New Laws and Regs Make It Harder to Earn Noninterest Income
The just-passed credit card measure and related regulations issued by the Federal Reserve, the NCUA and the FDIC mostly focus on regulating how often card issuers can raise interest rates.
The limits on interest rates will cause credit unions to rely even more on noninterest income. And the bill does hurt credit unions in one key revenue center: gift cards.
Gift card issuers can only begin to levy dormancy (nonuse) fees one year after the card has been issued.
According to Call Reports filed with the NCUA, federally insured credit unions' noninterest income equaled 1.09% of total assets, down from the 1.33% reported for 2008. If that percentage stayed the same throughout 2009, it would result in $10.7 billion in noninterest income for 2009, compared with $10.85 billion last year, according to analysis by Callahan & Associates.
In 2008, 12.8% of noninterest income came from interchange fees on credit card transactions and 18.8% from interchange fees on debit card transactions.
Interchange fees are among the next consumer items that Congress may deal with. Legislation introduced in both chambers would require credit card companies to renegotiate fees with retailers. Under the Senate version, if a resolution between card issuer and merchant cannot be reached, resolution would rest with a binding arbitration by a three-judge panel appointed by the Department of Justice and the Federal Trade Commission.
The House Judiciary Committee passed a similar bill last year but no additional action was taken.
In addition, credit unions could be hurt by proposed regulations that the Fed has issued on overdraft protection.
Under proposed Regulation E pending before the Fed, credit union members (and customers of other financial institutions) would be allowed to opt out of having some or all overdrafts paid at the point of sale. Credit unions would also be banned from charging overdraft fees if the overdraft is the result of a hold on funds.
Also, the overdraft fees on debit cards could instead be disclosed as a finance charge and thus subject to the anti-usury laws; credit unions can only charge up to 18% interest. In other words, if a credit union charges $25 for an overdraft and someone overdraws the account by $100, the CU could not charge the full amount because it would exceed the 18% cap.
"It's a triple whammy for credit unions. Lots of new regulations, an economy that is causing delinquencies to go up and less ability for credit unions to charge fees," said NAFCU's Director of Regulatory Compliance Anthony Demangone. "You'll see credit unions find other fees that aren't regulated, such as higher ATM fees for nonmembers, and they will become less willing to waive fees for members."