Filene Guide to Other Income
Crafting a noninterest income strategy is an excellent way for credit unions to boost their revenue, but turning members off by unwanted fees in the process can defeat the whole purpose. That’s the premise of a new report from Filene Research Institute in Madison, Wis. titled, “In Search of Member-Friendly Noninterest Income.”
In the report, Filene Research Director Ben Rogers wrote that credit unions must weigh fees and service charges in the context of how transparent and member friendly they can be.
“Fee income is not going away and is probably going to be more important as time goes on,” Rogers said. “But credit unions should be uniquely concerned about their fee practices because their mandate is to be sustainable and profitable but not to the detriment of their member-owners. Fees at credit unions should be transparent and freely chosen, and they should add value to members.”
Filene reveals that 66.7% of the 67 credit unions surveyed for the report said credit insurance or debt protection coverage is a “very important” or “important” noninterest income source based on importance to income, aside from overdraft fees and interchange income. All responding credit unions finished in the top third in noninterest income between 2008 and 2011, as well as had assets between $50 million and $2.5 billion, more than 25 basis points of return on assets in three of the four years between 2008 and 2011, and net capital higher than 7% in all four years.
Checking account fees came in a close second with 62.1% of respondents naming it as a top source. Mortgage related fees, such as closing costs, came in third, with 55.6% of respondents giving the service category a “very important” or “important” ranking.
The majority of respondents (94.4%) named GAP coverage as a “very important” or “important” noninterest income source based on value to members, also without including overdraft fees and interchange income. Credit insurance or debt protection coverage came in second in this category, with 92.1% of respondents listing it as a high-ranking source based on value to members.
The firm also found that credit unions don’t have many options for adjusting the prices of some noninterest income sources. Two-thirds (66.7%) of respondents said members are sensitive to credit insurance or debt protection coverage service price changes, and 52.8% of respondents said GAP insurance is a price sensitive service. On the other hand, Filene discovered members are least sensitive to price changes on ATM and debit card replacement, expedited bill payment and cashier’s check services.
A list of recommended noninterest income sources, including upgraded checking accounts that charge premium fees, monthly fees for identity protection services, ATM surcharge fees and skip-a-payment fees, is also part of the report.
Filene also presents case studies on four of its participating credit unions: the $181 million Texell Credit Union in Temple, Texas, $1.1 billion Idaho Central Credit Union in Chubbuck, Idaho, $98 million Texoma Community Credit Union in Wichita Falls, Texas and $1.2 billion Local Government FCU in Raleigh, N.C. Rogers said while all credit unions have an ongoing need for noninterest income, there are many viable approaches to obtaining it.
With new approaches like aggressive collection fees, identity protection and noncompliance charges, credit unions are trying to walk that line between having sufficient noninterest income and offering real value to members, Rogers said.