Legislation May Lead to Higher Fees

Loss of interchange income could lead to higher costs for CUs and members.

January 27, 2011

The sluggish economy, probable loss of fee income due to the 2010 financial reform legislation, and corporate stabilization assessments continue to burden credit unions.

Contributing to the concern over the loss of fee income is the proposed interchange fee regulations by the Federal Reserve.

The proposal is expected to reduce the amount of check card interchange income credit unions earn, as well as negatively affect members through changes to rates, fees, and services changes.

Credit unions will not only need to cover the loss of fee income, but also the increased costs of complying with the regulations.

CUs’ Potential Responses to Interchange Legislation

  • Increase debit/check card fees: 41%
  • Increase NSF/overdraft protection fees: 40%
  • Eliminate free checking accounts: 30%
  • Reduce deposit rates: 25%
  • Increase nonmember ATM fees: 21%
  • Increase monthly checking fees: 18%
  • Increase loan rates: 14%
  • Increase member ATM fees: 10%
  • Eliminate credit card rewards: 7%
  • Increase loan fees: 7%
  • Increase credit card fees: 6%

Source: CUNA's 2010-2011 Credit Union Fee Survey

While the fallout of interchange legislation will not be clear until the Fed releases final rules by its April 21 deadline, credit unions are considering what actions to take [ppt] if the new regulations do indeed have a negative impact.

In fact, most credit unions (91%) that offer check cards anticipate they will make some sort of changes to their rates, fees and/or services as a result of interchange legislation according to CUNA's 2010-2011 Credit Union Fee Survey.

The most common changes credit unions anticipate making will be to introduce or increase debit card/check card fees and to increase nonsufficient funds/overdraft protection fees. About 40% cite each of these changes.

Furthermore, 30% of credit unions say they’ll eliminate free checking accounts—long a hallmark of credit unions service to members.

Beyond these changes, lowering deposit rates and/or increasing nonmember ATM fees would be changes implemented by the next-largest percentages of credit unions, at 20% to 25%. Only 9% of credit unions indicate they would make no change.

These findings support the contention of CUNA and state leagues that interchange legislation will hurt credit unions, members, and consumers in general.

Credit unions undoubtedly will make changes to their rates, fees, and service offerings if the final rules match the current proposal.

While credit unions strive to provide the best service to members and to offer the lowest rates and fees, a loss of fee income and increased costs means they have no choice but to take these actions.

CUNA's 2010-2011 Credit Union Fee Survey Report assists credit unions in evaluating fees for a full range of services, including those related to: share draft/checking, nonsufficient funds (NSF), overdraft protection, online bill-payment, and more.

This report will also help credit unions set the types and amounts of fees that are not only a good deal for members, but also cover business costs and encourage members to use money-saving services. Results are provided by credit union asset size, as well as geographic region so that credit unions can compete with other financial institutions in their area.

BETH SOLTIS is senior research analyst for the Credit Union National Association’s market research department.