Credit unions are different from banks in many ways -- ownership, purpose and reputation among many consumers, to name a few. But they have 1 thing in common: an overdraft problem.
While credit unions can boast lower overdraft fees than banks -- averaging $26.78 vs. $33.07, according to Bankrate's latest data -- they still lean heavily on such fees to make their checking accounts economically viable. However, with regulators looking increasingly likely to clamp down on overdrafts, that may not be sustainable.
Earlier this month, the Consumer Financial Protection Bureau sent out letters to financial institutions calling on them to provide "low-risk" checking accounts with no overdraft fees. In his remarks at a field hearing announcing the push, CFPB Director Richard Cordray specifically mentioned credit unions alongside banks.
Then, this week, Cordray gave a speech before the Credit Union National Association in which he reiterated that call, saying that the CFPB is currently "looking at how consumers are charged overdraft fees, the transparency of fees and the opt-in process for overdraft coverage of electronic transactions."
Credit unions coming around?
There seems to be some agreement that overdrafts tend to hurt consumers in the industry. At the same gathering where Cordray spoke, Gigi Hyland, executive director of the National Credit Union Foundation, seemed to agree with Cordray, according to a report by the Credit Union Times:
Research has shown that there is a small percentage of consumers who are heavy overdrafters, CFPB Assistant Director Corey Stone said. Those consumers are "paying for the most expensive credit there is."
Those consumers must be offered other choices, he said, adding that financial institutions -- including credit unions -- should not be relying on overdraft fees as an essential part of their revenue.
Hyland agreed, saying, "A lot of you rely on overdraft fees and that is not appropriate."
On the other hand, without overdraft fees, credit unions may have to adopt monthly fees to avoid losing money on many of their checking accounts. That would be a bitter pill to swallow for credit unions who often use offers of free checking as a way to differentiate themselves from banks.
It also might anger credit union members who have grown to expect free checking as a core element of their relationships with the not-for-profit financial institutions.
It's interesting to see credit unions coming toward the same unpleasant choice banks faced a few years ago -- impose unpopular monthly fees on a broad swath of their customer base or allow the missteps of a few overdraft-prone customers to continue supporting their entire checking account program.
Regardless of what decisions credit unions come to, government regulators may have the final say.
What do you think? Should credit unions charge overdraft fees?
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