In the last two days, credit unions have come under close scrutiny in USAToday. On Monday, a front page article proclaimed: Some credit union loans are not a good deal. On Tuesday, it was Credit unions hit customers with fees, too.
The loan article discusses the hazards of short term or payday loans. And while Federal CUs are prohibited from charging more than 18% on loans, many CUs get around that rule by charging an application fee. For instance, a $70 fee for a 14-day loan of $400 results in the equivalent of a 455% APR.
The second article discusses the dangers of overdraft fees. It seems that many CUs sign members up automatically for courtesy overdraft loans, claiming that customers want them Â (67% of credit unions and 43% of banks have courtesy overdraft policies). For many, it’s a way to bring in much needed revenue and stay in the black. “There are a lot of credit unions that, if they didn’t have overdraft income, they’d go under,” according to Evan Clark, CEO of the Department of Commerce FCU.Â Only about 10 – 20% of households pay the majority of overdraft fees – and they pay an average of $1,374/year. All those fees added together equaled $6.6 billion in overdraft income for credit unions last year. And those CUs that offer the “courtesy overdraft” service automatically (surprise, surprise) earn lots more fee income than those that don’t.
Why all the attention? Why now? USA Today has been publishing articles on credit as part of a series. But it is interesting that CUs were specifically called out in the headline and main body of these articles, and that any defense of the product as well as any comparison to bank practices were buried toward the end. (Maybe we should start a conspiracy theory â€“Â Gee, who advertises more in USA Today?)
But it really doesn’t matter if there is a bias. Or that USA Today’s advertising department may have had a chat with editorial on behalf of their client. Even the knowledge that banks charge higher fees and usually post from highest to lowest dollar amount in order to trigger even more fees, doesn’t square these practicesÂ within the credit union philosophy, according to some CU CEOs. They have always been opposed to overdraft privilege and consider it deceiving to their members.
Does your credit union push courtesy overdraft? Has anyone stopped to consider whether the profit is worth the damage and anger it causes?