SACO, Maine—As overdrafts continue to take fire from consumer groups and Washington, one credit union contends most CUs can lower the charge and still make the same revenue.
Luke Labbe, CEO of PeoplesChoice Credit Union, explained to CUToday.info that his shop has dropped its overdraft price from $29 to less than $15, and yet is still making the same amount of OD revenue.
Labbe added the $312-million PCCU hopes to continue to lower the fee in the coming year, hopefully putting local payday lenders out of business and helping more members with an affordable, short-term loan that has become a safety net for them.
“We are not going to get rid of overdrafts, but we have been able to afford to lower the fee significantly,” said Labbe. “We've dropped our price almost 50% and we're producing the same amount of income because members are using the service more.”
Two years ago, PCCU, working with Moebs $ervices, changed its overdraft program and cut the OD fee from $29 to $16.95.
“This year we further reduced the fee to $14.95 with a goal to get it to $9.95,” explained Labbe. “We also increased the buffer to avoid a fee from $5 to $10. We increased limits for those members—60% of them—who live week to week and need short-term dollars to cover shortfalls. My ultimate goal with our new ‘SpendShield Checking’ is to go after the payday lenders.”
No Need to Overreact
Labbe said the move reflects how credit unions do not need to overreact to the pressure from consumer groups and the threat of the CFPB stepping into the OD market by eliminating the fee. Since making the move the CU is not only making the same revenue as when it charged nearly $30, but members are happier and more secure with their financial situations, the CEO added.
“The first year we dropped the fee by 40% and with consumers bouncing less checks we saw only a 20% drop in fee income,” said Labbe. “With our recent drop to $14.95 we are seeing members bounce more and fee income is back to pre-pandemic volumes. Members love our program. CUs need to understand that there is a lot of price elasticity, and if they design a good program they can drop their fee 50% and not see a huge decrease in fee income if any at all.”
One Payday Lender’s Effect
Labbe said he is passionate about making overdrafts an affordable service for members to use when they need it. That passion, explained, is motivated in large part by a payday lender that is close an office of PeoplesChoice Credit Union.
“We have a payday lender that is right across the street from our busiest branch in Biddeford (Maine), which is a low-income community,” said Labbe. “Sixty percent of the people there can't come up with $100 to cover an expense, and they're going to these payday lenders. So, I said we need to enhance our courtesy pay program to make it easy for these people to come with the money they need to cover emergency expenses.”
The situation in Biddeford is representative of markets across the country, Labbe said, something he believes Washington and the CFPB in particular need to understand.
“Our goal is to have a checking account that would make it easy for people to advance themselves money to cover their needs and life experiences,” he said. “Now, we can advance $5,000 for as little as $14.95. In 2021 our net charge-offs were $34,000. We increased limits substantially to cover people and we had very few charge-offs.”
The move has also improved the credit union’s efficiency.
Luke Labbe
“Before we made these changes people were always calling in for a refund for the $29 fee they received when they bounced a check. We don’t get any of those calls now, which saves us a lot of time,” said Labbe. “And members are using the service more, seeing the charge as affordable. We have become more efficient and our members are more satisfied.”
A New Sheriff, But…
Still, there is a “new sheriff in town,” noted Labbe, referring to the CFPB’s growing attention to overdrafts. He acknowledged the Bureau, and potential overdraft regulations, are something to keep in mind, but none of that is getting in the way right now of PCCU doing what is right for members.
“Bottom line, overdraft is a necessary service,” said Labbe. “We can’t just give this away for free, as there is a cost. And if we stopped offering overdrafts, our members would not like that. If the CFPB were to do anything, it would take a long time—and just to point out, the CFPB permits credit card late fees, which are often $40. If regulations were handed down, I am sure there would be a phase-in period. Also, if a new (Republican) administration takes over, everything with the CFPB will change back to the way things were a few years ago.”