Why Credit Unions Need to be More Member Friendly Right Now
The global economy is in the midst of a potential financial crisis with high inflation, a fluctuating stock market and rising U.S. Federal interest rates. The decline of cryptocurrency assets has also played a role, collapsing from $3 trillion to about $850 billion as Bitcoin dropped from $68,000 to $17,700 and others plunged as well.
All of this leaves consumers wondering what it means to them and their finances. The uncertainty makes it difficult for people to know whether to spend money on non-necessities, and if they should scrimp and save in case the country heads into a full-blown recession. The job market has also left the public wondering what’s in store, with new layoffs, particularly in the tech industry, being announced almost daily.
With the economy in flux, it’s more important than ever for credit unions to be member friendly. This is something that’s garnered government attention, with Sen. Elizabeth Warren (D-Mass.) recently asking the Consumer Financial Protection Bureau (CFPB) at a hearing of the Senate Banking, Housing and Urban Affairs Committee about its work on holding financial institutions and corporations accountable and putting money back into families’ pockets through eliminating junk fees, taking on deceptive student loan servicers and shoddy tenant screening services and eliminating medical collection debt from consumers’ credit reports. It’s such an important topic that it can no longer be ignored.
Adding transparency to transactions
With the possible economic upheaval, it’s important for credit unions to become more consumer friendly by providing members with transparency in their transactions, particularly when it comes to non-sufficient funds (NSF) and overdrafts. The service fees that financial institutions receive from these practices have more than doubled over the past three decades.
NSF and overdraft fees impose onerous costs on consumers, according to the CFPB. Overdraft fees bring in $33.4 billion with a median overdraft charge of $30 for community banks, credit unions and fintechs, according to a Moebs Services Overdraft Study. The burden is unfair in that those who can least afford it pay the most, with less than 20% of account holders paying 91% of the total in overdraft and NSF fees. For 25% of these consumers, it represents a week’s worth of wages in overdraft fees annually, according to a Pew Charitable Trust research study.
When a member is short in their account and doesn’t have overdraft protection, the transaction will be returned, and they’ll have potential late fees and their credit rating could be negatively impacted. They could even be categorized as unbankable in the U.S. down the road if they don’t make good on the shortage in their account within a certain timeframe.
To avoid this, credit unions need to add transparency to transactions so their members are alerted before a payment is returned and before negative consequences occur. Instead of penalizing a member, they should be offered alternate ways to cover their balance or at least be able to prioritize which transactions should be paid and which should be returned so the most critical payments are made, such as to a landlord, mortgage company or utility. Giving members the opportunity to choose the payments they consider most critical and pay those over others is one of many ways that credit unions can give control back to their members and allow them to make decisions about their financial accounts rather than have them arbitrarily made for them.
Create a positive environment
This is the time to help members and find ways to ease the burden of a difficult financial situation. In this difficult economic time, members need more help, not less.
Giving members financial freedom by providing them with the tools to monitor their accounts in real time and control their finances will make credit unions more consumer friendly and create a positive environment. Members will appreciate this understanding and positivity and share it with their friends and others, creating goodwill toward the bank.
There are many ways to help members during tough economic times. Finding ways to help them bear the burden will not only benefit your organization, but it will also help gain the trust and loyalty of your customers now and for years to come.
Joel Schwartz is the Founder & Co-Chief Executive Officer of DoubleCheck Solutions, a financial technology company with an innovative solution that gives customers and small businesses more transparency and control in the event of Non-Sufficient Funds (NSF) or overdraft transactions, while also offering new revenue opportunities for financial institutions.