While most credit unions continue with their mission of supporting thrift for those of modest means, a USA Today article regarding credit union overdraft programs right here in the Washington, D.C., area, specifically targeting government-related credit unions, should help bring wayward credit unions in line. The article noted that the White House FCU, a stone's throw from the president who wants to control overdraft fees, charges $25 for each overdraft; an accompanying chart noted that the credit union makes $90.80 in fees per member.
But consider this: Wright Patman Congressional Federal Credit Union, which serves members of Congress and their staffs, earns $156.70 per member in fee income. Credit union lobbyists might have trouble with that one. Still, the article, while fairly balanced, did not offer up how those fees compared to what the banks charge.
The data were illustrating that credit unions offering overdraft programs earned considerably more fee income than those that do not. For example, Pentagon Federal Credit Union, which does not offer overdraft protection according to USA Today, had fee income per member in the teens. However, Department of Commerce Federal Credit Union, which does offer overdraft services, had income in the teens as well.
At my credit union, I had to apply for a line of credit that's connected to my checking account, making it an opt-in service. APL Federal Credit Union also provided options of connecting the checking account to my savings account and my credit card, as well as the order in which it should draft from the different accounts.
APL only allows checks to overdraft, not ATM withdrawals or point-of-sale transactions. However, if you anticipate a transaction might come close to draining the account, you can transfer money from the line of credit, even online, to checking prior to the transaction.
I can do all of this for no fee and a variable interest rate, currently set a 7.5%.
Last week USA Today also ran a personal finance column by Sandra Block that latched onto the letter to federal credit unions NCUA issued and the criticism leveled by the National Consumer Law Center. Block cited Lois Kitsch of the National Credit Union Foundation who admitted that some credit unions are running payday lending operations, but most are true alternatives.
State Employees Credit Union in North Carolina is well-known across the industry for its good deeds, and its payday loan alternative is no exception. SECU's salary advance loans are capped at $500 and "must be repaid on your next paydate," according to SECU's Web site (www.ncsecu.org). The rollovers permitted by regular payday lenders are what really knock their customers for a loop, and they make it so easy.
Additionally, SECU charges no fees and a nominal 12% APR. And while the borrower is paying on the loan, 5% of the loan amount is deposited into an interest-bearing savings account. The credit union restricts member access to the account, but it is eventually turned over to the member as a tool to help break the payday lending cycle.
Now that is a credit union payday lending alternative.
While consumer groups like U.S. PIRG and others quoted in the article, as well as the NCLC, are upset with a handful of credit unions, I really don't think highlighting a few outliers serves their ultimate purpose of better financial services for consumers. Groups like these should be in league with credit unions, helping them find ways to provide alternatives to predatory loans, not persecuting them in USA Today.
Credit unions and their trade groups will likely be busy making sure the public and members of Congress realize the exception does not prove the rule. Facing a regulation-friendly legislature, this exposure cannot be good for credit union arguments to be exempted from the Consumer Financial Protection Agency and the Community Reinvestment Act.
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