Credit Unions: Check Them Out

Notes on some possible trends, current or future:

More consumers are turning to their credit unions for basic banking services. Typically, they open a secondary checking account at the credit union, but later close the account they had at other financial institutions. According to the Credit Union National Assn. in Wisconsin, 73% of households with credit union checking accounts now make that their primary account, up from to 62% in 1989.

Half cite price as their main reason, given lower service charges or none at all at their credit unions; when there are fees, they average half the monthly fees at banks. Others (39%) mention location: You can't beat banking in your own building.

The public perception that the cheap seats promoted by airlines are never available when one calls isn't entirely fair. When Consumer Reports surveyed 500 readers for its Travel Letter, almost all reported trying to book such seats at least once last year. Six in 10 got a seat on their first-choice flight, three-quarters got at least their preferred date (if not schedule or airline), and about one in 10 got stuck with higher fares.

An "acceptable" result, in CR's view, with "room for improvement."

The below-market interest rates advertised by auto dealers may not be the best available way to finance a new car purchase, particularly if there's a choice between financing and a manufacturer's cash rebate. One might save more by using the rebate to make a bigger down payment and financing through a bank, the American Bankers Assn. says.

To illustrate, they compare 6.9% manufacturer financing and a down payment of $2,500 on a $14,000 car with 9.5% bank financing, a $1,500 rebate and a down of $4,000. The difference between financing $11,500 and $10,000 over 48 months would be a savings of $1,133.76, even with the higher interest rate.

ABA members are admittedly in competition with manufacturers for auto loans, but never mind the source. The math will show whether it's true that the less you finance, the less you pay.

Light penalties can make crime pay. Businesses sometimes find that the wages of false advertising and fraudulent practices far outweigh the fines for getting caught.

In New York, for example, where the city's Consumer Affairs Department just completed a study of fines and fraud, penalties for defrauding consumers haven't been raised over two inflationary decades. Thus, a mid-town electronics store that paid $30,000 in consumer protection fines one recent year--0.2% of its $15-million gross--found it well worth continuing its deceptions. So did car dealers, who could misrepresent car prices, pocket $10,000 in hidden charges in a weekend and pay only $500 per violation.

"The fine," Commissioner Mark Green says, "should fit the fraud."

The credit card industry is showing some anxiety. The market is saturated and new customers are scarce: Card-issuers must woo away competitors' cardholders to increase their market share while hanging onto their own. Consumer outrage at their high interest rates has led to the threat of legislation. And the recession, says Chicago-based Credit Card News, has "hammered card profits" with more delinquencies and higher charge-offs.

The result: increased competition, to the consumer's benefit. Citibank and American Express' Optima card are fighting it out with performance-based pricing--the more you spend, the lower your rate. Visa is successfully challenging American Express for the travel and entertainment business, running promotions with hotels and restaurants. Discover and MasterCard are fighting for "value-minded" consumers, Discover with its annual rebates and no annual fees, MasterCard with claims of greater merchant acceptance and promotions of retail discounts and coupons.

Better yet, banks and other card-issuers are lowering their interest rates to 15%, 12%, even 9.4%. Consumers, says Credit Card News, are "deluging" those offering the low-rate cards. They're also going for cards with no annual fees, pressuring more issuers to drop those as well.

Tough times produce some benefits.

Some second thoughts on a current catchword: Today's "new frugality" or "thrifty chic" indicates no big change in yuppie values, says the Trends Journal, published by the Socio-Economic Research Institute in Rhinebeck, N.Y. It's cutting back, pure and simple, attributable to nothing more romantic than a "decline in real wages." Those still making good money are still spending.

Department of Meaningless Labels: "Ozone-friendly," "ozone-free."

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