A National Credit Union Administration special assessment to federally chartered credit unions is prompting some of those institutions to encourage members to get cash back at the point of sale instead of withdrawing funds from ATMs so they earn revenue from the transactions.
The Alexandria, Va.-based federal agency that regulates 5,000 federally chartered credit unions in 2009 levied a special assessment of 15 basis points on each credit union’s insured deposits to repay funds lost in the subprime-mortgage crisis, John McKechnie, the agency’s spokesperson, tells PaymentsSource. A basis point is one-hundredth of a percentage point. The agency will levy the special premiums or assessments over the next six years.
Though the agency has not yet decided this year’s special assessment, some credit unions are preparing to pay as much as 50 basis points on their insured deposits, says Jim Gowan, president and chief operating officer of Credit Union 24, a Tallahassee, Fla.-based, credit-union owned point-of-sale and ATM network.
“The special assessments are putting pressure on credit unions’ bottom lines, and [credit unions] are taking steps to reduce expenses and increase revenue,” Gowan says.
Credit unions are raising noninterest income as much as they can, agrees Eric Porter, executive vice president of business development and marketing at Rancho Cucamonga, Calif.-based Co-op Financial. Co-op’s ATM network includes 28,000 ATMs.
“Cash back at the point of sale is tantamount to a free cash withdrawal for credit unions,” says Greg McBride, senior financial analyst for Bankrate.com, a North Palm Beach, Fla.-based consumer website that provides information about a number of financial charges, including surcharge and foreign fees.
When a member accepts cash back at the point of sale, the credit union earns interchange from the merchant acquirer. Credit unions pay interchange to ATM acquirers when their cardholders withdraw cash from their machines instead of the credit union’s.
Gowan could not say how many credit unions are pushing the cash-back alternative, but survey data suggest few of their members are using ATMs less often. In a survey of 388 credit-union executives Credit Union 24 conducted in January 7% said their members’ use of ATMs decreased since the end of 2009, Gowan says. However, 50% cited an increase in ATM use.
Credit unions also are using other methods to raise interchange revenue.
GTE Federal Credit Union, a Tampa, Fla.-based credit union, for example, like most debit card issuers is encouraging members to sign for debit card purchases instead of typing in their four-digit PIN because the interchange rate applied to signature-debit purchases is higher. But unlike most issuers, GTE is charging members 25 cents per PIN-debit purchase. Members may conduct signature-debit purchases for free, and they only earn reward points when choosing that payment option.
GTE officials did not return repeated calls for comment.