New banking regulations that will go into effect on July 21, 2011, make a consumer switch from a bank to a credit union a compelling option.
The Durbin Amendment, an addition to its larger bill passed by the Senate, called the Restoring American Financial Stability Act of 2010, will bring about several changes to banking.
One of the most serious effects is that it mandates that the U.S. Federal Reserve sets rates that credit card issuers charge to process debit cards. That is going to be a cap of seven to 12 cents on debit card interchange. This is a decline in debit card fees of over 75 percent from present levels. This ruling however, only affects depository institutions with more than $10 billion in assets.
On the other hand, banks that will be affected by this bill are expected to take action, and some have already begun. NerdWallet founder and CEO Tim Chen asserts that “banks stand to lose billions, thus have already started to end free checking programs and debit reward programs.”
Even though the impacts of this new bill may be significant, most credit unions in the U.S. are exempted from it. In the United States there are only four credit unions with assets over $10 billion, leaving all other credit unions unaffected and thus little to no change to the service they provide.
Credit unions used to be small savings institutions will a limited customer base. However, things have changed as now credit unions offer many of the same products and services that large banks do. With this new piece of legislation starting in July, credit unions now have another compelling reason to be sought out as a better alternative than big national banks.
NerdWallet is credit union finder tool that searches through unions for which a person may qualify based on where they live, work, study, or worship. In 2010 NerdWallet was rated Money Magazine’s best credit card site. The site currently tracks more than 1,500 credit cards and is built upon finding the best option for a consumer by answering some questions.
Chen uses the example of overdraft fees to help explain the aforementioned idea. Most large banks charge $35 if an overdraft is not deposited within 24 hours. However, credit unions only charge $20 with no time limit.
Furthermore, since credit unions are not-for-profit, they return their excess earnings back to their consumers in several forms. That may be in the form of higher rates on saving accounts, lower rates on loans or lower charges and fewer fees. Chen reported that last year consumers saved $6.5 billion in better rates and lower fees by using not-for-profit credit unions rather than banks.
The new legislation will go into effect July 21 and will bring about several changes to banking, some of them unfavorable to consumers. Now is the time to reconsider where to manage one’s finances and whether to go with a bank or a credit union.