By Ray Birch
PHILADELPHIA—It’s time all credit unions revisit their overdraft programs to see if adjustments need to be made, but it’s certainly not time to overreact to “big bank headlines,” according to one credit union CEO.
Rob Werner, who leads the $800-million Ardent Federal Credit Union, told CUToday.info all of the attention currently being paid to overdrafts should prompt credit unions to examine their OD practices to make sure they continue to be fair and transparent to members, and to be certain the revenue stream—critical to many CUs as net interest margins remain tight—continues to play a role in supporting the organization’s bottom line.
“As a matter of course, every year, we do analyze our fee structure,” said Werner, who cautioned that CUs should not become overly dependent on overdraft revenue to drive non-interest income. “I think in some ways the pandemic has been a game-changer. I think it has helped us look at everything we do and how we do it, and these overdraft fees are just part of that.”
Werner said his credit union has worked to ensure it is educating members and working with them so they understand how Ardent’s overdraft program works.
“That includes sending them text alerts for low balances,” said Werner.
The Product Offerings
The 37,200-member credit union is also reviewing the pricing for its overdraft program. AFCU, which offers Courtesy Pay, charges a $33 overdraft fee with a cap of six overdrafts per day. Ardent offers a basic checking account with no minimum balance or monthly service charge, as well as a High-Yield Checking Account that has similar pricing that pays 1% APY o balances to $25,000, and 0.10% on balances above that threshold. The account also refunds up to $25 in ATM fees per month. Enrollment in the account requires eStatement, eight debit card transactions monthly and at least one direct deposit and/or ACH credit.
Ardent FCU closed 2021 with $4.695 million in net income.
“I think we're just going to reassess the value our program provides and look at more ways to help members avoid that fee in the future, and manage their money better,” Werner said.
Ardent FCU does allow members to access loans and lines of credit to avoid an overdraft charge.
“Just different ways to cover this as opposed to a direct fee,” he said.
Werner encouraged credit unions not to pay too much attention to the headlines being made by Ally Bank, BofA, Chase and others that have eliminated their overdraft fees. As CUToday.info reported, the Pew Charitable Trusts recently estimated that the elimination of NSF fees by five of the country’s largest banks could save their customers as much as $2 billion annually.
Rob Werner
Numerous credit unions have also announced fee reductions or similar fee eliminations.
Splashy Headlines, But…
“We don't believe we're going to be eliminating this fee right now,” said Werner. “I find it interesting. You look at the large banks, and they are public companies. And these overdraft announcements make great splash headlines. But don’t forget, banks still have shareholders to report to. My sense is they're going to find that money they cut on overdrafts somewhere else. They are public companies and probably can't just eliminate all of that income and keep their stock price up. They're going to find a way to replace it. Some of them are creating new accounts with a flat monthly fee, and then you don’t have to pay an overdraft charge. I think they are just restructuring fees.”
Moreover, Werner believes some banks will employ more “gotcha” charges.
“Maybe they'll lower the overdraft fee but then they'll charge it to you again five days later somehow,” he suggested.
The simple, well-repeated logic, explained Werner, is that credit unions are cooperatives and exist to serve the members, while banks are in business to serve their stockholders.
“Banks are just bigger than credit unions and when they eliminate overdraft fees they have the scale to get the money back somewhere else,” he said.
“Reducing or eliminating overdraft fees won’t hurt them as badly as it will a smaller credit union.”
The Good News
The good news for credit unions’ bottom lines is rates are going to rise, added Werner.
“It's going to give us a little breathing room,” he said. “I think it's always going to be important for us to be creative and find new non-interest income sources that will benefit members—give them value so they want to pay for it. I think that's the challenge for us now—finding those services that our members are paying for elsewhere and would feel better purchasing them from their credit union.
“I think anytime there's an opportunity, just look at how you can benefit your membership,” continued Werner. “Take that opportunity—and this is just one of those times which has been brought on by all the headlines—to look at how you're taking care of your members.”