GOLDSBORO, N.C. — Proposed legislation that would rein in overdraft protection programs and require credit unions to obtain written permission from members to opt-in to such programs is causing at least one CU to worry about its future.
"The fact of the matter is this bill is very poorly conceived," said Robert McKenzie, president/CEO of North Carolina Community FCU.
McKenzie called the legislation a "cookie-cutter approach" that Congress created as a knee-jerk reaction to the practices of just a few that are not representative of all institutions.
"Most credit unions do not practice this approach," he said of overdraft/NSF fee abuse. "In fact, the next complaint we get about this program would be the first."
North Carolina Community FCU generates $175,000 per year in NSF income. For those who have chosen to stay in the overdraft protection program, the CU brings in about $769,000. "Our loss would be close to $1 million" (without the fee income), McKenzie said. "This is a $65-million credit union. We have to have that fee income to keep us going. Something as idiotic as this to come along justifies unbelief. You take away our ability to offer overdraft protection (and members are) going to go right back to predatory lenders and pay a whole lot more." NCCFCU charges $25 per returned item.
McKenzie noted that overdraft programs are especially important in small towns. "Merchants know everyone here. You don't want to bounce a check around here. Word gets around."
If legislation is enacted that would reduce overdraft fees, sometimes called courtesy pay, McKenzie said his credit union is going to have to significantly slash expenses. "I'm not sure what will happen," he admitted. "We're already very conservative, with 10% net worth. We cannot justify continually losing money. If we don't keep making money, we will eventually be out of business."
McKenzie said that 7,800 members - or about one-third of its membership - use the CU's overdraft protection program. "Chronic users - we will cut them off at some point and suggest they open up an overdraft line of credit," he said. "Our program is a good program. It's not predatory lending. It should not be taken away. There's just nothing good at all about this. And this is really not a good time to take away the ability to generate fee income."
