Arizona Membership Dues Decision Highlights Industry Challenges

The word is out that Arizona Federal Credit Union has implemented a $3 per month membership fee. That’s right. Members of AFCU must pay $3 every month to enjoy their member/owner privileges. I have to say I was surprised to hear of their decision, and was curious enough to want to learn more about it and the membership response. My brief search led me to a defined opinion on the AFCU decision, and some rather disconcerting conclusions about the state of credit union member-ownership and consumer knowledge of credit unions.

With regard to the AFCU decision… the credit union calls the $3 charge “membership dues” and not a membership “fee.” For members and general consumers, however, it appears that dues and fees are one and the same. Consider this. The only organization that appears not call this a fee is the credit union itself. Blog commenters, Yelp reviewers, and news outlets all refer to this as a fee. Seems we have a semantics problem.

“Semantics” is often used for denoting a problem of understanding that comes down to word selection or connotation. In its word choice, the credit union seems to be trying to denote something more lofty and important than a common service charge or fee. As a matter of fact, the credit union states in a letter to members regarding its decision that dues “reinforce the idea that we, as members, are all responsible to contribute to our cooperative.”

It seems, however, that some consumers see “dues” as a fee in sheep’s clothing, charged to unsuspecting consumers not as a shared means to contribute to the cooperative spirit, but as a means to fleece them. This brings me to the opinion I formed regarding the AFCU strategy. If the owners of an organization feel they are being unjustly charged, is not that now a fact? Is it then the strategy of the credit union to instill in its ownership the notion that being an owner, and executing ownership rights, is a costly fee-based proposition? I would imagine not, but if perception has become reality for member-owners–if they’ve come to believe that in order to execute ownership rights a fee must be paid–then the strategy reveals a serious unintended consequence.

Now to a second, more important conclusion. AFCU member-owners apparently do not know they are owners, or at least do not know what ownership means and what rights they have as a result of ownership. Case in point. For member-owners not in favor of the AFCU decision, the common response is account closure, as evidenced by a third-party blog set up to collect member opinions on the matter:

While the “I’m going to close my account” threat is the dominant theme, the truth is that exercising ownership rights stands to have a far greater impact on credit union policy decisions than closing an account.

That said, I imagine that for many organizational leaders, an owner closing accounts, terminating relationships, selling their ownership stake etc. is a preferred response to dissatisfaction–that is, having that owner leave is much better than them sticking around loudly voicing dissenting opinions (ask the leader of any publicly traded company where Kirk Kerkorian is a dissatisfied shareholder/owner… I imagine they’d all prefer he just go away). Unfortunately, this sentiment may be becoming much more common in the credit union community as well. Some credit unions I’ve encountered appear glad when certain owners, or even whole segments of owners, choose to end the ownership relationship rather than exercise their ownership rights. The problem with this viewpoint, however, is the alternative: credit unions that foster an engaged vocal ownership are stronger, healthier, more diverse, service rich institutions.

The final conclusion I made as I explored the consumer response to the AFCU decision is that consumers, perhaps the majority of them and including a healthy slice of current credit union members, have no clue as to what a credit union is, how it works, or what it means when one becomes a member. Despite the hoopla surrounding bank transfer day and occupy, increased national press regarding “punitive” big bank accounts vs “friendly“ credit union accounts, and even trade association boss appearances on major news programs in which they touted credit union benefits, consumers don’t get us. They remain woefully ignorant of what credit unions are and how credit unions differ from other types of financial institutions.

Consider the following comments captured in response to a blog post covering the AFCU dues strategy (typos preserved):

  • Since, FDIC allows bad assets removal from the balance sheets, very few banks and CUs fold or are closed lately. All of the credit ratings for the banks and CUs are fictitious and bogus.
  • Every customer of the CU owns at least one share and every employee and all the way to the top own shares of the CU. Some are paid only with shares as a bonus at the end of the year. The shares can be converted into cash by selling it back to the CU.
  • The value of the shares depends on the profitabilities of the CU.
  • Most CEOs of CUs pad the numbers to receive accomplishment reward shares and that is the reason to always report profit at a CU.
  • CU shares are used for merging, borrowing, paying bonuses and even some salaries payments, but they do exist internally and are traded and valued on daily bases.
  • Wall street keeps a record of every penny that goes in or out of AZ Federal Credit Union minute by minute, otherwise they will be called outlaws and shut down by FDIC.

As anyone with any degree of familiarity with credit union structures knows, none of these statements are true or accurate in any way. However, they are real opinions and, I believe, probably closer to the real assumptions of a large chunk of consumers making up the market for credit union services.

So what should do we do about these issues?

With regard to the AFCU decision itself, nothing. I had no involvement with their decision making, do not have access to their supporting documentation, and was not a party in any discussions regarding their decision. My opinion regarding their actions may be misguided simply because I am basing it on limited, publicly-available information. And who knows? In the end their decision may work out so well in terms of driving profitability, weeding out disconnected “customers”, and improving efficiencies that all credit unions will at some point be inspired to duplicate their effort. Maybe in five years I’ll be advising my clients that they need to adopt a similar strategy (though I highly doubt it simply because of my perspective on certain aspects of credit union and cooperative philosophy).

As for the other two issues, lack of understanding and/or respect for member-owner rights and the hazy view of credit unions held by the general public, these require a commitment to improvement and an effective response. For me, this means we need to:

  • Embrace the fact that members are owners, and remind owners more than once a year that they have ownership rights that include, but go far beyond, voting for members of the board.
  • Embrace dissension, seek to understand its cause rather than dismiss it as the voice of the uninformed, and use the knowledge gained in such exploration to improve and/ or reinforce products, services, and brand.
  • Embrace the fact that we are member-owned cooperatives, ensure that all stakeholders know what that means (that includes members, staff and board as I have found even within the CU community some internal stakeholders are unclear of the credit union distinction), and ensure that all stakeholders and the broader base of American consumers at least understand the basic difference between a for-profit financial institution and a financial cooperative.

In the end, I like that the AFCU strategy is now in the open. Sometimes outliers serve a very useful purpose as a catalyst to realign industry players around a common goal, vision, or value proposition. I believe AFCU to be such an organization, and I hope that its strategy gains a high degree of visibility within the credit union community, and that the strategy inspires a healthy debate about what credit unions are all about. Not every credit union needs to do things the same way nor must every credit union embrace the same strategies, but if we believe our title, “credit union,” is a mark denoting a particular distinction or value, then it behooves us to define exactly what that distinction or value is – and then for us to work together to fulfill it.


Post Script…

If you are inclined to comment, take note. Nowhere do we suggest that AFCU is unjustly charging members. Only that some members seem to believe that is the case. We also are not suggesting that AFCU wishes dissenting members would simply go away. We have no idea whether or not they possess that desire. Our point is that many credit union and business leaders would much prefer no dissension with regard to organizational decisions – to their detriment. Finally, we wish no ill will to AFCU. We are fans of credit unions and the broader credit union movement and wish them success in serving the interests of their member-owners.


  1. I think that the concept of a credit union charging a fee can have merit if the credit union was to offer some value to substantiate the fee vs. banks who just institute a fee or fees based on a policy decision. The credit union could still earn some fee income if they considered a strategy that leveraged volume or aggregate pricing of a product so that the member is receiving real value. For example, I’ve seen some member surveys that indicate members believe a product like identify theft has value. As a result, we’ve had several conversations with credit unions who are considering a fee account whether it be mandatory or voluntary, and imbedding an ID Theft solution and perhaps other products. I think the possibility exists to meet the dual objective of creating some fee income while providing members with products that they need or want.

    1. Hi Steve. I agree, and I believe that AFCU has indeed included ID Theft protection as a basic core of the membership experience. Seems the real key is nailing both the definition and communication of the real value of the relationship so that the fee, whatever it is, is seen as worthwhile and rewarding.

  2. Bull, They didn’t even notify me until April of the fees after they had already relieved me of 12 dollars
    I did close my account and I was not the only customer doing so I had to wait in line behind two others. I won’t tell you how much I took out but I guarantee you some noticed and “we gone”.
    I do not agree with you about banks and wall street and CUs not manipulating books, I stuck with these yahoos for a long time when they had a rating of ZERO, and they thanked me by charging a fee for the luxury of keeping and using my money. TKS but NO tks, bye bye AFCU.
    Moved everything to a regional bank with a five star rating from Bauer.I feel sorry for all those who cannot just close an account and move on, glad I could help AFCU out and get out of the

  3. Whether a member knows what a credit union is or not is irrelevant to the righteousness of charging a monthly fee. In either case, charging a monthly fee is wrong and harmful to members and the credit union movement. It’s akin to the misconception of what you don’t know won’t hurt you. If someone is stealing from you, it hurts you, whether you realize it or not. In fact, since credit unions are member-owned, it’s even worse to be charging the owners a monthly fee for being members. If someone takes $3 in gas from your car, whether you are aware or not that they took it, you are still harmed by losing the $3 in gas. If a waitress changes the tip from $5 that you wrote, to $8 that she wrote, you are still harmed whether you realize she upped the tip amount or not. It doesn’t help you if the thief tells you its a “required membership due.” They still took $3 from you.

    If members believe IDTheft or IDProtect has value, let them optionally choose it or not. Opting in all members for something that many don’t want is dishonest and heavy-handed.

    Why praise or defend damaging the reputation of credit unions and destroying so much goodwill? When did gouging members and destroying goodwill become admirable?
    When management of an organization pays themselves lavish salaries at the expense of the owners, whether at a credit union, private company, publicly traded company, or corrupt government of any form, that is wrong. Looting from the owners shouldn’t be praised or commended. Power should not be abused.
    We’ve seen this taken to the extreme with former CEO of Tyco International, Dennis Kozlowski, infamously convicted for looting Tyco shareholders. What’s happening at Arizona FCU is being done on a much smaller scale, with $3 being taken from the pockets of members every month.
    As written in Forbes magazine,
    “It’s fair to say that Kozlowski and Swartz abused many corporate prerogatives and that they invented new ones just so they could abuse them. They acted like pigs, as a lot of CEOs act like pigs.”
    Likewise, Arizona FCU management has invented the new $3 fee, which is charged to every member every month, as a way to pad executives pockets at the expense of the member-owners of the credit union. Like Kozlowski, they are acting like pigs.

    All credit unions should represent – working FOR the benefit of members. Let me be clear. Charging monthly dues is basically looting from members’ wallets. Attempts to justify monthly membership fees are an attempt to justify dishonesty and stealing from members. Do you really think over 15,000 members would have left Arizona FCU if they thought $3 monthly fees were a good thing? Why do you think so many members were motivated to create a website to express their outrage at AZFCU?

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