You can regulate the money out of the business, butyou can't regulate the personal responsibility out of the consumer.No matter what Washington does to keep credit unions and otherlenders from taking advantage of the less well-educated, thedesperate and the elderly, ultimately consumers have to takeresponsibility for their actions.

It's a fine line to toe when you're charged with serving membersof modest means, pricing services like overdraft and payday loansto risk. But credit unions will likely lose members or potentialmembers to truly abusive competitors if they do not offer thoseservices. Then, credit unions will lose the opportunity to educatemembers and save them from themselves. Instead the regulatorsbelieve it's their job to tell consumers what's best for them.

The National Consumer Law Center has been particularly activelately in holding regulator and credit unions' feet to the fire.NCLC is pushing solutions that make it less cost effective to offeralternatives to the credit-challenged, and in the end, they'rehurting those they are purporting to protect. Even atnot-for-profit credit unions, products must pay for themselves orbe supported by others. In recent weeks NCLC attacked individualcredit union payday loan alternatives and overdraft services.

Without pricing for the higher risk on a short-term,small-dollar loan, a credit union won't stay in business long. Theconsumer's only alternative then is to go to a genuine paydaylender, which is contrary to NCLC's objective.

Louisiana FCU CEO Rhonda Hotard contested NCLC's claims. Calculating an APR toinclude fees, which are not compounding and not calculated in APRby law, detracts from the arguments that are better directed attruly abusive lenders. Louisiana FCU's program was featured by NCLC to the NCUA as notconsumer-friendly. NCLC charged that the credit union's rate was145% for the loans, which is a bald-face lie.

In reality, the credit union charges a 15% APR on the loan and a$15 fee for all applicants whether the loan is approved or not.Over two weeks the APR amounts to a couple of bucks. The fee cannotbe included in the calculation. Tell me, what is the APR on a $15fee for someone who is not granted a loan? On top of that, thecredit union's fee cannot be rolled into the loan. The credit unionisn't raking in the dough from the program either, which onlybrought in $30,000 last year. These are expensive programs toadminister and if NCLC works to shut them down at credit unionslike Hotard's, it is bad for consumers. XtraCash, a CUSO offering apayday loan alternative product for credit unions, doesn't allowborrowers to have more than one loan open at a time.

Stop patronizing consumers as you would a five-year-old. Makeclear disclosures in plain English (keep the lawyers out of it),and let the consumer decide.

After NCLC's love letter, which the NCUA vowed to investigate,the Consumer Financial Protection Bureau released reports onoverdraft fees.

The CFPB found that over the last five years, bank overdraftfees declined as credit unions' increased by 15%. Still creditunions are charging $4 less per fee than banks, and the rate ofincrease is just slightly above inflation. The CFPB pointed outthat NSF and overdraft fees contributed 11.6% of 2012 credit unionoperating revenues, compared with 6.9% of bank and thrift revenueduring the same period. But, according to Callahan &Associates, “Some credit unions misclassified the NCUSIFStabilization Income as other operating income on their 5300 CallReports. This means the growth in fee and other operating incomediscussed above is artificially inflated, but we can't be sure towhat degree.”

Ironically, the report was critical of opt-in overdraft protection programs, saying that consumers whoopted in paid $450 more under the new rules than those who did notop in, and they had more frequent involuntary account closures,making it more difficult to open future accounts. So now financialinstitutions are being criticized because they followed theregulations?

At the same time, the latest quarterly study on overdrafts by Moebs Servicesreported that financial institutions' overdraft income declined by$1 billion, in part due to regulatory uncertainty, seasonality andthe economy in general.

Credit unions are working to educate their members and stay inbusiness. NCLC and the regulators need to recognize that theycannot restrain member-owned, not-for-profit credit unions'abilities to serve those of modest means and expect them to do itanyway.

Sarah Snell Cooke
Publisher/Editor in Chief
[email protected]