FORT LAUDERDALE, Fla.-Credit unions may be not-for-profit, but they're still about making money.

And that's exactly what was on tap when Richard Miller, executive director at John M. Floyd & Associates addressed the crowd at the recent CUNA CFO Council conference.

"This session is about making money," he said. "It's about cost cutting. It's about generating revenue while providing good service to your members."

The challenge, Miller said to an audience well versed in the issue, is to recapture lost revenue in an environment where loan demand is down, net interest margins are down and regulatory oversight is increasing.

The first step, he suggested, is undergoing a net operating analysis, which allows a credit union to see what is really going on and find areas where things can be improved.

"To be competitive, you need to reduce expenses and increase non-interest income without hurting service," Miller explained. "Your net operating cost is always going to be a little bit higher [than banks]. What you need to look at, then, are strategies to boost fee income in ways that don't alienate your members."


The Rules

Rule No. 1: don't do away with free checking. "The big guys just can't offer free checking anymore, but you can," he said.

Instead, credit unions need to assess their fee programs to see where they can implement fees and use value pricing based on the account holder relationship and product linking and integration, which can allow a CU to use fees as incentives for members to build a deeper relationship with the CU, Miller said.

Rule No. 2: done properly, overdraft policies can generate revenue AND provide great service to members.

To do it right, Miller said, credit unions need to review their opt-in procedures, revising their overdraft limits and disclosures and educate staff about how it works.

And don't underestimate how savvy members can be. "The members at Fort Bragg CU have figured it out, and they're gaming the system," Miller related, explaining that FBCU members have learned that if they keep to small transactions, those transactions will go through even if they don't have the funds to cover it without getting hit with a fee.

Armed with that information, they'll go to the grocery store, for example, and buy milk and eggs in one transaction. Then go back in and buy bread and cereal in another transaction. Then go back in for something else on the grocery list on yet another transaction. They'll get through the whole grocery list using multiple, small transactions that allow them to NSF without paying a fee, he said.

To address this situation, Fort Bragg is doing something most credit unions are loathe to do: they're taking members' debit cards away from them and issuing them pre-paid cards instead, Miller said. "Consumer advocates think consumers are dumb," he said. "They aren't. They are learning to game the system."

Rule No. 3: reassessing a fee doesn't automatically mean raising it. Most credit unions' fees are well below what banks charge, so a common theory is that CUs can afford to raise their fees a bit, as long as they are still lower than the banks' fees, thereby generating additional revenue. But that's not always the way to go. One member of the audience cited a Credit Union Journal article that suggested CUs would be better off LOWERING the fees associated with courtesy pay, which would then lead more members to opt in to the program and, in turn, generate more revenue. Miller agreed.


Fee Increases A Mistake

"The big boys are raising their fees, which is a mistake," he said. "We believe that those with the lowest fees will actually generate the highest revenue. What we are finding is that if you are charging $35 to $40, people will not use it. But if you lower those fees, people are much more apt to use it."

Rule No. 4: tell your members about your overdraft program. "There are people in this room right now who still think it's bad to tell members about the overdraft program," Miller said. "The problem is, regulators want you to tell them. But also, there's a segment of your membership who will use the service from time to time if you've communicated it to them. They're the ones who can help you increase your revenue."

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