Hartford Business Journal

26 HARTFORDBUSINESS.COM | NOVEMBER 7, 2022 Focus: Credit Unions John Holt (far right), CEO and president of Nutmeg State Financial Credit Union, with his leadership team at the organization's Rocky Hill headquarters. PHOTO | CONTRIBUTED Credit unions, banks ditch nuisance fees to woo new customers By Harriet Jones Hartford Business Journal Contributor I ncreasing numbers of financial institutions are beginning to waive non-sufficient fund fees: those irritating — or even devastat- ing — charges that happen when you bounce a check or use your debit card too freely. Some are also reconsidering cer- tain types of overdraft charges. Rocky Hill-based Nutmeg State Financial Credit Union and Mid- dletown's Liberty Bank are two Connecticut institutions that have joined what appears to be a growing national trend. Non-sufficient fund (NSF) fees are often put in the same bucket as overdraft fees, but the two are distinct. They both involve a cus- tomer not having enough money in their account to cover a trans- action, but an NSF fee is charged when a check or other payment is returned unpaid. An overdraft fee refers to charges that can be levied even when the item is paid. It can be a courtesy fee for an arranged overdraft, or a fee for transferring funds from a linked account, like a savings or money market account. Analyst John Carusone, director of the Hartford-based Bank Anal- ysis Center, said the moves are being prompted largely by competi- tion and the need to woo customers. "It's a big source of ill will for retail customers," he said. "Each time you get a $37 charge for overdrawing your account by $2.50, it gives you the pain of a root canal." But even if it's popular, it's not an insignificant step for a bank or credit union to take. John Holt, CEO and president of Nutmeg State Financial Credit Union said that by removing its $35 NSF fee, as well as transfer fees from accounts to cover an insuffi- cient transaction, the credit union will be giving back over a half-a-mil- lion dollars to its members. The $543.5 million-asset credit union reported $9.4 million in fee income through the first three quar- ters of 2022, according to finan- cial data from the National Credit Union Administration. "We do lose money — and a lot of it — but we believe that in good faith, doing this will hopefully lead more people to Nutmeg, more peo- ple to credit unions," he said. "We're trying to put more money back in (customers') hands, in the spirit of doing what we can to help people build their wealth, help peo- ple have more money for the things that they truly need." Nutmeg State will still charge overdraft fees, but Holt said the institution is in the process of restructuring its arranged overdraft offerings for customers. Liberty Bank's changes are sim- ilar. The bank will remove its $35 NSF fee along with smaller fees for the transfer of funds from a savings account or line of credit. Liberty Bank, with $7.5 billion in assets, declined to reveal how much of a hit it will take from the change, but Chief Retail Bank- ing Officer Minnie Saleh said the move was prompted by a focus on customers, and the hope is that additional business will result. "Our commitment to our custom- ers, community, and teammates remains our top priority," she said via email. "It is through this com- mitment that we will continue to deepen existing relationships and attract new customers, which in turn will support our bank's success." And the bank expects this to be popular. "We solicit feedback from our cus- tomers and teammates on a regular basis through daily interactions and surveys and we place great signifi- cance in the feedback we receive," Saleh said. Federal pressure A removal of what might be termed nuisance fees is an increasing focus of both regulators and lawmakers. In December 2021, the fed- eral Consumer Financial Pro- tection Bureau (CFPB) issued two research reports on over- draft and NSF fees, with director Rohit Chopra dubbing overdraft charges "exploitative junk fees that can quickly drain a family's bank account." CFPB researchers estimated that banks and other financial institu- tions saw revenue from overdraft and NSF fees of $15.47 billion in 2019. That amounted to almost two- thirds of reported fee revenue. And the burden generally falls on those least able to pay. In a previous report, the CFPB found that consumers who fre- quently overdraw their accounts or incur NSF fees are more likely to be credit constrained, have lower credit scores, and are less likely to have credit cards. In June 2021, U.S. House Rep. Car- olyn Maloney, (D-N.Y.), reintroduced the Overdraft Protection Act, which, if passed, would place a limit on the number of overdraft fees banks can charge per customer per year. Meanwhile, the House Committee on Financial Services has also held hearings into the issue, to consider policy proposals to improve consumer protections around overdraft fees. But while the pressure mounts nationally, banking analyst Caru- sone said the trend may well have its limitations. "Credit unions, which are owned by their share draft account holders, and mutual savings banks like Liberty, which are owned by their depositors, don't have the pressure of quarterly earnings, which drive the stock price," he said. "Those institutions that face the pressure of individual and institutional shareholder interest in their profits are going to find that it's just too lucrative a source of revenue to part with eas- ily," Carusone added. uled growth in branches, but might take on a new location if a strategic opportunity arises. "We are going to be very careful because the cost is prohibitive given the current rates," Mancini said. "We are not intentionally looking, where in the past we were intentionally focused on branches." Mancini said there has been a major contraction among credit unions over the past decade as some institutions merged to become more efficient and others failed. There were 85 credit unions in Connecticut at the end of the second quarter, down from 134 in 2010, according to NCUA data. Connecticut has been a challenging market, given its low rate of popula- tion growth and the propensity of its college graduates to seek employ- ment out of state, Mancini said. Mancini has also seen a big tran- sition to online services prompted by the pandemic, notably by older mem- bers who weren't expected to make the move so readily. "They learned they could deposit by phone, use bill pay online," Mancini said. "They adapted and they learned how to use our electronic channels." Connex already offers a full range of online services, but will still spend millions in the coming two years to make them more "seamless and inte- grated," Mancini said. Technology continued from page 25

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