Banks are scrambling to replace billions of dollars in revenue that will be lost due to the new federal regulations on overdraft charges and debit cards.
Did you know that there are close to 50 fees that a typical bank can now charge its customers?
For example, banks generate substantial revenues from interchange fees they charge to retailers for debit transactions. These fees are something that customers never really paid attention to because the fees were imposed on the retailer.
But with the new regulations, the fees most banks can charge retailers will be cut from 44 cents to a cap of only 24 cents.
As a result banks will lose billions of dollars in revenues every time a customer swipes a card. Banks will therefore focus on ways to recapture that lost revenue in order to satisfy their shareholders.
Making Up for Lost Revenue — One Way or Another
It’s important to realize that banks are for-profit financial institutions, owned by shareholders, not customers of the bank. Their primary goal is to generate profits which they return to shareholders in the form of dividends.
In order to make up for those lost revenues banks are trying to introduce new fees at the expense of its customers.
For example, Bank of America recently tried to impose a $5 monthly fee for customers who use their debit cards. But with the entire backlash all across the country and thousands fleeing to credit unions it recently decided to abandon the debit card usage fee.
And did you know that two-thirds of big banks have eliminated free checking?
Credit unions have become a safe haven for many consumers because they are member-owned and member-operated. A credit union is a collaborative, not-for-profit financial institution formed to supply credit to its members who are also its customers.
Comparing Banks and Credit Unions
Here’s a quick comparison of the key differences between banks and credit unions:
- Returns profits to members with lower loan rates, higher savings rates, and free or low-cost services
- Each depositor is a member with shares of ownership
- Members elect a volunteer Board of Directors
- Member-service driven business culture
- Federally insured by the National Credit Union Administration or a private insurer
- Can serve only those people within their field of membership (which is often very broad)
- Returns profits to shareholders
- Customers have no ownership in the corporation
- Controlled by shareholders and paid officials
- Also federally insured by the FDIC
- Can serve anyone in the general public
Credit unions are such an attractive option because their first priority is to serve the needs of their members rather than to make a profit for shareholders. Because of this focus a credit union is able to keep interest rates on deposits higher, and loan rates and fees lower.
As a result, credit union members on a national scale save $6.3 billion a year compared to what they would pay to use a bank.
A movement has begun that encourages consumers to transfer money away from mega-banks toward credit unions. Despite the fact that major banks such as Wells Fargo and Chase have also suspended their debit card fees, the momentum towards credit unions clearly hasn’t stopped.
While banks will continue to introduce new types of fees to recoup loss revenues, credit unions are still preserving its low costs and low rates, causing customers to say “Hasta La Vista” to their banks.