Last week I penned a blog on what it’s like being a member of a credit union. I shared my feeling that most of us do not know what the experience is like because we are in fact employees with an account where we work. An entirely different experience.
The day after that story ran I experienced first hand how awful it is to be an anonymous member. And it was my fault – I admit it. I totally forgot that I had scheduled my quarterly taxes to debit my checking account this month and it overdrew me. Luckily I had money in savings so my credit union transferred money to cover my house payment, which came in right after the taxes. They charged me $3.00 for the transfer. Not bad. But the next day three items came in and instead of transferring one time, the computer was set up to transfer individually so the credit union could collect $3.00 each time, and, for you compliance geeks out there you know what’s about to happen next … I’m dangerously close to my 6 unauthorized transfer limit from shares. The Reg D debacle.
And so it happened the next day, two more transfers and also the day when I happen to check my balance. Not only did I hit magic number six, but then courtesy pay kicked in and the fee jumped to $30.00 to cover my cell phone bill. I’m out $48.00 in fees and I am now unable to make a transfer from shares to keep this from happening again. I call the 800 number (that boasts 24 hour service) but of course this is out of their realm of assistance and I’m told a note has been put on my file for them to transfer tomorrow for another $3.00 fee.
I check my balance at 9:00am, no transfer. Check it again at 10:00am, no transfer. So I call the credit union, hear the usual “Our calls are being recorded for quality assurance and please listen carefully as our menu items have changed.” recording. Sidebar: why does every credit union have that message? Because if they really do monitor for quality assurance then the following event would never have happened. Also, I usually don’t listen to your recording so I can hear your menu, I’m pressing zero as soon as your robot starts talking.
I finally get a live person who at first sounds very cheerful. I explain what happened and I was very careful to say upfront that it was my error, I am not disputing the fees, I understand what has happened with Regulation D, but I would really like to stop the fee train and get some money in there. She asks me a series of “security questions” to verify my identity. I understand and appreciate that. Then she does see that there is a note on my account to make the transfer. Unfortunately, she tells me, I have to come IN to the credit union to sign for this or complete the transfer at an ATM. I explain that I live over 1000 miles from their office and 35 miles from the nearest ATM and could we please do this over the phone? I mean Reg D is kind of a formality … I have never in my 37 years heard of a credit union that was penalized for violating Reg D … She puts me on hold.
And here is where I lost it. She scolds me. She explains Reg D to me, and tells me that in order to avoid this in the future that I should have enough money in my checking account to cover my items – as if I’m an idiot. She also informs me that I will be charged (spanked) for another transfer.
This is a classic definition of “bad profits” according to Fred Reichheld. Too many companies these days are addicted to bad profits. Bad profits can kill a company’s growth, blacken its reputation and as a result make it vulnerable to competitors. Bad profits, in a nutshell alienate members and demoralize employees. Bad profits come from unfair and deceptive pricing. Transferring for each item on a business day is deceptive and unnecessary. I have seen some courtesy pay policies that are extremely deceptive.
Nobody likes fees and consumers have banded together to let the banking world know they are sick of it. Bank of America’s proposed $5.00 a month debit card usage fee created the “Bank Transfer Day” movement. Last year Wells Fargo took it to an entirely new level with the opening of a couple of millions of fake accounts that generated significant fee income. In March of this year they reached a $110 million settlement with the wronged customers.
The worst fee ever charged by a credit union made the Consumerist back in 2007. As the article states, “A credit union in Florida charges a $2 fee if your arm isn’t hanging out of your window with your deposit slip in hand as you pull up to the drive-thru window. And that’s not the only fee that the credit union charges. They’ve got a $2 fee for coming in more than 4 times a month, and another charge for not using the telephone banking system.” Classic bad profits.
After I read that story I created a bad profit gauge that is my gift to you. If you feel the urge to generate more non-interest income, before you start arbitrarily adding stupid, demoralizing, reputation-killing fees ask yourselves these three simple questions:
- What is the potential financial gain? Put another way, how much did the credit union hope to earn at $2 a pop for those pesky members in the drive-up window that dared to be “not ready” with deposit slip in hand?
- What is the risk to reputation? In the case of the Florida credit union it made the news. Huge reputation risk for two bucks.
- Is it out of market? In other words, is this a fee that others are charging? Or in the case of the B of A debit card charge, it was so “out of market” it caused a social media fire storm.
Let me close with probably the best example of bad profits. Netflix’s destruction of the video-rental market and the Blockbuster chain. In 2000 Netflix approached Blockbuster about partnering to become their online service. Blockbuster laughed them out of the room. If you’ll remember the original Netflix model solved the customer’s problem with Blockbuster – the late fee. It eliminated it. Keep the video for as long as you like, you just pay a monthly subscription for a number of rentals. Here’s the dirty little Blockbuster secret, they were ADDICTED to late fees. It was the majority of their income. Not rentals – penalties. There was no possible rehab program for them at that point. So they died from an overdose.
Is your credit union addicted?