The P.A.

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

CFPB Must Strike A Balance Between Protection And Service

On July 9th, 2012, posted in: Uncategorized by 1 Comment

Here is the quandary.  If the Consumer Financial Protection Bureau (CFPB) institutes any limitations on “courtesy pay” activity, it will further diminish the likelihood of any financial institution providing services to the low-moderate income (LMI) communities inside our region.  FACT:  Without fees generated from checking accounts (specifically courtesy pay), you’ll see a retreat from servicing those most in need of mainstream financial services.  This is in direct conflict with numerous government initiatives that want financial institutions (FIs) to rush in – not back away.

It’s worth repeating in order that it gains attention that leads to action.  St. Louis has the largest unbanked and under banked African-American community in the country. LMI populations are, generally speaking, deducted from the profit formula for financial institutions.  Sadly, profit margins related to serving those most in need are too thin to justify engagement for most FIs – even with “courtesy pay” in its current form.

Because a basic tenet to business is to make money, the prospects draw even more stark for these underserved to gain services from mainstream financial intermediaries without there being a means by which the financial institution can prosper.  Look, there is an abyss between prosper and gouge, and I am certainly not advocating for the latter.  But credit unions and banks have to make a buck or they will pull up stakes and go elsewhere.  The unfortunate unintended consequence of limiting or, worse yet, taking away revenue related to “courtesy pay” products is that the very group(s) for which the CFPB has set out to help (or should I say protect) will be hurt the most by their actions.

Quite frankly, have you thought of it in the following terms?  The CFPB’s effort to price-fix or cap activity levels on the use of “courtesy pay” by consumers is the equivalent of a “tax” on serving LMI populations.  Why would a financial institution in the business of making money subject themselves to a tax that erodes their profit position?  They will just move elsewhere, where consumers have deposits and make loans.  They’ll focus their earnings on people of wealth and abandon the idea of serving people who are considered to be destitute.  That, my friend, is the stark reality.

As you are well aware, financial institutions have to peddle really fast to make enough money on the spread between deposit costs and loan earnings to offset the costs of operations (especially if they are expanding into needy communities).  The low rate environment featured by today’s monetary policy is stifling.  To couple macro-economics with serving populations that have little to deposit and minimal borrowing capacity (without the augmentation of fee-based services) is a recipe for less service to these communities, not more.

Society is up in arms over the fact that food deserts exist inside our low-moderate income communities.  How about financial services?  Other than SLCCU serving as an oasis, financial services deserts exist inside our great town.  Think about it.

One Response to “CFPB Must Strike A Balance Between Protection And Service”

  • Guest says:

    It is unclear to me why you write: “But credit unions and banks have to make a buck or they will pull up stakes and go elsewhere.” Certainly credit unions need to cover their costs, but “make a buck” implies making a profit — a concept seemingly inapplicable to a not-for-profit institution such as a credit union. It is also unclear to me why a credit union, unlike a bank, would threaten (in your words) to “pull up stakes and go elsewhere,” given that the owners of the enterprise are the members and depositors themselves, who presumably are deeply rooted within the community served by the institution which they themselves own.

    Frankly, instead of emphasizing your similarities to banks (not just in these posts, but also in your unfortunate lobbying against the financial reform bill several years ago), it strikes me that SLCCC would be better off emphasizing the dissimilarities. Many of your non-LMI depositors — who have a choice of where to do business — use SLCCC financial services because of their deep commitment to the credit union movement and its proud cooperative legacy extending back over a century. SLCCC has much to be proud of in its conduct and history, and it therefore might be more aggressive in its public communications in emphasizing how the credit union movement is distinguished from the egregious and exploitative recent conduct of U.S. for-profit banks. By seeking to expand its ranks of non-LMI depositors (for instance, by actively recruiting using the “Move Your Money” campaign language and rationales, including harsher contrast ads vis-a-vis for-profit banks), SLCCC and its peer institutions might also expand the stable deposit and lending base for potentially riskier but still socially important service provision in the city's LMI communities.

Leave a Reply