Throw a punch! How marketing can fight back against aggressive credit union rivals. Banks vs Credit Unions.

• Author: Bernstal, Janet Bigham
• Position: Competition - Cover Story

Remember when your mother used to say "If you don't have anything good to say, don't say anything at all"? Well, it appears most bankers have been pretty good about taking mom's advice and applying it to marketing philosophies. But apparently some competition has no qualms about trouncing banks in their advertising.

"We've been taught "Don't market negatively" and "Don't trash the competition," but that's exactly what credit unions are doing," observes Peggy L Hudson, CFMP, senior vice president of American Trust & Savings Bank in Dubuque, Iowa.

As one example, she points to a current radio spot by the Dupaco Community Credit Union in Dubuque for a consumer lending product.

"A young man is saying 'Hey dude, got a great stereo for my car, and there's no $100 processing fee like the banks have'," says Hudson. Yes, American Trust & Savings does have a processing fee--but its $50, not $100. "They get so pointedly negative and it really appeals to the younger group."

Dupaco's website even has a section "Credit Union vs. Bank," where the copy points out a difference between the two: At credit unions, people are worth more than money.

Since 1992, changes to the National Credit Union Administration's (NCUA) regulations governing credit unions have expanded their powers. Among other things, credit unions can now offer a wider variety of financial products and services. They also can earn profit by referring members to products sold by third parties, such as insurance and investments. NCUA also broadened the activities allowed by credit union service organizations (CUSO), including student loan and business-loan origination.

What hasn't changed is their government-sanctioned tax advantage. In the report "A Study of the Evolution and Growth of Credit Unions in Virginia: 1997-2002," Professors Neil Murphy and Dennis O'Toole (November 2003) found that the tax benefits afforded to credit unions gives them a 67 basis-point advantage in pricing.

"That provides the fuel for credit unions to say they're looking out for the little guy by offering more interest and fewer fees," says Hudson. "They can afford to do that with a 67 basis-point advantage."

That's the key issue, according to ABA senior economist Keith Leggett. Banks have to compete against tax-exempt competitors who are going after the same clientele and offering the exact same products.

"It reflects the evolution of the credit union industry," says Leggett. "We've watched them grow from a single sponsor, narrow common-bond financial institution to one serving a liberal field of memberships. The new breed are pushing into business lending and broad geographical charters--they've broken with the historical...