WASHINGTON – Legislation that would require an ‘opt-in’ on overdraft protection plans or bring fees charges for the program under the Truth in Lending Act discourage credit unions from offering the popular programs, also known as bounce protection, credit union executives and directors said yesterday.
"For a credit union like us, it would hurt," said Harry Baram, director and former CEO at $75 million Jersey Trades FCU, during NAFCU’s annual Congressional Caucus. He worried that if overdraft protection fees were brought under the TIL’s annual percentage rate calculation it could make overdraft fees charged prohibitive. "The Truth In Lending part is the hard part, it would put us in danger of going over the 18% (NCUA cap in interest rates)," said Baram, who retired as CEO three years ago after 23 years.
Bob Marquette, president of $1.7 billion Members 1st FCU in Mechanicsburg, Penn., also expressed concern over the potential loss of a revenue stream. "Net interest margins are shrinking. If you take out that stream of revenue what’s going to happen to the bottom line. You have to cover the cost of operations," he told The Credit Union Journal.
Michael Samuel, a director for Dow Louisiana FCU, also worried about the loss of revenue in a world of shrinking interest rate margins. "It’s really difficult to make it on just interest income," he said.
The executives’ concerns come as Congress is preparing to debate legislation that would require all credit unions and banks allow customers to opt-in, that is, affirmatively ask for overdraft protection, and set new requirements for disclosures and rates.
The proposal is one of several that could cut further into credit union income. Congress is also debating bills that would allow large retailers, like Wal-Mart negotiate the interchange fees they charge consumers. Another measure to abolish the once-lucrative federally guaranteed student loan program is poised is expected to be enacted. And lawmakers are expected to debate again a bid to allow bankruptcy courts to adjust the terms of troubled mortgages, so-called cramdowns.
Members 1st’s Marquette questioned the need for opt-in, saying most credit unions allow members to opt-out if they don’t want to participate. "We’ve had overdraft protection for years and we’ve never had a member complain," he said. "We allow opt-out, but no one’s ever opted out."
Requiring members, feared one CEO who did not want to be identified, would result in fewer members using it. "It would create a bit of hurdle to getting people into the program," he said.
John Worthington, senior vice president at $5 billion Security Service FCU in San Antonio, described the credit union view of overdraft protection. "Ultimately, this is a benefit for our membership," he said. "They would rather pay $25 than $40 to the grocery store (for a bounced check fee). Ultimately, this is a benefit for our membership."
