NCSECU: Credit union helps customers avoid overdraft fees

North Carolina State Employees' Credit Union (NCSECU) offers a program that helps customers avoid overdraft fees. Can such innovations lure customers away from big banks?

North Carolina State Employees' Credit Union (NCSECU) is no mom-and-pop lending shop. It's the second-largest credit union in the United States, behind Navy Federal Credit Union, and has some 1.6 million members.

Still, the 70-year-old credit union had very little national name recognition until Wednesday, when it became one of the top search items on Google, a phenomenon driven by the announcement of its "Another Chance!" program that warns members via a text message if they're about to get an overdraft fee.

Introduced as a way to counter "the frequent financial services industry practice of profiteering from consumer missteps," the program alerts customers when they're overdrawn and doesn't charge a fee as long as they deposit the necessary money by the end of the business day.

"It has never been the focus of SECU to benefit from members’ errors," senior VP Sue Douglas said in a statement.

The NCSECU campaign is one way credit unions can take advantage of public animosity toward Wall Street and large banks and build their customer base. Web maven Arianna Huffington's "Move your Money" appeal has specifically mentioned credit unions as a viable option to large banks.

Programs like Another Chance! and other credit union perks like same-day check clearance could also pressure larger banks and other financial-services companies to be more innovative in customer service.

"Clearly, many people are angry at banks, whether it's because of the role some played in the financial meltdown or perhaps because of the types of fees they're charging customers," says Mark Wolff, a senior vice president at the Credit Union National Association in Washington. As a result, the NCSECU program "clearly struck a nerve with consumers."

Both Bank of America and Citibank, after being accused of fee gouging, this summer ended practices of applying $35 overdraft fees on debit card purchases, moves that experts said should pressure other card-issuers to do the same – especially with new federal consumer-protection regulations set to take effect. Americans pay about $24 billion in overdraft fees every year.

Credit unions, which are federally insured but nonprofit and "owned" by members, are still bit players on the financial scene. Credit union assets are around $100 million compared to the nearly $8 trillion held by banks.

Not everyone is happy with credit unions. In a Forbes column this week, Tim Ferguson complains, "My credit union doesn’t encourage thrift. It pays miserly rates.… It stuffs the monthly account statements with encouragement to take out car loans as well as home-equity loans and other mortgage debt. Is this building a community, or just building out three-car garages?"

At the same time, bank consolidation, structural limitations and complex federal banking laws have all stymied attempted by larger banks to reach out to consumers. A 2006 report by the Wharton School of Business said banks lag behind most other industries when it comes to consumer service innovations –- even as consolidation has led to greater competition among institutions.

Even unhappy customers are unlikely to leave the large banks, Wharton School Prof. George Day noted before Wall Street's meltdown. “People put up with lousy service because the switching costs are high," he said.

That may be changing as customers look for better service and smaller institutions to house their cash. "You don't get more Main Street than credit unions," says Mr. Wolff.

Ten percent of participants in in a recent Mintel Comperemedia survey switched their primary accounts to credit unions from banks in the past year.

The same survey showed that consumers equate trust in bank brands to trust in personal relationships. "Honesty" and "respect" were at the top of attributes consumers look for in a financial-services company.

"Consumers would feel less resentful about paying fees if larger banks made a greater effort to do more relationship marketing with their customers," the report concluded.

They might take a cue from NCSECU.