By Ray Birch
CHARLESTOWN, W.V.—Are the big banks acting like “used car salesmen” when it comes to cutting overdraft fees?
One credit union CEO made the comparison, expressing concern the banks that are eliminating overdraft fees are either hiding the charges in other fees or plan to bring them back down the road.
“We have seen the headlines, the large banks either reducing or eliminating overdraft fees,” said Linda Bodie, CEO of Element FCU. “But it is likely they will make up that revenue elsewhere…It's kind of like a used car salesman--they're going to get their money one way or another—they're just going to present the deal a little bit differently.”
Bodie further believes the headline-grabbing decisions by banks to cut their NSF fees could be reversed.
“Who's to say that in two or three months from now they're not going to re-implement these fees,” she said. “We see that with indirect lending frequently, where one dealer will undercut everybody to get all the business and then, wham, things go back up. The banks could do a variety of things, but, definitely, they can absorb this fee reduction more than smaller institutions.”
Bodie emphasized overdraft fees are a service that members want and need and for which they are happy to pay a fair price.
“I feel our credit union is in a good position with our overdraft program,” said Bodie
Element Credit Union charges $25 per overdraft. The national median is $31.
Linda Bodie
‘Clear’ Disclosures
“We have been clear with our disclosures and our pricing and how we do business. We've never priced our products to the extreme, and we've always taken great care to do the right thing for the member. So, we aren't going to overreact and cut our fees because of all the headlines.”
Bodie contends members are willing to pay for the service, and if the credit union were to eliminate the program, accountholders would leave.
“They will just go somewhere else because they use overdrafts as a way to manage their household budgets, an affordable short-term loan when they need it,” said Bodie, again reminding that for a small, $42-million institution such as hers, eliminating overdraft charges are a revenue hit it can’t afford.
Instead, Element Credit Union may consider giving members more choices, such as broadening its existing OD options, Bodie said.
‘Comfortable’ With Program
The credit union is “very comfortable” with its current overdraft program, according to Bodie, and that including the structure of its program. As CUToday.info has reported, overdraft lawsuits continue to target credit unions across the country, with many of the cases focusing on unclear overdraft disclosures.
“We have fully disclosed as much as we can disclose to our members on how our overdraft protection program works,” Bodie said. “I know anyone can sue you for just about anything, but we believe we are in a good position.”
Several credit union CEOs whose organizations have dropped overdraft charges cited lawsuits as one of the reasons for the decision. They have also stated the increasing focus from Washington—largely the CFPB—has been a determining factor, as well. CU leaders, too, have stated the CFPB does not understand how difficult it is for a smaller organization to eliminate a fair overdraft fee.
“I'm not a big bank,” said Bodie. “If I am forced to cut these overdrafts fees to pacify public opinion or some decision by the CFPB, other members, who don’t use overdrafts, may have to pay for the move.”
Strong Need for Service
Bodie restated how her members who use overdrafts need the service.
“I know that consumer groups just want to make sure people aren't being gouged,” Bodie explained. “They think they're protecting the consumer. However, in reality, the consumer needs these services and ultimately what this will do, if institutions decide not to offer overdrafts, is drive more members to payday lenders. We are trying to decrease the impact (of a short-term loan) on consumers and provide a valuable service, charging a reasonable fee.
“These people who are so against overdrafts should take time to listen to credit unions, as well as consumers…If Washington does not get this right, if they really don’t understand the benefit of an overdraft program provided by an institution that prices fairly…if they make it too hard for a small credit union to offer this service, members will just go to another source for the money—a source who will take advantage of them.”