Crafting a noninterest income strategy is an excellent way forcredit unions to boost their revenue, but turning members off byunwanted fees in the process can defeat the whole purpose. That’sthe premise of a new report from Filene Research Institute in Madison, Wis. titled, “In Searchof Member-Friendly Noninterest Income.”

In the report, Filene Research Director Ben Rogers wrote thatcredit unions must weigh fees and service charges in the context ofhow transparent and member friendly they can be.

“Fee income is not going away and is probably going to be moreimportant as time goes on,” Rogers said. “But credit unions shouldbe uniquely concerned about their fee practices because theirmandate is to be sustainable and profitable but not to thedetriment of their member-owners. Fees at credit unions should betransparent and freely chosen, and they should add value tomembers.”

Filene reveals that 66.7% of the 67 credit unions surveyed forthe report said credit insurance or debt protection coverage is a“very important” or “important” noninterest income source based onimportance to income, aside from overdraft fees and interchangeincome. All responding credit unions finished in the top third innoninterest income between 2008 and 2011, as well as had assetsbetween $50 million and $2.5 billion, more than 25 basis points ofreturn 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% ofrespondents naming it as a top source. Mortgage related fees, suchas closing costs, came in third, with 55.6% of respondents givingthe 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 onvalue to members, also without including overdraft fees andinterchange income. Credit insurance or debt protection coveragecame in second in this category, with 92.1% of respondents listingit as a high-ranking source based on value to members.

The firm also found that credit unions don’t have many optionsfor adjusting the prices of some noninterest income sources.Two-thirds (66.7%) of respondents said members are sensitive tocredit insurance or debt protection coverage service price changes,and 52.8% of respondents said GAP insurance is a price sensitiveservice. On the other hand, Filene discovered members are leastsensitive to price changes on ATM and debit card replacement,expedited bill payment and cashier’s check services.

A list of recommended noninterest income sources, includingupgraded checking accounts that charge premium fees, monthly feesfor identity protection services, ATM surcharge fees andskip-a-payment fees, is also part of the report.

Filene also presents case studies on four of its participatingcredit 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, Texasand $1.2 billion Local Government FCU in Raleigh, N.C. Rogers saidwhile all credit unions have an ongoing need for noninterestincome, there are many viable approaches to obtaining it.

With new approaches like aggressive collection fees, identityprotection and noncompliance charges, credit unions are trying towalk that line between having sufficient noninterest income andoffering real value to members, Rogers said.