ONTARIO, Calif.-It will likely be several months before credit unions are able to see how the CARD Act and Regulation E are affecting their balance sheets, and by then, say some analysts, other variables will also be in play.
Chris Collver, senior legislative and regulatory analyst with the California and Nevada CU Leagues, said quantative projections related to income are rare at this point. "There are some credit unions that don't charge overdraft fees for one-time debits, so there is no financial impact on them," he pointed out. "Other CUs anticipate some financial impact. Right now, the effect is credit unions have spent several months complying with the rules, identifying the members who have overdraft, contacting them and getting their OK to continue."
Response Rates Vary
Efforts to reach members by phone are yielding opt-in responses rates in the 70%-80% range; mail-only efforts are averaging around 30%, he said. "We don't have hard data, but it does seem people want this service," he said.
Rita Fillingane, director of research and information for leagues, added, "Anecdotally, we have heard from a number of credit unions that for those members they have asked to opt-in, the response has been positive. Members want the service."
As July 1 approached, and with it the first Reg E deadline for obtaining consumer opt-in approval for overdraft protection by new members, Collver said much of the work was internal. Reg E's second deadline is Aug. 15, when existing account-holders must give their approval for overdraft protection. Making the matter more complicated, said Fillingane, is some CUs do not permit an overdraft, others do. Some charge a fee and some don't.
Many Are 'Tweaking Things'
"Credit unions are working with their data processor to identify those members who are opting out versus those opting in. There are a number of credit unions that don't charge a fee. They let the members know they are overdrawn, but there is no penalty. The reasoning why the legislation was put into place was to curtail abusive institutions that charged people $30 for a $3 cup of coffee at Starbucks, but credit unions don't do that," Collver said, adding that compliance with Reg E is a matter of "tweaking things," and it remains to be seen how big the financial blow will be.
"It will have some impact, but it varies by credit union. The Call Report data does not break down fee income by category. It will take a post-mortem at the end of the year. It will be less of an impact on credit unions than banks. Reg E and the CARD Act will have an effect of adding to the regulatory burden."
More pressing, Collver continued, is the possibility that two laws under evaluation in Congress would place further restrictions on overdraft procedures.
"These would represent more adding on and would present a potentially significant impact if they extended into check overdrafts," he assessed.
Fillingane said the inclusion of check overdrafts would directly affect consumers, because people appreciate the service. "They like to avoid the embarrassment of returned checks," she said.
Both analysts said the oft-repeated theory that free checking will disappear is unsubstantiated. "If it did get to that it would be from a number of factors, not just this," said Fillingame.
Credit unions may look to expand member business lending as one strategy for offsetting decreased income. American Banker, a sister publication to Credit Union Journal, recently reported some banks are doing just that."There is not a lot of information on this, but it is a possibility," said Colver. "Credit unions have been offering member business loans for decades, but not as often do they offer merchant services."
Fillingane noted there is such a lack of small business lending availability, it is possible even if banks expand in the small business market it might not impact credit unions.
Impact Not Seen 'For Months'
Daniel Penrod, senior industry analyst for the California and Nevada leagues, warned of a potential negative financial impact on the economy if banks look to raise fees to generate more income.
"If there are consumer protections, they will have to look to merchant services or the business arena to get more of their revenue from that side. This is a very inopportune time considering we need business growth, so it could make things more difficult," he said. "This is another unintended consequence of legislation. Yes, it could provide more opportunity for credit unions, but that opportunity is extremely limited by the 12.25% business lending cap. The true impact will not be seen for months."
