PORTLAND, Ore.—Concerned credit unions are beginning to charge too many fees, one CU—well ahead of the pandemic—cut its overdraft fee in half to send a message to its own members as well as the industry.
The $140-million Providence Federal Credit Union has the reduced overdraft fee in its courtesy pay program to $15 from $30 for members, taking the CU to less than half of the median CU overdraft charge nationwide.
CEO Shirley Cate told CUToday.info the move was made in light of increasing news stories that suggest credit union fees are becoming equal to those charged by banks. Banks’ median overdraft fee, according to the latest Moebs $ervices data, is $32.
“When we had our charge at $30, I think we were more or less keeping up with the Joneses on fees,” said Cate. “Everybody else is charging $30. But what really started to concern me was the fact I was seeing more articles about credit unions charging fees just as high as banks. I said that's the opposite of what we're supposed to be about, opposite the credit union philosophy.”
Cate said she knows some may consider the CU’s price drop “old school” and a threat to the bottom line.
“I have been in this industry for 36 years, and I know what we need to do to survive,” Cate said. “We will be able to afford this and we can help members at the same time. We are saying we know it's tough out there to manage you money each month, and we’ll only charge you $15 if you overdraft.”
Cate said PFCU’s board of directors embraced the change.
“I spoke with our board and talked about our philosophy of not charging a lot of fees, and that we have always been lower than our peers,” explained Cate. “Their immediate response was to support the decision.”
Big pricing decisions must be backed by sound data, agreed Cate, who said PFCU forecast a model of what the reduction in the overdraft price would mean to the CU’s revenue.
While declining to provide specifics around what the fee change will mean to Provident FCU, Cate said the credit union will be able to absorb the reduction in part due in part to its very high capital ratio, which stands at nearly 13%.
“We give back every year to our members and this is just another way,” said Cate.
Cate said since it made the move members have expressed appreciation for the decision. She added members are telling the Providence just how much they appreciate the decision. Cate said initial activity indicates members are not reducing their number of overdraft transactions, but that revenue has been less.
Michael Moebs, economist and CEO at Moebs $ervices in Lake Forest, Ill., said Providence could be pleasantly surprised that the lower overdraft fee could lead to more revenue, not less.
“When you drop your overdraft fee below $20, you see more consumers use the service. They see it as an affordable safety net and an alternative to a costly payday loan. The credit union will make more money.”
Moebs said Providence’s low overdraft fee is not the lowest in the nation, with PCM credit union in Green Bay, Wis., claiming that honor at $8 per transaction.
“While Providence CU has a low overdraft fee, it’s OD limit ($400) is 20% below median and average ($500) for FIs nationwide. So low price but low limit too,” said Moebs. “Providence CU is moving in the right direction on price. But they need to reconsider their overdraft limit which is below average.”
Moebs said that when an FI drops its overdraft price to below $20, it also must have an overdraft limit at least in line with the national average.
“If they don’t, then they will lose overdraft revenue,” he said.
Cate said she hopes the lower overdraft fee will keep more members away from payday lenders.
“I have a huge issue with payday lenders,” said Cate, whose CU also offers a payday alternative loan. “Members are getting sucked into those things and we offer every solution to them we can, and this is another. This won’t guarantee members won’t seek a payday loan, but it will help address that problem. Time will tell how this plays out for the credit union and our members, but it’s just the right thing to do if you are a credit union.”