Fee Income: Necessary for Credit Unions, but at What Cost?

Credit unions were designed to be kinder than other financial institutions. They embrace people who have been turned down elsewhere for an account or loan, doing whatever they can to help the person get on their feet and reach their life goals. Serving the financially underserved – the minimum-wage worker, the immigrant family, the single mother slash college student – is part of a credit union’s DNA.

So why did The New York Times publish an article calling out a credit union for financially crippling Marriott worker members with fees?

The Oct. 11 piece, “Marriott Workers Struggle to Pay Bills, and Credit Union Fees,” profiled several Marriott Employees’ Federal Credit Union members who said their already-tough financial situations took major hits as a result of fees charged by the CU. Amos Troyah, a dishwasher at the Philadelphia Marriott Downtown, said he spent $2,000 of his $30,000 annual salary on credit union fees, including minimum balance, excess transaction, automatic money transfer and overdraft fees ranging from $6 to $35 each. Lakesha Wheelings, a line cook at the same Marriott hotel who supports two teenage children, makes $19 an hour but only brought home $39,500 last year because her hours were cut. She took out a six-month, $500 loan at the CU at an 18% interest rate, during which time she was also charged $450 in overdraft fees. Thousands of Marriott workers are currently on strike, demanding better pay and consistent hours.

My initial thought when I saw the article was, “Yay! The New York Times highlighted a credit union!” That was quickly followed by, “Well crap. This isn’t the message we want to get out at all. There goes the credit union movement’s next potential member.”

The credit union world has been oddly quiet about the article’s release. After searching the hashtags #creditunion and #creditunions on Twitter these past two weeks, we noticed not one credit union professional had shared the article. Our assumption was that no one wanted to bring attention to a negative, national story related to the industry.

Through our coverage of fees at CU Times, we’ve learned quite a bit about the controversy surrounding them. While fees are an essential element of noninterest income for credit unions, they also risk upsetting members or sabotaging member relationships if the fees are too high or charged too frequently. The solution seems to be finding a healthy balance between keeping members happy and earning enough income for the credit union to grow. Credit unions need income and happy members to survive – one can’t be compromised for the other.

Keeping fees low and infrequent is a strategy that’s in line with the credit union mission, yet not all credit unions follow it. Just this past Monday, we reported that checking account fees are highest at credit unions, with members paying an average of $12.90 per month compared to $8.95 a month at banks and $3.52 at thrifts, according to financial institutions analytics company Moebs Services. This news followed an Oct. 3 report from Moebs that during the 12 months ending June 30, 2018, service charges rose 4.9% at credit unions and fell 1.7% at banks.

Credit union professionals have often weighed in with their philosophy on fees for CU Times articles. In a February 2016 letter to the editor, Western Cooperative Credit Union CFO Justin Maddison defended overdraft fees, writing that credit unions offer free tools to help members avoid overdrafts, such as the ability to view their real-time account balance on a mobile device, and “when a credit union pays an overdraft for a member, this is a courtesy and an extension of unsecured credit.” For an Aug. 3, 2018 feature, “Credit Union Fees Wane as the Economy Gains,” several CEOs shared how they recently adjusted their fees to better serve their members. Terry O’Rourke, president/CEO of United Federal Credit Union, cut a number of fees at his CU including a $3-per-quarter paper statement fee and $0.50 mobile check deposit fee, and is hesitant to replace them with new fees. He stated, “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.” Meanwhile, Todd Marksberry of Canvas Credit Union said he got rid of a $5 card replacement fee, which he called a “member nuisance fee” that wasn’t generating much income or part of the CU’s strategic focus.

When it comes to fee philosophies, Marriott Employees’ FCU could be an outlier – and perhaps have no choice but to charge fees some members can’t afford. In the Times article, the credit union’s CEO, Glenn Newton, stated the modest wealth of its members leads to low average deposits and less money for generating income. Yet, according to the article, the CU’s fees are unusually high: They total more than 1.7% of its assets, which is three times the percentage generated by fees at credit unions serving workers at Safeway, Publix and Nordstrom. Members of the credit union paid an average of $94 in fees last year.

I’m not sure if Newton’s explanation justifies the fees being charged to these low-wage members, or if the credit union will rethink its fees as a result of the Times piece. But I do know these Marriott workers are struggling, and the fact that they feel their credit union is adding to their struggle doesn’t sit right with me.

The bigger issue here is these people are not making enough to live comfortably in a city like Philadelphia. That should be a reminder to credit unions of their duty to provide their communities with financial education – not only to help them manage the money they’re making, but help them devise a plan to increase their income in the future, for instance by seeking higher education and applying for a higher-paying job.

The Marriott case also serves as an example of what can happen when there’s a board-credit union member disconnect. The Times article said the credit union’s board members include five Marriott employees with “vice president” in their title, three with “director” in their title and one hotel general manager. My guess is none of these board members know what it’s like to live paycheck to paycheck, like many of the credit union’s members do. Their complaints about the fees serve as a reminder of why credit unions should appoint a board that represents their membership.

I’ll end this column by giving our readers the chance to weigh in on the article that appeared to be widely ignored by the industry. What did you think of the Times piece? Is it time for Marriott Employees’ FCU to cut back on its fees, or is it Marriott’s responsibility to offer workers better compensation? How do you serve the underserved without sacrificing income? Send me your thoughts at the email below.

Natasha Chilingerian is managing editor for CU Times. She can be reached at nchilingerian@cutimes.com.