Pappy Was a Wise Old Man

I like Westerns. On Saturday mornings I often get up early, grab a cup of coffee, and before the day begins I tune into my favorite channel—Encore Westerns. Often there’s an old episode of Maverick on, and I begin to re-live moments of my youth as the characters refer to the wise old sayings of the Maverick brothers’ Pappy. I can almost hear them now, “My ol’ Pappy used to say . . . ”

One of the things I am almost certain that Pappy Maverick told his sons is that, “There’s no free lunch, boys. Someone always pays. And before you sit down to eat you might want to find out who is paying . . . ultimately!”

Congress in their zeal to protect us has passed numerous pieces of legislation. Many of them decree certain actions or mandate refraining from certain actions. In many instances bureaucrats (public employees who are not elected) have picked up this type of thinking and have begun the process of making similar regulatory mandates in the name of protection.

I do not like that the credit union has to assess Overdraft Fees. The simple fact is that if you offer transactional deposit products, inevitably there are going to be overdraft situations. The fees assessed are meant to be punitive in nature, but they are also designed to cover certain costs, not the least of which is risk of loss from having the overdraft situation in the first place. The people who overdraw their accounts are simply “paying for their lunch.”

There are individuals who would prefer us to not return their overdrawn check, but rather that we pay the item. This way they will not have to pay the company to whom they wrote the check an even larger fee than our overdraft fee. A subsequent deposit would cover the overdraft balance—no harm, no foul. The widespread use of debit cards and ATM cards also increases the risk of creating an overdraft situation. On occasion it may be because a member withdrew an amount electronically, and the transaction was approved before an electronic deposit could post; or it could be that there were other electronic communications issues that unfortunately impaired our ability to properly evaluate the appropriateness of approving the transaction against the current balances of record. In either case, these contractual transactions have to be paid.

In November 2009, the Federal Reserve announced a regulatory change that would require that account holders agree to pay the fees associated with ATM and debit card transactions that result in an overdraft situation. These rules go into effect in July and August 2010. We have performed studies that indicate that there will be a significant segment of people who will not opt-in to the assessing of the fees. They do not realize we will enhance our communications to insure we are looking at the most current balance, and if they do not have the money on deposit, their transaction will be declined. Even though they have had Courtesy Pay Service in the past, they must take action to opt-in again. We expect that a significant amount of transactions will be declined due to members choosing to not opt-in, and the costs, particularly the risk costs will not go away.

We estimate these changes will cost the credit union approximately $50,000 per month in lost revenue. Since there is no free lunch, and the costs associated with the risks must be covered, we have to replace the revenue from other sources. I do not like it. In fact I hate it. Yes, we are not-for-profit, but we are not a charity either, and we need to have sufficient revenues to cover our expenses. It is important that YOU know that we believe the added fees we are announcing will only cover about 67% of the lost revenue. Additional fees may be necessary from other sources if our projections turn out to be accurate or worse.

Just remember Pappy’s sage advice—There’s no free lunch! Someone has to pay. The regulations have pushed us into the position of passing you the lunch check, and for that I am so very sorry.

As always, I remain in service to you,

Robert A. Glenn

President/CEO