As credit union professionals are entering the fourth quarter, we’re all rolling our eyes at what a year it’s been. As much as we want 2020 to end, everyone is trying to figure out the best way to close a fiscal year that has been abysmal.
Credit unions are realizing record lows in loan growth, member growth, ROA, etc. Deposits have increased throwing everyone’s ratios into turmoil. Credit unions are scrambling to end the year as strongly as possible.
I’ve observed a particular strategy over the years, and it’s rearing its predominately ineffective head right now. Some credit unions are jumping on this bandwagon as they desperately try to salvage their 5300. What do they think is the answer?
Save your way to profitability!
Cut expenses wherever you can. Anything. Everything. Save money to show income. Cut office supplies. Cut staffing. Cut marketing. (Gasp!) Cut technology upgrades. Cut food at the board meetings. Cut that new product launch. All of these actions will save money to make you profitable so you can end the year in the black, right?
Sadly, saving your way to profitability is not a strategy that will have a significant long-term impact.
In today’s financial climate, loan rates are at an all-time low. The pandemic has impacted the economy, and credit unions will need to consider alternative non-interest income resources to maintain stability. Long gone are the days when loan interest was the majority of the bottom line. The harsh reality is that interest income most likely will not carry you through this unprecedented storm.
I want to share some income-generating ideas for any credit union to consider. These suggestions can work for credit unions of any size. Some are quick and easy fixes, while others may require a business partner and more time. But they all can give a boost to the bottom line. If you need resources for any of these ideas, call me. I know people.
1. Evaluate Your Courtesy Pay Program.
By now, most credit unions have some sort of Courtesy Pay/Overdraft Privilege program. Many implemented it on their own through their Core Processor, while others partnered with a third-party vendor. Some credit unions evaluate their program regularly, however, most Courtesy Pay programs were established years ago and haven’t been analyzed since. This could be the fastest way to generate a significant amount of income to a credit union’s bottom line, while also providing an essential service to the members. Consider partnering with an expert who will evaluate your program to recommend improvements resulting in additional income. You think your program is successful? Maybe there’s something you haven’t considered. Are you compliant? Is your advertising legal? Are you managing the opt-in process appropriately? Find a company that can help you fine-tune your Courtesy Pay, ensure its compliance, and provide marketing support and collateral materials. Courtesy Pay companies typically earn a percentage of the income generated above your current totals. They make money when you make more money.
2. Build a Rapport with a Credit Union Specific Law Firm.
Most credit unions have legal counsel, and it’s often a local attorney. But do you have a relationship with a law firm that specializes in credit union issues? (They do exist.) Credit unions often think they are knowledgeable of laws regarding bankruptcy, judgments, statute of limitations on collecting charge-offs, and the legalities of a vehicle repossession. A misunderstanding or lack of knowledge could result in significant losses or missed opportunities. Many credit unions view legal counsel as an expense. But what if that legal advice could prevent losses in the future or identify an asset to collect on a judgment? Are you actively trying to recover your charge-offs? How are you managing judgments? These actions will incur an expense, however, expenses can be investments, so look at the big picture. That lawyer may uncover “found money” for you, and that helps the bottom line.
3. Revisit Your Business Partners that Offer Incentives.
Many vendors offer incentives (to your employees and/or to the credit union) to promote certain products and services. This could be a great way to generate additional income for the credit union. For example, GAP (Guaranteed Auto Protection) vendors often allow credit unions to mark up the product they sell to members. The credit union’s GAP is usually considerably less expensive than when a member buys it at a dealership. Warranty coverages sometimes work the same way with a markup, and the credit union recognizes income on the markup. Other credit union partners offer member discounts on various consumer services while offering the credit union a monetary incentive to advertise those products and services.
4. Review Your Fee Schedule.
I’ve always encouraged credit unions to review their Fee Schedule annually and adjust accordingly. Credit unions can strategically update fees that will help the bottom line. I’m not suggesting you gouge the members on fees. But credit unions should have abuse fees for those members who cost the credit union time and resources. Like cost of living expenses, those fees should be reviewed and adjusted annually. Review your refunded fees. Are your staff members constantly waiving fees? I recently talked to a CEO who discovered that one particular teller was excessively waiving and reversing fees. This caused a significant loss in YTD fee income. Also, audit your core processor. Is your core charging fees correctly? If you updated a fee last year, did someone actually update it on the system? It may sound trivial but updating (or implementing) fees can add significant income to your bottom line.
This has been a rough year for everyone. In countless ways. But as we wind down 2020, we’re all trying to finish strong. The amount of money you can SAVE is only as much as you spend. It’s a fixed amount. But the amount of money you can EARN has unlimited potential. Once you implement certain practices or business partnerships, you could fatten up your bottom line significantly.
If there’s one takeaway from this article, it’s this…
Don’t spend so much energy counting the pennies going out, that you neglect seeing the opportunity of dollars coming in. And if you need help, call me. I know people.