Unlock noninterest income alternatives

Credit unions examine fee structures amid new pressures on NII.

April 24, 2023

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:

  • Expanded business client services. “Credit unions are not known for offering a suite of business services, and there’s certainly income that can be gained from those, especially in the small business market,” Redwood Credit Union Chief Operating Officer Tony Hildesheim says. “They’re frankly underserved by the large banks who focus on larger businesses.” 
  • Wealth management and tax advisory services. Credit unions are beginning to become more involved with the accumulation and distribution stages of wealth for members.
  • Insurance products including life and disability.
  • Brokerage services. “I always wonder why credit unions don’t do more to push brokerage services,” CUCollaborate Chief Economist Luis Dopico says. “Especially for wealthier members who sometimes have very large deposits. Many should be saving for retirement, investing more in non-deposit products.” 
  • Credit cards. 
  • Fraud protection services, including credit monitoring, lost wallet management, and data protection. 
  • Vehicle loan ancillary products, including guaranteed asset protection (GAP), and life and disability payments. Used car prices have increased and some now sell for more than what they cost new. GAP can provide fee revenue and assist in the event of a crash or surrender.
  • Secondary business capital. “It’s not easy to get in and out of these secondary capital opportunities. These are five-year products,” Smith says. The white paper notes this option is for credit unions interested in taking a bigger stake in the business community. 
  • Fintech partnerships.

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.”