Credit Union Fees Wane as the Economy Gains

Large credit unions have been relying less on fee income in recent years, reflecting a mix of strategy, dividends of strong economic growth and the occasional hurricane.

A CU Times analysis of NCUA data showed fees among all federally-insured credit unions have tapered off in relation to average assets since the Great Recession ended in 2009. Fees have also flattened or fallen since the recession compared with membership and gross income.

“During good economic times, fees are going to go down generally because there are fewer late payment fees, fewer overdraft fees,” Terry O’Rourke, president/CEO of United Federal Credit Union in Saint Joseph, Mich., said.

Most of the decline since 2016 has come from large credit unions – those with at least $500 million in assets. Their fees fell from 12.2% of gross income in 2016 to 11.6% in 2017. First-quarter fees, which are typically lower, were 11.8% of income for the three months ending March 31, down from 12.8% a year earlier.

The smallest credit unions – those with less than $10 million in assets – already had lower dependence on fees: 11.7% (down seven basis points) for 2017, and 10.7% (down 45 bps) for the first quarter.

The middle group – those with assets of $10 million to under $500 million – have a higher dependence on fee income. Fees were 16.6% (down 54 bps) of gross income in 2017, and 15.6% (down 86 bps) in the first quarter.

Weighted by average membership, fees were the highest among the mid-sized credit unions ($19.10 in the first quarter, up 2.5%), and lowest among the smallest ($6.13, up 1.2%). The largest credit unions had fees of $18.46 per member, up 0.7%.

Sometimes higher fees can reflect the higher costs of serving members.

The Danville, Pa.-based Service 1st Federal Credit Union ($351.7 million in assets, 29,270 members) generated $2.2 million in fees last year, accounting for 12.3% of gross income, down from 12.5% in 2016.

Fees collected in the three months that ended March 31 were $21.48 per average member, up 30.1% from a year ago. They represented 13.3% of gross income, compared with 11.7% a year earlier.

Jeff Balestrini, chief lending officer, said Service 1st keeps its fees low for members, but that its overall fees have risen the past year because of fees from its higher rate of commercial lending and an overdraft program launched about two years ago. The program charges members $20 to $30 per overdraft, while covering the charges.

The program is designed to help members who are flying at tree-top level with account balances steer away from payday lenders. “We’re providing value to these members who are struggling paycheck to paycheck,” Balestrini said. “We have very loyal members. People get sick financially, and people get well financially. We believe that: We try to help them through all phases of their life. ”

Sometimes fees are cut by acts of God. Like others hit by hurricanes last year, Community First Credit Union of Florida ($1.6 billion in assets, 128,024 members) waived its fees for overdrafts and ATM surcharges in the weeks after Hurricane Irma arrived Sept. 10. The waivers cost the Jacksonville credit union about $250,000, mostly in the fourth quarter, reducing fees for the year by 2.4%, or about $2 per member.

Since then, delinquencies have returned to normal. The healthy Jacksonville economy plus the usual first-quarter boost to deposits from tax refunds has fueled the credit union’s investments and loans. “We’re growing assets considerably faster than we’re growing fees,” CFO Sam Inman said.

Sometimes there’s a plan. SAFE Federal Credit Union of Sumter, S.C. ($1.1 billion in assets, 121,221 members) completed its most recent fee reviews in 2015 and early this year. In August, it launched a new overdraft plan that gives greater benefits to members who use direct deposit and have higher average balances.

“We were having a lot of overdraft protection abuse,” he said. “People who aren’t using our services and don’t have higher average balances won’t have overdraft protection, and won’t get themselves in trouble either.”

SAFE members now have three ways to prevent bouncing checks:

• SAFE prefers to have members link their checking account to a savings account. If an overdraft occurs, SAFE automatically transfers money from their savings without a fee.
• Members can apply for Overdraft Protection, which requires SAFE to approve a line of credit. Overdrafts are credited to the loan and the member is charged interest until the balance is paid off.
• The third option is Overdraft Privilege, which involves a $30 fee for every overdraft (up from $25). The member has 30 days to pay back the deficient balance.

“We found we were driving a lot of members away because of overdraft protection abuse. We were having to close accounts because it wasn’t user friendly,” Hayes said.

United Federal Credit Union of Saint Joseph, Mich. ($2.6 billion in assets, 167,963 members) has been cutting fees through “thoughtful and ongoing monitoring,” O’Rourke said.

Among last year’s axed fees was a $3-per-quarter paper statement fee. By October, United plans to cut 12 more fees, including a $0.50 mobile check deposit fee, a $0.75 fee on person-to-person cash transfers and non-member check-cashing fees.

Will they be replaced by new fees? “We’re very hesitant to add additional fees,” O’Rourke said. “Our industry is changing so quickly. It’s much easier to change financial institutions than it was just a few years ago. We want to be sure we’re providing a good value to our members.”

Sometimes fees are added or subtracted after such deliberate, systematic reviews. Sometimes they just come to the attention of the right person.

That was the case with Todd Marksberry. He made changes slowly after he moved to the Denver area in June 2015 to be president/CEO of a credit union then called Public Service Credit Union in Lone Tree, Colo. The credit union changed its name this year to Canvas Credit Union ($2.4 billion in assets, 237,329 members).

The credit union was an indirect car lending pioneer. That sector still provides a large chunk of income, along with the fees it collects from other credit unions that use its shared branches. Most of Marksberry’s energy has gone into building a greater presence for Canvas’ mortgage lending and credit cards so the credit union can provide a broader range of services to households.

Fees haven’t been a big focus, but a 2017 call from his adult daughter in Atlanta got his attention.

She told him the credit union had charged her a $5 fee to replace her credit card. The credit union had recalled the card because of a security breach, and sent her a new one. She never received it, and then requested a replacement. That’s when the fee kicked in.

The charge fell into a category Marksberry calls “member nuisance fees.” They’re typically small fees that might have made sense at one time, but have outlived their usefulness. In fact, the annoyance factor can make them a liability.

“It wasn’t a significant amount of income for the credit union, nor was it a strategic focus on our part,” he said. “It was one of those things we had started charging years ago, and nobody had looked at it. I said, ‘Let’s stop that. That’s ridiculous. It’s no fault of the members.’”