The controversy about overdraft programs is not only about the programs and how they are implemented. It is also about who is profiting from them.

It is common practice for state leagues and trade associations to have what are called preferred partners. These partners include various types of vendors, including security providers, online banking providers and overdraft program providers.

Drew Egan, president and chief operating officer of CUcorp, a wholly owned subsidiary of the Michigan Credit Union League, described the league's partnership with overdraft vendor John M. Floyd and Associates as a marketing agreement.

The league has a marketing team that goes to Michigan credit unions and promotes Floyd's overdraft program. If the credit union decides to buy the program, Floyd will then come into the credit union to set it up and will pay the league for its sales job.

“We look to help credit unions find solutions that are good for the credit union and good for members. We do due diligence for the credit union and make sure it's a best-in-class provider,” Egan explained on why the league has these types of partnerships.

With all the current debate about overdraft programs, Egan said that CUcorp has not received one complaint about the partnership from credit unions that use the program or those that oppose overdraft programs.

Gerber Federal Credit Union in Fremont, Mich. signed up for Floyd's program through the league in third-quarter 2007.

“We were later to the table than most other people, but we finally decided it was something that needed to be done,” said CEO John Buckley.

Even though Floyd's program came through the league, Buckley said the credit union considered two other overdraft program vendors and did their own due diligence.

“Some smaller credit unions don't have the ability to do research and due diligence that larger credit unions do, so they rely on these recommendations. Ultimately, the decision is up to the credit union and the board if they want to do the program and if it is in the best interest of the credit union and its members,” Buckley explained.

Hank Hubbard, president/CEO of Communicating Arts Credit Union in Detroit, which serves low-income members, said that he looked at the Floyd program but decided that the credit union would develop its own program.

“Floyd recommended that we give the courtesy pay program to everybody, but we wanted to implement some requirements,” Hubbard said.

In order to qualify for CACU's courtesy pay program, a member has to have at least $800 in direct deposit coming into his or her checking account and has to be in good standing on all other accounts.

The California and Nevada Credit Union Leagues also partner with Floyd for its overdraft program. This is the fifth year of the partnership, and Sylvia Fath, league senior vice president of business services, said her group has 40 credit unions with the program and has received no complaints.

“Having the revenue from the partnership helps off-set the cost of membership for our credit unions,” Fath said.

That revenue also helps allocate more of the dues toward advocacy, she said. In 2001, the league was able to allocate 20% of its dues to advocacy, and now the league allocates 82% to advocacy because of the revenue from these types of partnerships, Fath said.

“The goal is to make enough revenue to mitigate and offset some of the dues increases,” she added.

Sure the league gets some resistance from credit unions that don't support using overdraft programs, Fath said, but she added that they respect the philosophy of those credit unions.

“We have 350 league members, not all the programs we support are going to fit all those credit unions.”

The Texas Credit Union League also partners with Floyd, and Linda Webb-Manon, communications director for the league, said that her group has never received any negative feedback from having the partnership.

The league is also an avid supporter of overdraft or courtesy pay programs and has a grassroots effort underway, www.CUVoice.com, against some of the proposals that are coming up in Congress to regulate these programs.

“We, of course, support courtesy pay in Texas. We understand why consumer groups are outraged at the practices of some, mostly larger banks, that have milked the product for fee income. We think consumers who are credit union members will in fact become outraged that Congress is trying to limit their ability to use courtesy pay as a safety net to only once a month, as contemplated in S. 1799 by [Sen. Christopher] Dodd,” said Buddy Gill, chief advocacy officer for the league.

Both CUNA and NAFCU have argued against the proposed opt-in requirement and against placing overdraft protection programs under the Truth in Lending Act.

Floyd is one of CUNA's strategic services partners. John Floyd, chairman and CEO of Floyd and Associates, said that the company has been partners with CUNA for the past six or seven years.

“The partnership has been very helpful, we share the same philosophy and it has worked well.”

As far as the details of the partnership go, CUNA Vice President of Communications Pat Keefe said that he was limited about disclosing some of the details, but he said that the the pricing is entirely up to the credit union, including the number of overdrafts that are not covered.

NAFCU did not return phone calls as of press time about its preferred partnerships, but it lists on its Web site, www.nafcu.org, Allied Solutions and Banc Services, as preferred partners. Both companies provide overdraft protection or courtesy pay programs.

Jim Blaine, president/CEO of State Employees' Credit Union in Raleigh, N.C., said that he understands that the leagues and trades need to pay for operating costs. But as a member of the North Carolina league and of CUNA he said he is ashamed that they have these partnerships.

“They don't sign these pacts without some compensation, which is fine because they do have to pay for the cost of running the league, but I think the harm these products do exceeds the benefit the league gets out of the partnership.”

Dennis Dollar, former NCUA chairman and principle partner of Dollar Associates LLC, said that he doesn't see anything wrong with leagues and trades partnering with overdraft program providers.

“I have no problem with the leagues recommending vendors and receiving fees for their recommendations. They have to have their revenue sources, and the eventual decision is up to the individual credit union after they do their own due diligence. Recommendations of vendors are common practice with trade associations, and there is nothing nefarious about that at all. Recommendations are just that-recommendations.”

Dollar Associates partners with overdraft program provider Strunk & Associates, which is also a select vendor of the New Jersey Credit Union League.

Blaine said that as more visibility is being brought to overdraft programs by Congress and the media, if the fact that credit union leagues and trade associations get paid by overdraft program providers gets out, it will be another nail in the coffin of the credit union industry's reputation.

“The issues revolving around credit cards, debit card and overdraft protection are all the same. The tide has turned toward consumer protection, and fighting against the new era is not an attitude we should be taking right now,” Blaine added.

Partnerships between overdraft program providers and state leagues and trade associations are not just a credit union issue though. Provider Strunk & Associates lists endorsements and partnership on its Web site, www.strunklp.com, with the Illinois League of Financial Institutions, the Massachusetts Bankers Association, South Dakota Bankers Association, Ohio Bankers League and other state bank associations and leagues. Floyd lists partnerships with the Louisiana Bankers Association, Community Bankers of Iowa, Wyoming Bankers Association and others on its Web site, www.jmfa.com.

–lsiegriest@cutimes.com

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Overdraft Vendors Share the Wealth With CU Leagues and Trades

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