The P.A.

A weekly address from Patrick Adams,
President of St. Louis Community Credit Union

CFA Should Consider Overall Value Credit Unions Offer Consumers

On November 22nd, 2010, posted in: Uncategorized by 1 Comment

Yesterday, I got flipped off by somebody in a van with a “COEXIST” bumper sticker.  That shouldn’t happen, should it?  One should remember what one’s values are before acting foolishly.

Maybe that’s the message I should send to the Consumer Federation of America (CFA).  Their job is to watch out for consumers, and I’m not sure they always pay attention to their own “bumper sticker.”  This past week they started screaming against overdraft protection again.  They want more restrictions.  Why?  Well, the best I can discern is that the last round of consumer protection they won through increased regulations established by the Federal Reserve wasn’t enough.  Apparently, banks figured out how to get around it.  Really?  DUH!!!

Hey CFA, when you over-protect consumers, sometimes it leads to the unintended consequence of the consumer paying more.  Suddenly, your “bumper sticker” means nothing.  The banks are smart and thus the CFA is worried about their continued “abuse.”  Here’s the big problem for St. Louis Community Credit Union (SLCCU).  The CFA doesn’t differentiate between banks and credit unions when the regulation hits the proverbial fan.

They’ve defined this current round of abuse as, in part, too much effort on the banks to get people to “opt-in” to the service.  I hate abuse, but it’s a strong word.  If there is abuse, then eliminate it.  But they’re making an awful wide brushstroke.  Remember, the final decision lies with the consumer.  How do you abuse someone who has the option to say “no?”

Let me tell you how not to have overdraft protection and how not to be abused by a bank: say “no” to overdraft protection.  Bingo, no more abusive fees.  You have that right today (with us, too) to say “no.”  Exercise it, if you wish.  SLCCU does not endorse the use of overdrafts, however we do believe the consumer has the choice.

I sense that the folks at the CFA are not going to give up until they’ve eliminated or so tightly controlled the world of overdraft protection that it chokes off the revenue of many financial institutions (including credit unions) to the point that it starts eliminating options in the marketplace.  You know what that means?  Yep, you guessed it: higher prices for the consumer.  OOPS…another “bumper sticker” problem for the CFA.

My concern with the current slant taken by the CFA is a failure to understand the full scope of a credit union’s kaleidoscope of value. The current position of the CFA, as I interpret it, appears to be one that narrowly assesses a particular member fee or rate, and then proceeds with an even narrower conclusion that said fee or rate is abusive without any other variables related to the credit union’s operation being considered.  This is a grossly reckless approach.  It’s much easier to portray a particular fee or process as excessive when viewed in a “stand-alone” environment.  The CFA would be much better served to discuss the fee or rate in question as being one of many variables that contributes to the overall good works the credit union is providing to the community.

Speaking on behalf of St. Louis Community Credit Union, our pricing and processes are rooted in maintaining the integrity of our brand.  We establish rates and fees and check clearing processes with an understanding that we exist only to serve our members and “to increase their standard of living and better their lifestyle.”  As a result, our compass points due north as it relates to our overdraft protection strategies.

As an example, we have not raised our NSF fee (insufficient funds on a personal check or debit transaction) for at least 20 years.  It is $15 per item.  Not many, if any, can say that.   As a parallel, the competitive market allows for a $28- $35 fee.  We choose not to charge that much because it doesn’t meet our brand mantra.

We are empathetic to our members and the tough economic times they may have, thus we maintain low, favorable pricing even though overdraft behaviors move consumers to the higher end of the risk continuum where mainstream financial services become harder to find.  To penalize St. Louis Community Credit Union’s ability to serve the aforementioned members seems counter-intuitive to the consumer protections advocated by the CFA.

Overdraft protection provides enormous value to our members, yet this service remains under a watchful eye and is characterized by some as “abusive.”  Why?  As stated, a lack of a full scope of understanding is the culprit.  To kick dust on SLCCU’s “white hat” because of our members’ choosing of their own free will to utilize the service and pay fees seems a rather juxtaposed argument.

As an example, if members didn’t pay fees, SLCCU could not offer so many valuable services to our members:

  • FREE financial counseling and debt counseling
  • FREE financial literacy initiative that reaches thousands of people per year to teach “how not to pay fees”
  • Money orders for just 49 cents
  • COOP ATM network that provides the opportunity for members to not pay surcharges or interchange fees at thousands of ATMs nationwide.

The list is expansive.  Without fee income, SLCCU could not pay some of the highest rates on CDs and money market accounts in the region (usually in the top 5 – 10 in every term, if not higher.)  SLCCU could not have a $300 minimum balance to open a CD.  We could not offer a suite of products that are modestly priced or free to a segment of higher-risk consumers that would otherwise be relegated to check cashers, payday lenders and a predatory priced “pay-card” community.

The question must be broached: what if we didn’t have fees?  Could we have eight offices (soon to be more) located in the urban and near-urban communities that have been for so long slighted in being offered affordable, mainstream financial services?  Would our offices close earlier, not be open on Saturdays and lack convenience to meet the needs of our members?

Without fees and loan products that are priced to risk, are we a shell of ourselves?  As a result of our smaller size and reach, do we “shut out” thousands of people who would have to turn to the “fringe” banking element – predators who delight in serving this disenfranchised market niche with astronomical fees and rates?

Instead, we are able to offer so much more: 

  • FREE “second-chance” checking with no minimum balance
  • FREE “credit score” counseling
  • 9% APR “credit-builder” loans to people with bad credit

Suffice to say, we have returned literally tens of millions of dollars back to our community over our existence because we are dedicated to the cooperative spirit of our credit union movement.  As a result, SLCCU leadership can rest easy at night knowing that our pricing model (and our overdraft program) is one that is moral, ethical and provides value to people in low/moderate income areas of our community.

Both members who pay fees and those who have never paid fees agree on the value we provide in their lives.  Our growth rate is substantially more than that of our peers – that may better tell SLCCU’s story.

To hamper SLCCU’s ability to serve our members and our community is to harm those very people that that the CFA sets out to help.

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