By Ray Birch
OAK HARBOR, Ohio—Should the CFPB issue some strong rules around overdrafts or require many institutions to dramatically lower their fees, a large number of small credit unions will be forced to seek a merger partner, says the leader of one small CU.
“If this happens it would not be a move we could afford,” acknowledged Michael Barr, who runs the $70-million Commodore Perry FCU here. “From our perspective, we're probably looking at $25,000 a month in those fees. That's what's on the table. It's a substantial amount of money. That's people's salaries and jobs that are on the line.”
As a result, Barr said strict limits on overdraft prices would be a threat to the future of his credit union and other small shops.
“We would define ourselves as a smaller credit union. We’re talking about one swipe of a pen eliminating a quarter-million dollars a year in our income,” he said. “It's not doable. It will force many small credit unions into merger positions.”
Commodore Perry FCU charges what Barr emphasized is a “fair” overdraft fee--$28--and is very clear about its overdraft policies.
“We're very upfront with the service and clearly describe in our literature when a member joins how our overdraft program works,” explained Barr.
Appreciation by Members
Michael Barr
Barr, like many CEOs who spoke with CUToday.info regarding overdrafts, stated his members appreciate the overdraft service Commodore Perry provides, and despite the big banks grabbing recent headlines for lowering or eliminating their fees, no member has been challenging the credit union’s current $28 overdraft charge.
“We're fair in our disclosures as to what the product is, what the cost is and how it works,” said Barr. “We also return thousands of dollars a month in requests for fee refunds as a courtesy to members. I have never had a member come to me and say this fee is too high. They see it as a valuable service. The members who don’t intentionally use this service are the ones who come in and ask for a refund, which we grant.”
That is why Barr said he challenges the stance consumer groups, some members of Congress, and reportedly the CFPB are taking with overdrafts. NCUA Chairman Todd Harper has also frequently raised the issue.
“It's very interesting to see what's happening,” he said. “I have to ask the question…There is talk about eliminating overdraft charges or eliminating these overdraft programs because they're not beneficial to the member or consumer. Well, you're also then saying these programs, which you have been offering for years, have not been beneficial to members. Has there been some great awakening? I don’t believe so. These programs have not been detrimental to people.”
What Some See on Horzon
Instead, what’s happening, suggested Barr, is the larger financial institutions are seeing regulatory changes on the horizon and are preparing for that shift.
Moreover, there is also competitive pressure being applied to all financial institutions by fintechs.
“The non-bank financial service providers are coming out with checking accounts that don't have these types of fees, and we've got to compete with that,” said Barr.
But the problem for the small credit unions is they do not have the scale to absorb the fee income reduction, or even the ability to shift the charge elsewhere, which Barr believes the big banks are doing as they cut their OD fees.
“This could be another nail in the coffins of small credit unions,” Barr said.
No Investment in Communities
Meanwhile, Barr pointed out fintechs don’t have the overhead of established financial institutions, which allows them to not charge fees.
“Plus, they don't have the investment in the local communities that small organizations like Commodore Perry has. They don't have physical investments in branches and are not hiring a lot of people. They're not getting involved in participating in communities,” Barr said.
Barr contended the recent conversation around overdrafts is far too narrow.
“For a long time these programs have been a good service to members, allowing them a way to bridge the gap when they are temporarily short on funds,” said Barr. “Most are using overdrafts intentionally, and as a result they are not falling into the payday lending trap.”