The P.A.

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

What if we didn’t have fees?

On November 9th, 2009, posted in: Uncategorized by

I am deeply concerned about some proposed legislation currently being debated on Capitol Hill.  It is known as H.R. 3904: “The Overdraft Protection Act of 2009.”  It is with the cooperative spirit of credit unions in mind that I ask you to read the information below and join me in contacting your legislator(s) to express your concern.

In an extension of the ongoing soap opera starring banks as the villain, abusive overdraft practices have been targeted by legislators as their next corrective action against the big, bad banking industry.  Unfortunately, credit unions have been rolled up into the broad-based definition of a “bank.”  While you and I both know that we are nothing like a “bank,” our elected officials and a variety of consumer groups see no distinction as it relates to overdraft protection services.  While the distinctions are plentiful between our program and others, our U.S. representatives and senators appear to be clouded in their view.

For those who don’t know what overdraft protection is, it is a fee-based service that banks and credit unions provide to protect consumers from “bouncing checks” – it also covers debit card and ATM transactions, too.  More specifically, it pays the amount of the item that would normally be returned for “insufficient funds” (NSF).  While the cost of the overdraft protection per item is the same as the NSF item ($15 in our case), this service saves the consumer on a number of fronts: (1) the merchant fee for “return item” processing (i.e. $40); (2) the embarrassment of a returned item; (3) the protection from the prospect of receiving a “ding” against one’s Chexsystem record; and (4) the ability to use that merchant again without penalty.

Here’s the crux of the matter.  Many legislators are concerned with: (1) the cost per overdraft; (2) the means by which you sign up for overdraft protection service; (3) the action taken by you to activate the feature of the service, and (4) the number of overdrafts.  While we concur that the abuse by some institutions must be stopped, St. Louis Community Credit Union should not be penalized by some loose association with big banks. 

For comparison, we charge $15 per item (NSF or overdraft); most institutions charge in the $30 range.  By industry measures, it costs a financial institution $13 to process the activity.  As you can see, SLCCU isn’t getting rich by those standards.  Yet, fees we do earn allow us to provide a “kaleidoscope of value” to you, your family and your fellow members.

As an example, if members didn’t pay fees, St. Louis Community Credit Union could not offer financial counseling and debt counseling free of charge.  We could not have an extensive financial education initiative throughout the community that reaches thousands of people per year so they can learn “how not to pay fees.”  Money orders could not be just 49 cents.  We could not be a part of the CO-OP ATM network that provides the opportunity for members to avoid paying surcharges or interchange fees at thousands of ATMs nationwide.

The list is expansive.  Without fees, St. Louis Community Credit Union could not pay some of the highest interest rates on CDs and money market accounts in the region (usually in the top 5-10 in every term, if not higher.)  We could not allow for only a $300 minimum balance to open a CD.  We could not offer a suite of products that are modestly priced (or free) to a market segment of higher-risk consumers that would otherwise be relegated to using check cashers, payday lenders and usurious priced “pay-cards”.

What if we didn’t have fees?  Could St. Louis Community Credit Union have eight offices located in the urban and near-urban communities that, for so long, have been 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 loans that are priced according to risk, would St. Louis Community Credit Union be a shell of itself?  As a result of having to likely downsize our scope and reach, would we “shut out” thousands of consumers, who would have to turn to the aforementioned “fringe” banking element that delights in serving this disenfranchised market niche with astronomical fees and rates?

Without fee income, how would we offer free “second-chance” checking accounts with no minimum balance; free home banking; free bill pay; free “credit score” counseling; 9% APR “credit-builder” loans to people with bad credit; and free “electronic” statements?

Another concern among legislators is that consumers don’t know that they have the product until after the fees start hitting their account.  That’s not the case at St. Louis Community Credit Union.  Members are invited to opt-out of the service should they so wish.  Very few do.  Why?  Because they see the value of having the added protection associated with their checking account.

Another concern is whether or not overdraft protection should be accessed through use of your debit card, point-of-sale, or by using an ATM.  Well, it’s your money.  We believe you should have access to it as you see fit.  If you choose to use the overdraft protection when getting cash from an ATM or to pay for dinner with your debit card, that is your call.  After all, you’re the manager of your account – not us.

Finally, Washington is concerned with the number of times consumers can use the overdraft protection.  The proposed legislation would limit activity to once per month, and no more than six times per year.  If this happens, the likelihood that SLCCU would raise fees and cut services (to make up lost operating revenue) is real.  In addition, merchants would have more NSF items to process and, as a result, their costs may go up as well.  This is not a pretty picture, especially in light of such tough economic times.

Please understand – and tell your legislators – that overdrawing an account is a controllable action.  Consumers make the choice to overdraw now or write the check later.  You decide if the debit card purchase can wait or the ATM withdrawal is postponed until after the next payroll hits.  The fact that folks use these programs of their own volition should not be viewed as suspect.  Rather, government officials must understand that consumer usage is clear evidence that overdraft protection has value.

Let’s keep that value intact.  Please contact your legislators and ask them to leave the choice of having overdraft protection up to you.  If you don’t know who they are or how to contact them, visit http://www.congress.org.  Thank you for your loyalty and support of the credit union cooperative movement.

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