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VOL. 35 | NO. 45 | Friday, November 11, 2011

Local Banks capitalize on consumer outrage

By Joe Morris

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Bank of America and other large national banks recently dropped their plans to add a debit-card usage surcharge to most checking accounts.

But based on the flood of new customers to local lending institutions, the damage is already done. In fact, these smaller players wish such missteps by their larger brethren would happen more often.

“This has been interesting to watch because we’ve seen significant increases not only in calls asking us about our fees, and if they’re going to change, but also in new account openings,” says Joanne Jackson, executive vice president and manager of client services at Pinnacle Financial Partners, which opened in downtown Nashville in October 2000. It has now has more than $4.83 billion in assets, as well as 31 Middle Tennessee offices and three Knoxville branches.

“We have seen a drastic uptick in everything since the major regional banks began talking about their fee-structure changes,” she adds.

Specifically, Pinnacle had a 73 percent jump in new accounts from August to September, or more than 1,000 new checking account customers, Jackson says. Much of that new market share was cemented by Pinnacle’s promise not to reel in new customers, and then hit them with similar fees, Jackson says.

The bank can make those promises because, like other smaller-cap banks with assets less than $10 billion, Pinnacle isn’t being affected by recently enacted new federal legislation that capped limits on merchant charge fees for debit-card use. Not having to make up for lost income helps it be more proactive in promising to keep fees low, or nonexistent, Jackson adds.

“When we began in 2000, we stated that we would never nickel and dime our clients,” she explains. “One irritant people have are those nuisance fees, and we’ve certainly seen that in recent weeks. We have no intention of charging debit fees to our checking account holders; we don’t see how we could charge them to use their own money.”

Other recent arrivals in Middle Tennessee, including Avenue Bank, also are reporting strong interest in their products. Avenue requires no minimum balance, charges no monthly fee for checking and reimburses ATM charges from any other bank.

The Farmers Bank, with 10 locations in seven Middle Tennessee cities, has been around a little longer, since 1912, to be exact. It also offers checking with no monthly fee, no minimum balance and has no monthly fee for its check card.

Reliant Bank, a community bank with four branches in Nashville, has doubled its client base since the bank fee scuffle started in late September, says Brian Shaw, the bank’s executive vice president and chief retail and deposit officer.

“We’ve been advertising, but we really haven’t seen any activity from the ads. It’s all just been more by word-of-mouth,” Shaw says.

New business has been equally brisk at CapStar Bank, which was founded in July 2008 and now has more than $650 million in assets. Here, too, the influx of people is partly due to disaffection with other institutions, but also is due to a significant branding campaign now under way that was at least in part timed around the fee issue, says Claire Tucker, CEO, who has launched a more personal marketing effort.

“When people find out I’m a banker, they can’t wait to tell me about their disdain with the whole fee situation,” Tucker said. “I take that opportunity to tell them to give us a shot, because we don’t have those fees.

“They’re not a part of our business plan. More to the point, I tell them that they can use any ATM anywhere for free, which is another fee issue people have. We’re really working to highlight how much we cater to the consumer while all this is going on.”

CapStar’s account totals have seen a jump in recent months on par with Pinnacle, she adds, noting the bank is making sure that its new customers are well aware that it’s not a fee-free zone.

“Our business model is built on the premise of limiting fees, but we do have charges for NSF, or overdrafts, or if a certain type of account drops below the balance that must be maintained,” she says.

“But it’s ironic that, for so long, banks were in what we called the ‘bag, tag and drag’ operation, where paper checks came in, and had to be processed. It was expensive. Going to a technology-based platform is much cheaper, and here are our competitors charging fees for people who are going paperless.”

“The price should be what it costs, which is negligible,” Tucker adds. “You have to service prices fairly. We rely heavily on technology, and we pass that savings along to our client base. We want to reward people for using debit cards and online banking. It’s cheaper to process and easier for both the bank and the consumer.”

Given the distrust of the financial community in general, as evidenced by online protests and the “Bank Transfer Day” movement, which called people to transfer funds from large, national banks to credit unions and community banks, local banks will continue drawing a contrast and stressing community ties.

“This is a great opportunity for us, and we’re going to keep doing things a little bit differently than our normal strategy would call for,” Jackson says.

“Historically we don’t run a lot of ads, but we’ve done a campaign in partnership with the Tennessee Titans that talks about ‘don’t take a hit from the big banks.’ We’ve also set up a Facebook page that we encourage people to visit, where clients themselves talk about their experience changing from a large regional bank to us. It’s our page, but we’re using it to offer a neutral space for people to comment on their experience.

“We’ve got a lot of people telling our story, and we’re going to keep leveraging that as long as possible.”

Colleen Creamer contributed to this report.

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