CUTIMES (1/5/2016) - "Overdraft Suits..."
(... from January, 2014)
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| Which side are we on? |
The noticeable shift in the political winds occurred with the announcement by Wells Fargo, U.S. Bancorp, Fifth Third, and Regions Bank that they would all discontinue offering "deposit advance loans" to their customers.
Deposit advance loans are very similar to those highly controversial, extremely expensive, short term payday loans, which carry interest rates ranging between 300% to 800%. Many credit unions offer similar overdraft products called "courtesy pay" or "bounce protection" loans.
These loans are most often made to consumers who do not qualify for other types of credit and have few other options. Profits from these loans are substantial.
Banking regulators, including the OCC and the CFPB, have been increasing the scrutiny of banks offering these loans for quite some time, indicating that the loans were predatory, financially unsound, and raised "safety and soundness concerns". Clearly all the banks "got the message" of what was coming.
Which brings us back to the credit unions which continue to offer the courtesy pay, bounce protection products….
For those credit unions, it would appear that a similar decision is at hand. A difficult choice between profits, politics, and principles**….
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| "… and over time the inhabitants of Animal Farm found when they looked from the face of man to the pig and pig to man, they found the same." - George Orwell |
** THE OVERDRAFT PROTECTION LAWSUITS ALWAYS FOLLOW RIGHT ALONG AFTER THE OVERDRAFT PRACTICES LAWSUITS... BE ADVISED, THE SUN COMES UP IN THE EAST MOST MORNINGS!
3 comments:
Jim- Why not run a little query from the NCUA call report data? How many credit unions would report NEGATIVE income if it wasn't for FEE INCOME? Several credit unions are showing positive Net income because of the courtesy pay fees. They have a great defense - the checking accounts are FREE. How can I be ovedrawn? I still have 10 blank checks in my checkbook.
I would venture to say the vast majority of CU's would report negative income if not for fee income.
Think Greg makes an interesting observation about fee income. Diversifying sources of non-interest related income is a very wise practice!
But if our solvency rests on income derived from NSF and bounce protection fees, where does that leave us? What does it mean if we are reliant on income resulting from member "error", member financial illiteracy, or member financial desperation?
Should it be a bigger concern since we are member owned credit unions?
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