LOMBARD, Ill.-Other "sexy" issues like healthcare, jobs and terrorism are likely to put consumer protection legislation on the backburner once again, according to Bill Handel VP-Product Development at Raddon Financial Group, who believes a bill with significant changes to overdraft practices will not be seen in 2010, if at all.
However, Handel cautioned credit unions to look for more changes from the Federal Reserve, including possible regulation of pay orders. The Reg. E changes that go into effect this summer could actually help credit unions, especially those who did not offer overdraft protection services.
"The institutions who never allowed the member to go negative on the debit card or in the ATM are in a pretty ideal position," Handel said. "Now they can begin the opt-in process and they have a ready made reason to do that if they so choose."
For those CUs that already offered an overdraft protection product, Handel suggested getting out in front of the membership as quickly and efficiently as possible. Credit unions should use multiple channels to target the roughly 10% of members that "abuse" the product, and engage them when they trigger the service's use.
"Talking in the media and in your newsletter is nonsensical to me. What we are telling our clients to do is as soon as a member has an overdraft, that's when you should be communicating," Handel explained. "If I have the e-mail addresses, I would start with that approach. You have a reasonable window of six months before this is in effect; you can start the opt-in process and do it on a selective basis."
After the "abusers," credit unions should move on to members who have history of occasional use of overdraft before engaging the 75% of the membership who have never used it before. While ensuring that everyone, or at least almost everyone, who uses overdraft services opts-in before the July 1 deadline is optimal, Handel acknowledged the fact that such a goal is not really attainable.
"I think you're definitely going to see a hit in 2010, I don't think consumers are going to understand it well enough so they want to opt-in, until they actually [need it]," he said.
To make up the revenue, and perhaps to boost the bottom line further, Handel implored credit unions become better at margin management and take a long look at investment services. Better and more frequent use of relationship pricing would reverse a historically shrinking margin income, while investment services have the potential for massive increases to the non-income revenue stream.
"It's a major opportunity staring you right in the face and there aren't many credit unions that are preparing for it," said Handel, pointing to unfounded fears many CUs have that investment accounts will shrink core deposits. "If you establish an investment accounts with your members, if you track your core balances with them, they grow."
