The California Department of Financial Protection and Innovation (DFPI) has published its first annual report of income from fees on non-sufficient funds and overdraft charges — an analysis published pursuant to Senate Bill 1415, covering data from the 2022 calendar year.
Data for all state-chartered credit unions and banks is included in the report, which has been published just days before credit unions across the state travel to the California State Capitol for the California Credit Union League’s 2023 Government Relations Rally (GRR) in Sacramento from April 10 – 11.
Under SB 1415, all California state-chartered banks and credit unions are required to report annually, by March 1, on the amount of revenue earned from overdraft fees and non-sufficient funds fees collected in the most recently completed calendar year, as well as the percentage of that revenue as a proportion of the net income of the bank or credit union. SB 1415 also requires that the DFPI publish in a report the data for each bank and credit union and make the report available on the department’s website by March 31 each year.
While the reporting requirements under SB 1415 are statutory, the League believes this report (2023 Report of Income from Fees on Non-Sufficient Funds and Overdraft Charges) is very myopic in its viewpoint and does not paint the entire picture for a credit union’s comprehensive service for its membership. As not-for-profit organizations, credit unions operate to benefit their members rather than to make a profit for shareholders.
Credit unions are focused on providing lower loan rates, higher deposit rates, and products and services that meet the needs of their members. Solely focusing on the financial impact of one aspect of credit union operations undermines a broader ecosystem providing exceptional member value.
Moreover, credit unions’ reliance on fee income has been trending downward for the past five years. For example, in 2018, in terms of income derived from fees and other charges, California state-chartered credit unions’ average was 1.06 percent (basis points). However, in 2022, California state-chartered credit unions averaged 0.88 percent (basis points), thus showing a 20 percent decrease in fees and other charges.
This data point illustrates a downward trend; however, it is unfortunately not observed in the report.
Additionally, the League is also concerned that such a narrow view as reflected in the report could lead to an unintended effect on consumers. For example, limitation on such fees could force credit unions to choose between accepting the increased risk that comes with unchecked consumer overdraft behaviors or, more realistically, eliminate these services altogether, or at least scale back on consumer-friendly products such as free checking accounts.
This could have serious consequences for a consumer who may experience a cash shortfall, requiring the consumer to look to payday lenders to obtain money for essential purchases. In addition, credit unions may also have to make other considerations such as increasing loan rates or lowering deposit rates, or perhaps charging in other areas.
Because credit unions are owned by their members, they have traditionally worked hard to minimize fees on products and services — particularly for those of modest means — and offer opportunities for financial education and empowerment. Credit unions exist for the financial benefit of their member-owners, but they are ultimately driven by the philosophy of “people helping people.”
“Credit unions are the original financial protection advocates,” said Diana Dykstra, president and CEO of the California and Nevada Credit Union Leagues. “While we support the need for transparency, the League will be working on talking points for credit unions to engage with the DFPI during our California Government Relations Rally next week. We would like the DFPI to be cognizant of the fact that transparency is not the core problem, and that excessive requirements have the potential to divert credit unions’ resources and attention away from their primary mission — to meet their members’ financial needs.”