PLAQUEMINE, La. — All the talk of limiting or eliminating fees related to overdraft programs is missing a number of key points, observes one CEO.
Jeffrey Hendrickson, president/CEO of Dow Louisiana FCU, said that eliminating courtesy pay programs will not change consumer behavior.
"They just find another way to get the funds when they need money," he said, "And, NSFs are already going away as a part of the consumer's transition to debit and credit cards for payment. By removing courtesy pay, the checking and membership account will most likely go away and the individual will seek out organizations that thrive on keeping them coming back indefinitely. There are many organizations who will supply consumers with short term, high-risk loans. Credit unions cannot price high enough on the lending side to make this profitable as just a loan and offer the service, nor are we set-up to work through the heavy contact process that is normally required to keep these folks paying timely."
Hendrickson stressed that not all courtesy pay programs are equal.
"I fundamentally believe that most credit union boards and CEOs are trying to do the best they can to offer great service to their members," he said. "We are in an industry that allows you to set your policies and procedures within a framework allowed by NCUA and legislation - as long as a credit union is doing that, no one has a right to really make judgments because they don't answer to the board or membership of that credit union."
Hendrickson said that by eliminating courtesy pay or restricting NSF fee income, the checking programs will have to change.
"Consumer behavior will not change, and I believe they will be paying similar costs for the service by going somewhere else," he said. "We are just changing the hands of who receives the income. I would prefer it be credit unions so we can continue the outreach and education programs. More than likely, fewer individuals will have access to checking which will force the underserved to the predatory lending organizations that will open up more locations to serve their needs. Eliminating programs or restricting fees will only hurt consumers and credit unions in the long run."
According to CUNA, based on fee surveys from 2006-07 and 2008-09, at year-end 2007 CU fee income accounted for 12% of gross income. By comparison, the same figure was 7.9% at year-end 2000. At year-end 2007, NSF/overdraft accounted for 43.1% of total fee income. As of year-end 2005, on average, credit union fee income accounted for 13.3% of gross income. That was up from 12% in 2004, and 8% in 2001. The largest source of fee income for credit unions was NSF/overdraft fees, accounting for 41.3% of total fees. The surveys also showed that fee income at mid-year 2009 accounted for 11.5% of total income.