Reuters published an interesting article entitled "Bank of America accused of anti-consumer practices"
on June 30, 2009. "Consumer and labor groups demanded Bank of America
Corp and other lenders reform their sales practices so that workers
under pressure to meet sales quotas do not saddle customers with costly
and unnecessary products."
The article goes on to indicate this
"whistleblowing campaign" is a result of the Consumer Financial
Protection Agency the U.S. Treasury Department has introduced
legislation to create.
Minnesota Representative and House Finance
Committee member Keith Ellison is quoted as saying "Without a strong
whistleblower law, we simply are not doing the things we need to do in
order to manage risk properly." Ellison went on to say lending
standards could be compromised by the urgency to sell, sell, sell,
sell, sell."
The current recession seems to have created a
hyper-awareness of fees charged by banks with consumers. Many of my
community bank clients have observed a reduction in fee income for
overdraft charges; they indicate their customers are more prudent in
the way they manage their accounts in order to avoid unnecessary fees.
It appears some financial institutions, especially larger ones
such as Bank of America and SunTrust are increasing fees in an effort
to offset reduced income. The results seem counter productive. When
the new or increased fees are disclosed it creates a fee awareness and
angers some customers. In addition, with all the negative press being
given to the banking industry these days, a new opportunity for
negative press seems to be created.
I actively use social media,
especially Facebook and Twitter. It's been interesting observing all
the bank bashing on Twitter lately. On Facebook this week I have
received one private email and one wall post commenting about banks and
fees.
What does this mean to community banks? I think it means there are tremendous opportunities in the market for community banks to attract new clients today!
Recently I have interviewed community bankers from Florida and Michigan on my weekly radio show, BankTalkRadio.net.
The economy in Michigan has been more challenging than most other areas
in the nation for several years, and it remains challenging today. The
real estate market in Florida has been quite challenging for a couple
years. Here is what was interesting, the CEO's I interviewed from
these areas were optimistic. There profits are down, but they continue
to attract new business in line with their goals.
Craig Goodlock, Chairman & CEO of Farmers State Bank in Munith MI is going to be my guest on BankTalkRadio
on July 8. Craig is currently Michigan Bankers Association Banker of
the Year. As we were preparing for our upcoming interview Craig made
the comment to me that marketing and training are more important in challenging times, yet they seem to be the first to be cut.
By the way, I decided to write this post after seeing the Reuters article on Bank of America listed on the front page of Technorati at the top of the column called Rising news stories by attention today. It takes millions of hits to get a placement that high on Technorati; a clear indication of the amount of interest this topic is generating right now.
What are the potential lessons here?
- Increasing fees in the current climate may not achieve the intended results.
- The increased awareness may result in a decline in income, even at a higher price.
- Increasing fees may result in negative press.
- I rarely, if ever, am an advocate of being the low cost leader in
the market. I do think in this economy it is a good idea to price
below certain thresholds. For example $19 or $27 would probably be a
better choice than $21 or $32.
- Generally people hate feeling nickeled and dimed by their banks. Steven Shafer reinforced this on my radio show, BankTalkRadio.net
last week. Steven indicated at Bank of North Carolina they have
experienced growth in the Treasury Services area by using a simplified
pricing structure.
- I interviewed Brent Burns for FreeWebinarWednesdays.com in April. He quoted Frederick Reichheld from his book The Loyalty Effect: The Hidden Force Behind Growth, Profits, and Lasting Value.
Reichheld indicated most businesses spend 80% of their marketing
dollars on attracting new customers, yet repeat customers are 107% more
likely to give your business referrals. Use reasonable judgment when
confronted by a customer over fees. If refunding an overdraft fee
results in one or more referrals, yes, you have reduced your income,
but you have most likely significantly offset that loss of income by
reducing the marketing cost of obtaining a new customer. Key words
here... reasonable judgment. Reasonable judgment is often a gray area,
rather than black and white. Analyticals hate gray! Most bankers are
necessarily analytical.
I pondered for several days before pushing the publish button on
this post. I suspect the topic will be unpopular with some bankers and
with some consultants.
I welcome your feedback. Use the COMMENT
link at the bottom of this post. You can agree or disagree with me;
all comments that are not inappropriate will be published.
by Jeff Simpkins, Community Bank Consulting, Inc.
