One Analyst's View: Time To Reduce Dependence On Fee Income, Look to Investments, Insurance

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LOMBARD, Ill. — Credit unions must look at ways to limit reliance on fee income and expand investment and insurance offerings.

That's the advice of Bill Handel, VP of research and development for Raddon Financial Group, who said CUs have to begin thinking about ways to reduce dependence on fee-generating sources, such as overdraft and interchange, due to scrutiny.

"Credit unions have to reduce their focus on these fee sources because the Consumer Financial Protection Bureau will always be looking at them. You should consider that fee income, overall, will be challenged."

That means some soul searching. "It's the fundamental question CUs must answer: Can I continue to offer free checking?"

Handel said CUs should evaluate the impact of charging checking fees against their use of free checking as a marketing tool, stating many credit unions use free checking as the focal point of their advertising. He said if the credit union keeps free checking, it must evaluate its ability to cross sell checking accounts, as well as membership demographics, to determine cross-sale potential. "If cross-sale potential is not high, then the credit union may not be able to recoup what it is losing by offering free checking."

Longer-term, credit unions need to diversify income sources, insisted Handel. "There is always opportunity to sell investment products, and insurance products, as well. Credit unions have always done well selling things like gap and credit life, but what they have not focused on is the broader spectrum of insurance products. All those types of related financial activities can generate good, consistent sources of non-interest income."

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