You can regulate the money out of the business, but you can't regulate the personal responsibility out of the consumer. No matter what Washington does to keep credit unions and other lenders from taking advantage of the less well-educated, the desperate and the elderly, ultimately consumers have to take responsibility for their actions.

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

The National Consumer Law Center has been particularly active lately in holding regulator and credit unions' feet to the fire. The NCLC is pushing solutions that make it less cost effective to offer alternatives to the credit-challenged, and in the end, they're hurting those they are purporting to protect. Even at not-for-profit credit unions, products must pay for themselves or be supported by others. In recent weeks the NCLC attacked individual credit union payday loan alternatives and overdraft services.

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

Louisiana FCU CEO Rhonda Hotard contested the consumer advocate's claims. Calculating an APR to include fees, which are not compounding and not calculated in APR by law, detracts from the arguments that are better directed at truly abusive lenders. Louisiana FCU's program was featured by the NCLC to the NCUA as not consumer-friendly. NCLC charged that the credit union's rate was 145% 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 cannot be included in the calculation. Tell me, what is the APR on a $15 fee for someone who is not granted a loan? On top of that, the credit union's fee cannot be rolled into the loan. The credit union isn't raking in the dough from the program either, which only brought in $30,000 last year. These are expensive programs to administer and if NCLC works to shut them down at credit unions like Hotard's, it is bad for consumers.

XtraCash, a CUSO offering a payday loan alternative product for credit unions, doesn't allow borrowers to have more than one loan open at a time.

Stop patronizing consumers as you would a 5-year-old. Make clear disclosures in plain English (keep the lawyers out of it), and let the consumer decide.

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

The CFPB found that over the past five years, bank overdraft fees declined as credit unions' increased by 15%. Still credit unions are charging $4 less per fee than banks, and the rate of increase is just slightly above inflation. The CFPB pointed out that NSF and overdraft fees contributed 11.6% of 2012 credit union operating revenues, compared with 6.9% of bank and thrift revenue during the same period.

But, according to Callahan & Associates, “Some credit unions misclassified the NCUSIF Stabilization Income as other operating income on their 5300 Call Reports. This means the growth in fee and other operating income discussed above is artificially inflated, but we can't be sure to what degree.”

Ironically, the report was critical of opt-in overdraft protection programs, saying that consumers who opted in paid $450 more under the new rules than those who did not op in, and they had more frequent involuntary account closures, making it more difficult to open future accounts. So now financial institutions are being criticized because they followed the regulations?

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

Credit unions are working to educate their members and stay in business. The NCLC and the regulators need to recognize that they cannot restrain member-owned, not-for-profit credit unions' abilities to serve those of modest means and expect them to do it anyway.

Instant Insights /

Financial Nannies Are Convinced They Know Best: Editor/Publisher's Column

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