Concern about the erosion of fee income from changes in regulation is prompting some area credit unions to look at ways to diversify their business.
Central Star Credit Union created a new mortgage and insurance subsidiary called Central Star Financial Solutions that CEO Lee Williams hopes will offset what she thinks could be a "substantial decrease" in fees because of pending changes by the Federal Reserve, and the Dodd-Frank law.
"Diversification for long-term viability is something we've got to do," Williams said.
Others, such as Mid American Credit Union, are looking at different ways to compensate for regulatory changes.
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"We're looking at commercial business, fee income on deposits and the loan side," said Jim Holt, CEO of Mid American. "We're having a little success with that."
Holt said his credit union, which has $167 million in assets, is also tightening its expenses and discretionary spending, as well as looking at "other areas of income, making sure we're efficient and effective."
Williams said the $68 million-asset credit union still has a large base of members — she estimates 75 percent — who work in the aviation industry. The credit union was known as Aviation Associates Credit Union until it changed its name to Central Star in 2005.
Williams has been working for the past several years to diversify the credit union's membership to include more non-aviation workers.
Even before Central Star created its new subsidiary, it was offering mortgages, Williams said. But separating it from the credit union, she hopes, will allow it to reach beyond its current base of members. She said she also hopes that some customers of Central Star Financial Solutions eventually join the credit union after using the mortgage and insurance subsidiary.
More importantly, profit from the subsidiary could support the services the credit union currently offers to its members. Supporting those services could be more difficult if Central Star isn't able to collect the fee income from interchange that it does now, she said.
Holt said he's concerned about the regulatory changes, too. The Federal Reserve's interchange regulation could hurt how much fee income Mid American collects, he said.
"I think fee income will take a hit once that's in place," Holt said.
That is, if the rule is put in place. The rule puts a cap on the fees financial institutions can collect from merchants when shoppers use debit cards.
The Senate is considering an amendment that would delay implementation of the Fed rule on interchange fees by a year. It also could limit the impact of the fee cap on smaller financial institutions. A vote on that amendment could come as early as this week.
That's why Holt uses the word "if" when talking about a loss of income from interchange fees.
"There are a lot of ifs out there," he said.