How long can credit unions keep sacrificing fees? | Journal of Credit Unions


Some credit unions are trying to strike a balance between increasing non-interest income and reducing certain fees in order to help members who have been affected by COVID-19 and the economic downturn.

But is it possible?

“That’s the million dollar question,” said Aaron Goff, president and CEO of the Clackamas Community Federal Credit Union in Milwaukie, Oregon, which recently cut several of its fees.

Many credit unions overhauled their fee structures or eliminated fees entirely in the wake of the Great Recession, as credit union membership jumped amid consumer backlash against the big banks. Now, with the nation in yet another economic downturn, some credit unions are once again taking similar action.

Last year, as the pandemic began to spread widely, the Clackamas community, with $ 517 million in assets, adjusted its fee structure to help struggling members, reducing fees from $ 27 to $ 12 each for overdrafts, NSFs, returned items, and chargeback orders. In addition, the $ 1.50 overdraft transfer fee that came into play when the credit union had to transfer money from one account to another to cover a potential overdraft has been eliminated entirely.

These changes were meant to be temporary, and Goff said that with a solid revenue base management believed the credit union could take the hit – at least in the short term.

The hit turned out to be nearly $ 800,000, with Clackamas Community’s fee income rising from nearly $ 2 million in 2019 to around $ 1.2 million last year. Still, the credit union earned more than $ 6.5 million in non-interest income last year, according to data from the National Credit Union Administration’s appeal report. This amount was almost identical to the $ 6.4 million earned in 2019.

Yet the credit union recently announced that these cuts are there to say. Goff was hesitant to use the word “permanent,” but said the new pricing structure will stay in place indefinitely.

He said the bottom line was that Clackamas decided to commit to helping those who needed it most. “The people who pay these fees are often the ones who can afford them the least,” he said. “So, are we ready to put our money where we are?”

NCUA’s fourth quarter data, the most recent information available, showed an 11.3% year-over-year increase in non-interest income in the industry, compared to a growth of 7.3%. in the year ending Dec. 31, 2019. however, was driven by the costs of mortgage refinancing and the paycheck protection program. Fees paid by members – such as overdrafts, NSFs, transfer fees and more – are only part of the calculation of NCUA’s non-interest income, which also includes fees paid in connection with requests for loan, interchange income and more. Fee income is only a part of the industry’s overall non-interest income, which grew over 11% last year on the strength of P3s and mortgage refis.

The end is near

With the PPP expiring soon and the mortgage refi boom set to slow this year, credit unions are trying to figure out how they can reduce fees while maintaining the same levels of profitability.

“Some of them just look into the future and try to read the tea leaves and get comfortable with what we think is going to happen,” Goff said.

While PPPs and mortgage refinancing have helped many credit unions, many institutions have not participated in PPPs and do not offer home loans. As such, many credit unions do not incorporate this income into their strategies because of its one-off nature, said Vincent Hui, managing director of consulting firm Cornerstone Advisors.

He said credit unions are instead looking for alternative fee sources such as exchanges, which are not paid by members, to replace account fees. Many are using waivers instead of blanket fee reductions because it’s easier to stop waivers at some point rather than increasing fees, he said.

“Also, not all fees generate the same volume. Some fee reductions may not have a significant impact because they may not be incurred by members very much,” Hui said.

Geoff Bacino, an industry consultant and former NCUA board member, suggested that it shouldn’t take a pandemic for credit unions to look at how fee income and member services are doing. cross. He said many credit unions have taken a good first step in assuming members are hurting. “In other words, don’t force members to ask for help or help, but rather be proactive,” he said. PPP, he added, shouldn’t be seen as anything more than a “temporary dressing”.

Goff said the Clackamas community participated in both rounds of Paycheck Protection Program loans, which took some of the spur of the loss of other fee income.

Pathways Financial Credit Union in Columbus, Ohio saw non-interest income rise 27% last year thanks to mortgages and P3s, although fee income fell 11.5% to $ 2.3 million of dollars. That’s by design, explained President and CEO Michael Shafer, noting that reducing or eliminating certain membership fees was an ongoing effort for the $ 507 million asset store.

“This is part of a multi-year process that we believe will result in savings for our members of over $ 500,000 per year,” Shafer said, adding that NSF and overdraft fees should be reduced over the next 12 months. next months.

Pathways’ drive to cut fees is a pre-COVID corporate strategy, Shafer said. The credit union wants to earn less from service fees and more from other sources of income other than interest, such as debit and credit swaps, loan servicing, and secondary market mortgage sales .

“We are actively seeking to eliminate or reduce fees that we deem to be nuisance-type fees, unpopular fees with members, or fees that generate such a small amount of revenue that they are not significant,” he said. -he declares.

PPP and mortgage repayments have been “huge” for Pathways in 2020 and 2021. Shafer said the credit union has made nearly $ 60 million in PPP loans, which has generated a modest amount of income from the credit union. Interest on loans and large fee income from Small Business Administration lenders. .

Lessons from the Great Recession

So are some credit unions acting on lessons learned after the Great Recession?

Bacino said the credit unions that cut fees during the 2007-2010 crisis have provided a roadmap for those now looking to provide much-needed assistance to their members.

“The other part of this equation is the regulator,” he said. “The NCUA and national regulatory agencies should have long memories when the next round of reviews rolls around. Much of 2020 should be seen as a time of crisis, and reviewers need to give co-ops some leeway. who cared about members first and then subscription. “

Hui said two main lessons were learned during the last recession that are applicable today. First, credit unions ensure that all fees paid by members provide value to the member, which is why there are fewer nuisance fees today. Additionally, many credit unions use waivers rather than general fee reductions to provide more flexibility in the future.

Goff said financial institutions have also learned they need to be more aggressive in helping consumers.

“We did some things, but we didn’t make as many accommodations at the time,” he said of the industry in general. “And maybe we should have.”

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