NEW ORLEANS-Credit unions have no choice but to re-examine their fee structures and opt-in policies in the wake of pending changes to Reg E.
And they will have to move quickly.
Fabio Biasella, VP and managing drecto of Strategic Advisory Services with Raddon Financial Group, told the CUNA CFO Council's annual meting, "Every fee is under assault. It's hard to quantify how much of a threat there is to various income streams."
Biasella said the typical CU household generates about $100 in revenue for a credit union; for Raddon Financial clients, he said that figure is about $125. To this point, that revenue has "masked a lot of other things that have gone on in the industry, most notably, margin compression." But moving forward, Biasella added, "Creatively, it's not just about fees, it's going to be getting back to how we price. Two big drivers are debit card fees and NSF fees."
A 2009 study of 62 institutions commissioned by RFG and designed to create a better understanding of Reg E found approximately 70% of checking account-holders never overdraw, 20% are infrequent/occasional overdrafters, and 10% overdraw habitually. "The last credit union I was in identified 663 people who do 80% of the overdrafts," he remarked. "They almost knew them by name."
Of the credit unions in the study, 74% of their income was derived from Courtesy Pay, and of that figure, 54% of the activity came from overdrafts via the debit card and ATM. "The impact for these institutions to not begin the process of opting in was about $1.7 million," he added."There is no magic lever that we will be able to turn on as easily as we turned on Courtesy Pay," said Biasella. "We have a lot of clients taking long, hard looks at this. There is lot of dough at risk. When you think of how much is at stake, even if not allowing the member to do debit card overdrafts, we still have to manage that number." The new law prohibits overdrafts as the result of a debit transaction.
The "good news," according to Biasella, is that when asked members who never or seldom overdraw their accounts say Courtesy Pay isn't important to them. "But it's very important to the habitual overdrafter," he said. "They see the value in opting in. If you are not beginning the process of earnestly opting in, you are really getting behind the curve."
One credit union at the meeting noted that when it comes to opt-ins, "It hasn't been a hard sell. It's been members saying, 'Are you going to offer us something similar to what we've had?' "
Biasella said Raddon sees revenue opportunities for credit unions in debit cards. "You need to examine the business line much more carefully, and right off the bat you need to examine penetration and activation," he said, noting the average CU penetration rate with debit cards is 84%, three quarters of which are typically activated.
Biasella noted the average value per debit card is approximately $60. And while very few CFOs in the meeting indicated they offer instant activation, Biasella added, "The instant issue cards have much higher activation and usage rates."