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Many credit unions are examining their existing fee structure. A recent CUNA CEO Council white paper explains that the changing economic landscape means the unusual spike in noninterest income likely won’t last and credit unions will have to operate with fewer, or smaller, fees in the future.
The Consumer Financial Protection Bureau is branding late penalties, overdrafts, returns, transfers, and out-of-network ATM access as “junk fees,” while financial apps are evolving the financial industry away from fees, according to the white paper.
NCUA data shows a decline of $2 billion in noninterest income from the first quarter in 2021 to the first quarter in 2022. Meanwhile, fees were up 9.3% percent year over year.
Potential remedies for credit unions experiencing a drop in non-interest income include reducing fees, finding alternative sources of noninterest income, and developing a new wave of fee-generating services.
The white paper stresses that there is no silver bullet, as every credit union is in a different situation.
Karen Smith, chief financial officer at $4 billion asset Jovia Financial Credit Union in Westbury, N.Y., advises credit unions to look at what they do well. Then, examine how those abilities could translate into a stronger source of revenue.
“We are really good at collections. But I can’t make money selling collections services. I would be competing against specialists with auto dialers,” Smith says. “But what I can do is sell loans with recourse and pick up income on the servicing. I can’t sell just the collections, but I can sell our collections as a service with our loan team.”
Other experts recommend the following options as ways in which credit unions can start replacing lost noninterest income:
Furthermore, it’s important to find services that have value for future generations. The white paper stresses that credit unions need to think like challengers rather than threatened incumbents.
“Act like a startup. Dig into member data, look for problems, and ask what you would design to solve those problems,” C. Myers President/Principal Rob Johnson says. “Your team will be more excited, and you’ll get better idea generation.”