Serving the Unbanked: How Credit Unions Can Become Part of the Solution
One of the problems causing many Americans to forgo traditional transaction account relationships is their visceral response to the old adage, fool me once shame on you, fool me twice shame on me.
Once burned by excessive fee traps like excessive NSF, courtesy pay and other hidden charges that have been traditional profit centers for those who exploit the weakest among us, the exploited usually go to cash.
These exploiters are banks, finance companies, and regrettably some misguided credit unions. Using technology to improve the lot of the weakest should be the guiding light of every credit union. It is with some dismay that I read in the American Banker on Nov. 16 that Congress, with the blessing of the Treasurer of the United States, was considering expanding bank and non-bank facilities powers to improve their ability to extend deposit abilities to the unbanked.
Credit unions should be alarmed that they were not considered a part of the solution. Could one suggest that the Treasurer has concluded that they are not a truly relevant solution anymore?
To a person living on the edge a fee trap which may cost you up to $300 for a $20 overdraft makes a bad situation worse. Most people on the edge leave traditional financial relationships for the expensive but safe confines of the cash economy.
Walmart has a new profit center in providing cash services to the unbanked. The Treasurer is asking Congress to somehow join banks and non-banks to provide depository services to the unbanked at what can be assumed as a hefty profit.
The wealthy get the advantages of technology because they have the wealth to not fall into the fee traps and they have the funds on deposit in an amount necessary to provide a reasonable profit to the bank. Credit unions are attempting to build relationships with the “A” level bank client.
Some credit unions have attempted to use technology to help lower-level members. I regret some credit unions are using bank-style fees and fee traps as profit centers when they provide technology to lower-level members. The credit union fee traps may be not as abusive as the banks but they are abusive none the less.
If we look at the problem and ask what can a credit union responsibly do to provide a valuable service to the unbanked, and do it in a fashion that protects the credit union? Credit unions are not charities; no one is suggesting that they do something that does not make financial sense. Proper structure of an account relationship could be a win/win for all.
The unbanked problems with traditional transaction account relationships are generally caused by persons whose finances and financial abilities are too limited for all the fast-moving parts that affect a transaction account. Checks, ATMs withdrawals, off line debit, pre-authorized ACH and so many other things can tip the scale for a person that cannot leave large sums on deposit. If credit unions had the empathy and real desire to help the unbanked the non-“A” level member they would be tireless in their quest to assist the unbanked.
It is suspected that the Treasurer’s new found love of a nonbank depository solution has Walmart and Synovus Bank shooting Cupid’s arrows. Synovus Bank provides the cards for the Green Dot Corporation that Walmart uses in its Money Centers.
If Walmart gets a depository solution it is pretty much game-set-match. Credit unions need a solution which works to prevent this potential alliance of unholy partners in the banking, non-bank and retail from becoming a reality. Credit unions will not have a leg to stand on in Congress if they do not have the real numbers showing that they are part of the solution.
Here is a potential solution which may actually work. If credit unions opened a restricted access account to an online debit card many of the problems with the “I cannot handle traditional transaction accounts” would go away.
A restricted online debt seems to be the simplest solution to the problem. Members put their money in and credit unions make their income on interchange fees. Because the card gets denied before the transaction causes an overdraft, there is little chance of a poor person racking up junk fees. Credit unions could use a reloadable debit card with reasonable credit union not bank like fees.
SECU of North Carolina has a very fair reloadable debit program. They are one of the few credit unions restricted to a 25 cent debit transaction fee, but when you consider the 6-cent charge to clear a check they are making 30 cents a purchase by debit as opposed to paying an expense for clearing a paper check.
SECU for their reloadable debit card charges no activation fee, no reload fee, no cash advance or any other bank=like reloadable fees that some credit unions charge. They allow members with this account to use their pay any one bill payer for free. They have a one-dollar-a-month fee which members can choose to put to the SECU foundation. They charge an $8 lost/stolen card replacement fee and an $8 stop pay fee.
The Walmart card comes with a $3 issue fee when purchased at the store. There’s a $3 reload fee. There is also a $3 a month account charge. All this and the people are going to go shop at Walmart with the card.
The Treasury is committed to forcing everyone to have a way of getting government payments directly. It seems that the only question left is whether it will be credit unions or Walmart.
There is clearly a choice between SECU and Walmart when it comes to pricing this service. Granted, SECU because of size of card base can attempt to make it on volume. Surely most credit unions can develop a fair pricing structure that may not be as generous as SECU but not as covetous as Walmart.
There is only one question left: would a member who has limited ability to deal with traditional transaction account relationships think of depositing at their credit union before they cashed their check at Walmart for a fee and used their reloadable card? One simple answer is that they will choose Walmart if credit unions do not provide a reasonable option.
The least amongst us have been poorly served by the financial system, including some credit unions. Maybe the Treasurer is correct about facilitating the lives of the poor by allowing Walmart and Synovus Bank to work together to receive federal payments.
For credit unions to prevent the Congress from changing the laws and not allowing depositing in nonbanks, they have to prove they are an actual option. The credit unions are behind the eight ball because it seems the Treasurer of the United States has already concluded: “that if you are not part of the solution, you are part of the problem.”
Bill Brooks is a former credit union CEO who now operates private client wealth management and credit union consulting businesses in Rehoboth Beach, Del.