'Conversation Fees' 1 Way To Bolster Income

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MADISON, Wis.-Credit unions can combat legislative threats to their non-interest income by driving greater use of credit and debit cards by members, along with the installation of a "consultative culture."

That was the message from Bob Larson, a financial support consultant for CUNA Mutual Group, during the company's Online Discovery Conference last week. Larson noted the increasing importance of non-interest income over the past decade, yet the positive numbers are being offset by other charges.

"Non-interest income is up an average of 12% per year since 2001," he told a virtual audience. "There are two sources of non-interest income: transaction fees and what I call 'conversation fees.'"

Conversation fees are driven by products such as credit protection, debt protection, GAP insurance and other items that require, as the name implies, a conversation with members, he explained. Transaction fees include NSF/courtesy pay fees and interchange income. "Transaction fees are easy-the credit union makes money just by members' activity," he observed.

Non-interest income as a percentage of total income for credit unions was just 12.69% in 2001. That figure rose as the decade went along, hitting a plateau of 18% to 19% from 2004 to 2008 before jumping to 21.45% in 2009. Larson said last year's spike was due to a record year in real estate lending and its associated fees.

With CUs increasingly relying on non-interest income, he continued, the risk is greater. Already, new laws have affected courtesy pay and interchange, not to mention the fact the recession has driven consumers to pay down their debt and use their credit cards less.

"What we do now will define us going forward. We must come up with ways to replace lost income," he declared. "We made it through the recession, but now there are many challenges including legislation."

The average consumer has eight credit cards. Larson said CUs must make their card top of mind through innovative promotions. Similarly, he urged CUs to boost the use of debit cards.

In the non-plastic realm, Larson advised CUs to get past the idea that "sales is bad" and promote a consultative culture. "Employees should sit down with members, hear their needs and find solutions to help them going forward," he said.

In addition to traditional credit union insurance products such as GAP, Larson said the industry should look into expanding insurance offerings to include home, life and AD&D coverage. As another alternative, he pointed to some credit unions that have had success with having a title company alongside their mortgage lending business.

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