No doubt driven by the rise in bank fees, the latest consumer movement inspired by Occupy Wall Street was the Bank Transfer Day held on November 5, 2011. Thousands have moved their accounts to credit unions, and it remains to be seen how the big banks will be affected. The movement, however, has the potential to benefit consumers and small business alike.
Bank Transfer Day
When Bank of America announced that it would begin charging customers a monthly fee for the privilege of using their debit cards, Kristen Christian decided that was the last straw. After investigating her options, Christian organized Bank Transfer Day by creating BankTransferDay.org and Facebook.com/Nov.fifth pages where she encouraged the public to transfer their accounts to a credit union.
The stage was set for Bank Transfer Day and by November 4, 2011 credit unions were reporting as many as 650,000 new customers. Will the transfer of thousands of personal accounts hurt the big banks? Not really according to Felix Salmon in his November 1, 2011 post for Reuters titled, “Why the big banks aren’t sweating Bank Transfer Day.”
Salmon noted that banks probably won’t miss having to provide customer services to accounts that make them little in interest. “Historically, they’ve done what they have to do on that front because they’ve been able to extract all manner of overdraft fees and interchange fees and the like, but that fee income is shrinking now, thanks to Dodd-Frank, and the fact is that millions of small bank accounts are actually unprofitable now for the big banks, and those banks won’t shed many tears if those customers go off to a credit union instead,” Salmon said.
Will customers get a better deal at their friendly neighborhood credit union? They may. Justine Rivero reviewed the numbers in her November 4, 2011 article for Forbes.com titled, “Will Bank Transfer Day Really Change Anything?” Speculating on how customers could benefit by changing their affiliations Rivero said, “If over 400,000 consumers made the switch, they’d stand to save about $29.8 million just by joining a credit union. When you look at what consumers could gain and not just what banks would lose, it becomes a positive movement with long-standing legs.”
Small Business Benefits
The move to credit unions may benefit small businesses as well as consumers. When for-profit banks were struggling to stay afloat during the financial crisis, credit unions remained well capitalized and continued to make loans. In fact, credit union member business loans have increased tenfold between 1998 and 2011 to $38.7 billion. During the worst of the financial crisis, between December 2007 and March 2011, bank business lending declined by 5 percent while credit union business lending increased by 38 percent.
Small Business Lending Enhancement Act
New legislation S.509, the Small Business Lending Enhancement Act, would increase the ability of credit unions to lend to small business and install safeguards to the National Credit Union Share Insurance Fund. On June 16, 2011 Congressional testimony on S.509 was given by Bill Cheney, president and chief executive officer of the Credit Union National Association Committee on Senate Banking, Housing and Urban Affairs, and reported in the Federal document Clearing House titled, “Credit Unions Business Lending.”
Cheney testified, “If this legislation is enacted, we estimate that credit unions could lend an additional $13 billion to their small business-owning members in the first year, helping them to create 140,000 new jobs without an outlay of a single taxpayer dollar.”
The legislation faces stiff competition from commercial banks, which must pay a 5 percent franchise tax on earnings in addition to corporate income tax. The banks argue that the legislation will give an unfair advantage to credit unions, as non-profit entities only pay a tax on their cash reserves.
Now that the eyes of the nation are turned to credit unions and the services they offer, perhaps the passage of the Small Business Lending Enhancement Act will not be far behind.