Discussion on CU Programs Spotlights Current Environment

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More than 400 industry leaders and professionals tuned-in to Filene Research Institute’s “So You Want to Talk About Overdraft” webcast yesterday, hosted by the future-forward thinktank to help credit unions navigate the current operational, political, and financial services environment surrounding overdraft protection programs.

Sponsored by Redwood CU (Santa Rosa, CA) and MSU FCU (East Lansing, MI), the context preceding this webcast has been the shifting consumer sentiment, new regulatory scrutiny, and market forces currently brewing across the nation. Speakers focused on how credit unions can revisit their overdraft products and begin identifying member-friendly updates, while still maintaining or growing non-interest income.

Research insights from Filene’s latest report — Overdraft Protection Programs: Credit Union Best Practices" — were discussed, as well as thoughts from a panel of credit union leaders describing their experiences and perspectives on the opportunities at hand (view the slide presentation here): These ideas and opinions included:

  • Overdraft solutions need to be tackled by credit unions head-on, or else these programs will be re-made for the industry by others.
  • How can credit unions craft “member friendly” overdraft reform?
  • Historically, overdraft programs in most credit unions are offered because members need and want them, not necessarily because credit unions overly rely on the non-interest income today versus the past.
  • Many credit unions have always priced overdraft products to discourage members from sliding into them, or as a very last resort for members. However, frequency of use increased over the past two decades. The overdraft topic has been a tough decision for many credit unions given debit card regulations and a broader changing regulatory environment.
  • Have overdraft products aligned with all other services in credit unions that gained traction over the past 20 years, such as non-sufficient funds (NSF) and courtesy-pay products? Whether yes or no, the overdraft topic could still use a “revisit.”
  • What is clear: some credit union members increasingly feel overdraft fees are “punitive” and “just absolutely hate any fees.” Other members are not necessarily against these fees, but they are against how high the fees are (the pricing structure).
  • Shockingly, many member overdraft users are financially savvy (and many within this group are not necessarily financially burdened or even low income for that matter).
  • Some of today’s shift in overdraft “perception” has nothing to do with consumers, but more to do with the political environment.
  • Some credit unions have started eliminating overdraft fees for members, and they are well aware many fintechs don’t charge overdraft fees. However, this may not be important for certain credit unions since some do not compete with the same consumers as fintechs.
  • For a credit union offering overdraft products and fees, perhaps they should price-benchmark their fees to fintechs that actually do charge for overdraft.
  • At the end of the day, every credit union has to do what it thinks is best for its own members.
  • Some credit unions are starting to (or need to) create “fintech-like” deposit accounts and financial services. Many fintechs are very fast at what they create and put on the market (as well as being market share funnel-driven since they often times start up just to turn around and sell their incoming consumer accounts to a different fintech company).
  • In contrast, many credit union leaders are also worried about the economic/financial sustainability and “fairness” to their member-owned institution, such as the plight of members who are financially responsible and never use overdraft products versus those who aren’t as financially responsible and use overdraft consistently. Where is the “equity” for the entire membership?
  • The question industry leaders should NOT ask is: “Can credit unions survive without overdraft products and the non-interest income?” Instead, leaders should be asking: “Should credit unions with overdraft products that contribute more than 10 percent of total annual revenue be diversifying their total-revenue sources better?”
  • Credit unions needs to consider revenue diversification going into 2022 and beyond. They should be rethinking what the core-account relationship is all about with members from a broader account perspective and balance-sheet perspective (diverse income streams, broader views, how the credit union business model is evolving, and the role of all non-interest income sources in general). Is there a way to structure revenue sources to essentially communicate to members and consumers: “Are you going to fully bank with us, or not?” This is a very personal decision for each credit union, as well as whether to partner with a fintech.

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