WASHINGTON—Even if “headwinds” eventually cut back the number of CUs offering free checking, credit unions will hold onto more consumer-friendly pricing over banks.
That’s the stance of Mike Schenk, CUNA vice president of economics and statistics, who emphasized that despite the hit credit unions may—or may not—take from overdraft rules the CFPB might apply to checking products, those rules will affect CUs and banks equally.
In an analytical series pioneered by CUToday.info, several experts see the CFPB soon extending prepaid overdraft rules to checking, which is expected to dramatically reduce FI overdraft revenue—one economist predicting the average overdraft charge will drop from $30 to $1.
PIN-Less Debit Threat
As part of the CUToday.info series sources have also forecast a marked fall in debit interchange income due to some big box merchants moving to lower-cost PIN-less debit routing.
“Everyone will be faced with the same challenges, so what that means is the relative pricing advantage that CUs enjoy, whether they charge for checking now or not, will more than likely be maintained,” said Schenk, emphasizing CUs’ not-for-profit structure allows them to hold onto their “benefit gap” over banks.
Mike Schenk, CUNA
Schenk acknowledged that if CFPB rules do come down hard on FI overdraft revenue, holding onto free checking at the level CUs offer today may be difficult for the movement. But like former NCUA chairman Dennis Dollar pointed out, Schenk said CUs have a lot more room to grow checking than banks.
“In the scheme of things we are a small presence in the marketplace. Collectively, credit unions represent about 7% of total assets in depository institutions,” observed Schenk, saying that if checking revenue shrinks CUs can work to grab more market share.
Shrinking Pie
“The pie is shrinking, no question about that,” said Schenk. “And probably will continue to shrink, as people are doing payments in other ways. But it is a big pie in the first place and we have such a small piece. Credit unions have many successful checking years ahead.”
Schenk said it is not easy to predict how stiff the checking headwinds could be, including the CFPB’s attention to overdrafts.
“The jury is out in terms of what the impact will be from the challenges facing checking,” said Schenk. “It is certainly not difficult to come up with scenarios that are doom and gloom, but usually those doom-and-gloom scenarios don’t come to pass.”
Regulatory Overreach
But Schenk is certain about the lack of necessity for regulatory overreach with overdrafts.
“There is no one right way to do things, and when a regulator comes to the conclusion there is one right way, one consumer-friendly way, that is problematic,” said Schenk. “We have members of credit unions tell us they like overdrafts to operate in a certain way, and then we have members who say they like another way. There is diversity of opinion among the general public on how overdrafts should be provided, and there is a diversity among banks and credit unions on how they offer overdrafts. When regulators say we should have fewer options in the marketplace, as an economist and as a consumer I find that problematic. As a consumer I would prefer to have options and choose for myself, rather than have a bureaucrat choose for me.”
Even if “headwinds” eventually cut back the number of CUs offering free checking, credit unions will hold onto more consumer-friendly pricing over banks.