HOLLYWOOD, Fla. - Does your credit union have a “fee income committee?”
It should, according to several analysts, who offered that proposal and others for boosting non-interest income. The analysts did so while noting that although credit unions still see fees as a point of differentiation with banks, they have also become increasingly dependent upon fees and are looking for ways to generate that income without alienating–and sometimes even helping–their members.
“‘Fee income’ used to be a dirty word, but that is changing,” said Bob Larson of CUNA Mutual Group, during a session on “Sustaining and Growing the Non-Interest Income Engine” during Discovery Conference. Larson was joined by his colleague, Bill Ganzenmuller.
After polling the audience and finding that very few of the credit unions represented had a fee income committee, Larson urged credit unions to put such a committee in place. The committee’s focus, he said, is to explore “where else can we find income, especially if interchange income goes away” due to legislative efforts to change the way interchange fees are charged.
Adding to the need for seeking out other fee income is a general pullback in indirect lending, which Ganzenmuller said is ongoing and is expected to continue for at least another six months. “I’ve talked with some credit unions that are even building models if taxation comes,” Ganzenmuller noted.
As credit unions have been forced to reevaluate the “dirty words” they are trying to make sure that not only do they still charge fewer and lower fees than banks, but that those fees also serve their members’ interests in some way. “When a credit union collects fee income, the aim is to give that value back to the members, not to benefit stockholders, that’s why it doesn’t have to be a dirty word,” Larson said.
Courtesy pay programs, when done correctly, are an example of that, he offered. If the fees are structured properly, they actually save members’ money by allowing them to avoid the merchant fees associated with a bounced check.
The good news on courtesy pay: the program can be astonishing easy to grow. “What we have found is that they typically spike and then plateau, and then you promote it again, and it spikes up again and then plateaus, and you can keep growing it that way,” Larson said.
The bad news: Congress is going after courtesy pay programs, just as it’s going after interchange fees. The message: credit unions will need to be able to show that their courtesy pay programs are not abusive and should not be included in Congress’ efforts to reform them.
Among the observations and suggestions culled from the audience and the speakers:
* Sales Culture = Fee Income. When a credit union implements a true sales culture, fee income tends to rise. “And there’s not a lot of pushback from members,” Larson said, noting that the correlation here is that when employees do a better job of selling, members are more engaged and therefore more likely to purchase a product or service and not worry about a fee.
* Policy Change. “Credit unions can no longer afford to be against credit insurance, not when we have so many members who are overextended,” Larson observed.
* Income Insurance. CUSOs are a huge fee income opportunity, particularly insurance company CUSOs.
* Reevaluate Your Fee Structure. One member of the audience related how her credit union looked at how it was calculating late fees on loan payments. By changing the fee to a flat fee instead of basing it on a percentage of the loan payment, the credit union was able to greatly increase the fee income it was collecting. The credit union felt it could justify this action without harming its philosophy based on the concept that “if you’re late paying, you’re late paying, whether you’ve got a Lexus or a Kia,” she said.(c) 2008 The Credit Union Journal and SourceMedia, Inc. All Rights Reserved.http://www.cujournal.com http://www.sourcemedia.com
