An Insider on Staying Ahead of CU Regulation With Proactive Measures

Junk fees and interchange are two regulatory concerns credit unions can prepare for by providing CU-specific context that may elude many regulators.

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When Todd Lane of California Coast Credit Union says his organization tries to stay ahead of banking and CU regulation changes, he means it. Lane noted how he keeps in close contact with legislators involved in regulating the industry and that he is not shy about sharing CUs’ collective point of view when the time is right.

“Those relationships can make a difference,” he said.

As banks and CUs brace for likely regulatory changes on the heels of the recent Silicon Valley Bank collapse, Lane said it is vital for CUs to contribute proactively to the conversation. He said many CUs rely too much on trade associations to do the heavy lifting in terms of advocacy, and the more that credit unions can develop relationships with legislators and regulatory agencies, the better positioned they will be when it comes to compliance.

One area that Lane is following closely is junk fees, a clear priority of the President Joe Biden administration as well as the Consumer Financial Protection Bureau (CFPB). In California, legislation went into effect this year requiring CUs to report certain fees, such as overdraft and nonsufficient funds, and the state recently issued its first report of aggregated data that measures the levied fees as a percentage of FIs’ total income.

Lane said he believes the data being collected does not paint an adequate picture of how the different types of fees are applied, however. California Coast Credit Union is among those FIs that use guardrails for members when charging fees, limiting the number and total cost of fees in certain situations. Fundamentally, he said, consumers want their purchases to be protected if their balances cannot cover them, and reasonable fees enable that. Lane said the data California collects cannot factor in those situations.

“Our concern was that they asked for very specific data, and they didn’t ask for anything that perhaps would round out the picture of those fees,” Lane said.

Another area Lane is following is interchange. With Sen. Dick Durbin likely to reintroduce legislation that failed to advance last year, the Credit Card Competition Act, CUs’ interchange income from credit card charges would take a big hit. Credit unions, however, must bear the cost of defending against fraud and protecting transactions, which eats into revenue over time and makes a reduction in fees a potential headache.

“Interchange fees income is important to credit unions as card issuers, and merchants would like nothing more than those [fees] to be significantly reduced,” said Lane. “I don’t believe that those making our laws understand the expense related to these programs and the risks related to [them].”

In addition to staying in front of regulators, Lane said CUs can be proactive by addressing regulatory impacts internally before they start. For example, California Coast Credit Union has spent the last few years diversifying its revenue base through investment services, broker or dealer services and insurance.

Lane said CUs should always try to get ahead of regulatory priorities, such as with additional fraud controls to prevent losses or marketing and education that helps members better protect themselves.

Above all, he implored other CUs to prioritize advocacy as much as possible as these issues take shape.

“Getting involved and telling your story, for us, is top of the list,” Lane said.