It's Not Nice to Tease

I hate teaser rates.

Don't get me wrong, I understand why financial institutions use teaser rates. After all, getting new customers/members in the door is immensely easier when you can boast 0.9% APR car loans or 10% APY certificates. Truth be told, I have taken advantage of at least two credit card offers that promised a 0% APR intro rate for 12-18 months. For the responsible, intelligent consumer these teaser/intro offers can be great deals. Let's be honest, though, these companies don't offer teaser rates to be nice. And they surely expect to make money off of the deal.

What does that mean to most consumers? At least one of three things: 1) Deep in the 45 lines of fine print there is a "GOTCHA" line (assuming you can decipher the legalese) that explains how the deal will make your financial institution very wealthy; 2) The CMO behind the offer understands that most people receiving the offer will be either too irresponsible or too lazy to take full advantage of it; or 3) The deal you THINK you're getting is likely a far cry from what you are actually getting in the long run.

The message that your company is willing to deceive people to get their business is bad enough. But something I received in the mail yesterday has convinced me that teaser rates are wrong for yet another reason.

Sallie Mae sent me a letter to tell me that they lowered my interest rate on student loans to 3.010% APR because I have made 48 consecutive on-time payments. A reverse teaser rate? What a concept! Instead of raising my price over time because I'm hooked into a contract, Sallie Mae lowers my rate because I am paying as agreed. I scratch their back, they scratch mine.

Financial institutions, take note. Want a relationship with me? Want loyalty? Then don't give me your best deal up front. Instead, reward me through time for being a good customer/member. Offer a good rate up front, and promise your audience that the deal only gets better through time.

Want transience? Want disloyalty? Keep proving to me that my first impression was as good as it's going to get.

Will you be able to sell this to everyone? Maybe not. But you won't find yourself wondering why you can't retain your membership/customer base when your competitor down the road comes out with his latest/greatest teaser rate.

The Savings/Member Ratio

Forum Solutions' Doug True wrote an interesting post on OpenSourceCU today about some credit unions' palpable complacency and unwillingness to take risks in product/service offerings.

"Folks, we can’t offer “free’er” checking. In my opinion, there is too much cookie cutter product offerings that are copied and launched with very little thought on what your members want or how they will see the new offering as relevant. Too many times a credit union simply just buys a new product from a vendor and launches it – differentiation is almost non-existent from the beginning and if it does exist it quickly disappears." - Doug True

When the industry's idea of innovation and collaboration is a "best practices" mentality, it's no wonder many credit unions struggle finding a discernible, relevant role in the financial services marketplace. Fear, reasonable or not, is the major factor here. Fear of regulators. Fear of losing one's job. Fear of rocking the archaic boat that has been too cozy for too long.

As not-for-profit cooperatives, I believe our biggest issue has been our success metrics. If members, assets, net income, number of branches, deposits, loans, capital/assets ratio and number of transactions continue to be our primary measurements, I believe we're doing our charters a huge disservice. "Grow or go away"?!? Says who? Honestly, that bugs the hell out of me.

How's this for an idea? Why don't we define success by the amount of money we save the average member? The savings/member ratio. And by savings, I certainly don't mean deposits. Calculate real value that your credit union is delivering to members. Consider your deposit rates compared to the competition. Look at comparative loan rates. How about fee income? Isn't this what we're in business to do? Aren't we supposed to be saving members money?

Listen, I'll be the first to admit that being responsible stewards of members' assets is an irrevocable charge - and I'm not suggesting we fall anything short of that. What I'm suggesting is that growth for growth's sake is not beneficial to members. I'm suggesting that most of our current metrics are too easy to manipulate to the detriment of our memberships. I'm suggesting that big successes require big risks.

I'm suggesting we start being credit unions again, not bank wanna-be's.

Supreme Court Says Banks Above State Law...

The U.S. Supreme Court recently ruled that national bank subsidiaries need only obey federal law - not the laws of the state in which the subsidiary lies. TwinCities.com ran the Associated Press' story linked here. Consumer advocate Clark Howard has a simple solution, "it’s time to switch to a credit union or local community bank. You have more protection and are treated better in general if you bank with smaller organizations."

The Credit Union Warrior would like to thank Mr. Howard for his wise advice!

How to turn $3,200 in debt into $10,700 in debt - Use a Bank!

Despite making an average of $1,000 in payments every year, an Ohio man turned $3,200 in credit card debt into $10,700 in debt! Lima, Ohio's Wesley Wannemacher (according to Marcy Gordon, AP Business Writer) used a Chase card for $3,200 in purchases in 2001 only to see that debt level balloon 334% thanks to $4,900 in interest charges, 47 over-limit fees for $1,500, and $1,100 in late fees.

This is a trap many consumers are falling into. Whether it's from deceptive rates, misunderstood terms, financial illiteracy, or simple bait-and-swith tactics, many Americans are falling deeper and deeper in debt. Budgeting is a big part of the solution, but taking the time to fully understand your revolving credit agreement will go a long way in reversing this horrible trend. Take advantage of your credit union's expertise - let them help you compare and contrast credit card offers. Some are great deals, for sure...others can leave you with a mountain of debt (just ask Mr. Wannemacher).

http://www.kansascity.com/mld/kansascity/news/local/17008711.htm?source=rss&channel=kansascity_local

Credit Unions Offer Better Rates - Most Can Join!

The Courier News out of Chicago recently wrote a story about the evolution of credit unions. While I should spend a second debating the included statement "credit unions can offer these [more favorable] rates because Congress exempted them from federal income taxes" (the truth is, we offer better rates because that's what we are in the business of doing - our members are our owners), the article was very pro-credit union. Specifically, the story maintains that "if you haven't been able to join a credit union before, you might be now". The truth of the matter is most Americans can (and should) join a credit union. The story's research states that credit union members earned .70% more on money market accounts and 1.4% on new car loans last year as compared to bank customers(a Datatrac study is cited). We have all seen similar studies with similar results, but the quick and dirty of it is - join a credit union. With all of that money to save, what are you waiting for?

http://www.suburbanchicagonews.com/couriernews/business/254237,3_3_EL13_CREDITUNIONS_S1.article

An Intro to Credit Unions

I get this question all the time..."what's the difference between a credit union and a bank?" Often, the question is one of sheer curiousity - much like "what's the difference between a crocodile and an alligator?" The answer to this question, however, should significantly change the way you approach everyday personal finance.

Banks, even the truly good ones, are in business to make money for their stockholders. These stockholders are often upper management of the bank and wealthy investors from all over the world. These banks are under pressure from these investors to grow their business (make more money) so the value of each share of stock increases, and, likewise, they see a return on their investment. They, then, are in business for their stockholders - wealthy investors and executive management.

Credit Unions are in business to make money for their shareholders as well. There is a SIGNIFCANT difference, however, in who these shareholders are. In credit unions, shareholders are members. Members of credit unions OWN their credit union.

Look how this sets up. Both types of financial institutions feel pressure to serve their clients (customers to banks, members to credit unions). After all, without at least some degree of client satisfaction, neither could survive. Banks, though, have to strike a balance between serving their customers and profiting from them. To the contrary, credit unions don't need to strike a balance - their members ARE their owners. Success for banks means more money in the pockets of their wealthy stockholders and management. Success for credit unions means better rates on deposits and loans for their members.

This difference may seem minor from afar, but it amounts to quite a big deal for normal, everyday people like you and I. According to a recent study, North Carolina credit union members (in 2003 alone) saved more than $336 million by doing business with their local credit union rather than a bank ("Benefits of Credit Unions to North Carolina Consumers of Financial Services," April 2005). Fewer and lower fees, as well as higher deposit returns and more favorable loan rates were major reasons why.

As owners, credit union members also elect their Board of Directors - UNPAID directors. These Boards oversee the operations of credit unions and guide their CEO's with their visions to better serve members. Bank board members are elected by wealthy shareholders, whose only interest is to continue increasing profits (which come at customers' expense) for their own benefit.

There are many other aspects of "The Credit Union Difference," including community involvement, friendly service, and other subjective (yet widely supported) concepts. But if you can understand the motivations of each type of financial institution that I have highlighted above, you can easily understand why more and more Americans are turning to credit unions as their primary financial institution.

Whether you join my credit union in North Carolina, or find one closer to your home. Consider credit unions - your financial health will thank you for it.