to film the videos at credit unions with compelling programs. Some credit unions such as Local Government FCU, Raleigh, N.C., and Latino FCU, have submitted their own videos, he said.

"As an organization we feel like credit unions are doing great things and the more that we allow people to tell those stories, the more successful credit unions are going to be, and the more people are going to fully and fundamentally understand the differences between credit unions and banks," Hardin told News Now.

The Michigan, Texas and Wisconsin credit union leagues have also used video to share the credit union message.

Credit unions and leagues also are using video to capture the attention of Gen Y. Young & Free, a campaign launched in 2007 by Canadian marketing firm Currency Marketing, is a blend of social media and product promotion built around Gen Y spokespeople, or spokesters, who generate publicity or "buzz" for credit unions through word-of-mouth promotion, including YouTube videos. The concept is built around a contest to determine who will become the credit union's or league's spokesperson.

Applicants create buzz for themselves--and drive traffic to the credit unions Web page--through their meet ups, Facebook pages, YouTube videos and tweets. Videos are a critical element used by candidates in building word-of-mouth support. The spokester is chosen through an online vote, and receives an annual salary from the credit union, plus a car to attend community events, and all the technology needed to keep in touch with credit unions' Gen Y members.

The spokester interacts with young members though social media. Video is a critical element of that interaction.

Kylie Keene posts videos featuring some of the inspiring people she meets in her travels as Maine credit unions' Young & Free spokester, according to the Maine Credit Union League (Weekly Update Aug. 3).

New Mexico Young & Free also posts videos of the latest adventures of its new Young & Free spokester, Anthony Almanzar.

Jenn Cloud, Young & Free spokester for Vantage CU, Bridgeton, Mo., maintains a video library of her travels  and financial advice.

The Arkansas Credit Union League has centered its statewide awareness campaign around video. The league adopted the "My Credit Union is Everywhere," statewide cooperative advertising campaign designed by the Grand Rapids, Mich., credit union service organization, CU*Answers (News Now July 6).

The video was adapted for a 60-second television commercial, a 30-second radio spot and a billboard. The campaign also included a YouTube link and postings to Facebook.

Even regulators know the value of getting a message across visually. The National Credit Union Administration (NCUA) uses video to communicate with credit unions and credit union members, describe monthly economic trends, and feature speeches of its board members from the Credit Union National Association's Governmental Affairs conference on its website. It also includes videotaped messages from Chairman Deborah Matz.