As economic and industry experts re-adjust their predictions of recovery for the umpteenth time since the economic downturn of 2008, credit unions are faced with the realities of staying viable and competitive in a new business environment that no one wants to call “normal.” But as the economy struggles to recover and uncertainties remain over regulatory constraints on revenue sources, forward-thinking credit union leaders are taking a hard look at every feasible income generating strategy.
With so many variables affecting the outcome of our road to recovery, it seems safe to say that there is no one silver bullet that will solve the problem – although industry experts seem to agree that for any credit union to survive, a reliable source of revenue is a must. Going forward, institutions are wise to use caution and make sure they are providing a service that members consider worth the fee. Simply increasing fees or adding charges for services that have historically been offered for “free” can send your account holders searching for other financial service options.
The key is to provide fully-transparent services that help your members when they need it most. For instance, a well-managed overdraft program helps account holders maintain control of their finances and can provide your institution with a significant increase in non-interest income.
To meet regulatory expectations, an overdraft program must be fully disclosed, based on a reasonable overdraft fee with limits on transaction fees. To avoid any member confusion, make sure your employees are familiar with your product and able to explain it to account holders. By establishing a safe, supportive sales culture you can create long-term member satisfaction and avoid losing business to more service-focused institutions. It is also imperative to establish check-clearing procedures that avoid maximizing member overdrafts and related fees created by the clearing order.
As final decisions regarding regulations on consumer financial products are still being made, make sure you don’t cut corners on compliance-related issues. While the credit union industry has always been carefully regulated, there is little doubt that the focus on compliance will remain strong as additional consumer protection measures are implemented under the Consumer Financial Protection Bureau (CFPB). And while credit unions that maintain a compliant overdraft program have nothing to fear, the cost of non-compliance is proving to be high.
Since 2010, dozens of large banks from coast to coast have faced litigation over undisclosed overdraft policies that pose a hardship for consumers. As a result, fines and penalties – reaching as high as $410 million in one class action suit – have been imposed. The key to avoiding this level of regulatory scrutiny is to provide your members with a clearly defined program that guarantees full regulatory compliance without the added expense of compliance personnel and resources.
By John M. Floyd, Chairman and CEO