Finding Opportunity in 2024’s Challenges to Non-Interest Income

Credit union or bank executive happy with new non-interest income.

Through years of falling interest rates that dramatically compressed net interest margins, credit unions and banks learned to lean into non-interest income to keep the balance sheet, well, balanced.

Debit and ATM transaction fees and overdraft and Not Sufficient Funds (NSF) charges have become particularly important, especially as account maintenance fees such as monthly service charges and minimum balance penalties have lost popularity for competitive reasons and consumer disdain.

Regulatory and legislative actions, however, could sharply impact that cash flow and strategy as the Consumer Financial Protection Bureau (CFPB) moves forward on its proposal to eliminate so-called “junk fees,” which includes overdraft fees, and a bid to reduce interchange fees is before Congress again.

Meanwhile, the potential for predictable, stable, and increasing non-interest income (NII) continues to grow. In this regard, offering customers and members access to an enterprise-grade digital estate planning platform can serve both – promote personal financial wellness while also producing a remarkable, new NII revenue stream. 

But first, here’s a bit more on the regulatory and legislative front as 2024 begins to roll out.

CFPB and overdraft fees

The CFPB is expected to issue a final rule soon that could accelerate the decline of overdraft and NSF income, which are already about half of what they were industry-wide before the pandemic.

The new rule is expected to say that overdraft fees should be considered finance charges under Regulation Z. That could result in regulators such as the FDIC, OCC and NCUA tightening the rules on the number of times an overdraft or NSF transaction can occur and how much a bank or credit union can charge.

Recent fines totaling hundreds of millions of dollars against mega banks all the way down to smaller banks and credit unions for their NSF and overdraft protections also point to the need for diversifying non-interest income.

The interchange fee fight continues

Congress again has before it two bills aimed at lowering the interchange fees that banks, credit unions and the card processing networks share for their role in card transactions.

Proponents, led by retailers and consumer advocates, say the Debit Interchange and Price Competition Act and the Credit Card Competition Act would benefit consumers by allowing greater competition in the payment card network space.

Opponents, led by the financial services industry, say expecting any savings for consumers is unrealistic and that the changes would make it more difficult for issuers to fund rewards programs and for smaller issuers to offer credit cards at all.

This legislative tug-of-war has been going on for years, and whether these changes finally make it through either chamber, much less to the president’s desk, is an open question.

The bottom line about these possible changes is that credit unions and banks need to prepare for potential revenue loss by diversifying further with other fee-based services, especially those that may be less volatile in such a shifting legislative and regulatory landscape.

Diversify non-interest income with estate planning

Now is the time to consider offering digital estate planning documents through a turnkey platform for consumers’ holistic financial well-being, as well as your bank or credit union’s revenue diversification. It’s a win-win strategy for serving an aging population: Families get the peace of mind that comes with legally valid estate documents from a trusted provider, while the provider benefits from the recurring fee income and deeper customer and member engagement and loyalty.

Further, that demonstrated commitment to your customers’ financial well-being also opens the door for successfully offering asset protection, wealth management and other personalized, value-added solutions.

An ideal way to begin is with a white-label digital platform that meets the expectations of your most tech-savvy consumers without the integration and maintenance challenges of doing such work in-house. OneDigitalTrust’s platform also integrates directly into a financial institution’s digital banking platform, making access and usage even more seamless and easy for consumers.

The coming year could be a pivotal juncture for banks and credit unions regarding overdrafts, NSF fees and interchange income. Deploying seamlessly integrated digital will and trust services is a wise investment your institution can make in the growth and financial well-being of your business and, as crucially, that of the families and individuals you serve.

170M Americans need an estate plan. OneDigitalTrust offers a white-label, turnkey estate planning platform with pricing options tailored to the needs of individual credit unions, banks and financial advisors.

Contact us today to learn more!

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