Compliance Blog

Posted by Anthony Demangone

In today's tough economic times, many federal credit unions are looking to either cut costs or increase revenues wherever possible.  With that in mind, NAFCU's compliance staff has received quite a few questions about what federal credit unions can do with membership accounts that just sit there at or below the credit union's par value amount.  

Based on our phone calls, many credit unions have analyzed their accounts and found many small dollar-amount accounts to be unprofitable.  Perhaps the member once joined the credit union to take advantage of an indirect auto loan.  Or perhaps the member joined the credit union, but later moved away.  These accounts sit there, often at or just above par value with no activity.  There's no debit card, no ATM card, no checking account, and no loans.  These accounts, we've been told, are a net drain on the credit union's resources. In other words, it costs more to maintain the account than the account can generate in income. 

Federal credit unions reach out to these members to try them to take advantage of the credit union's benefits.  Often, though, the efforts are ineffective, and the credit union is left with a number of these accounts at par value.  So, what can a credit union do?

Nothing.  A credit union can maintain the account, hoping that marketing efforts or a change in the member's circumstances will bring the account "back to life."  Keep in mind, though, that if there is no activity on the account, it may become subject to a state's escheat system. 

Consider a dormant account fee.  NCUA has more than a few legal opinions that support a credit union's right to establish a dormant account fee.  Here's one.  And another.  A dormant account fee could take a member's account balance below the credit union's par value amount.  When that takes place, the affected member has a set amount of time in which to bring the account balance back to par value.  If they do not, the membership ceases to exist, with no need to navigate the Federal Credit Union Act's expulsion procedures. Your bylaws will indicate how long a member has to bring the account back to par value.  This legal opinion letter discusses how this might work. 

Cut them a check?  The last legal opinion I linked to (NCUA Legal Opinion 08-1030), notes one other possibility.  In the letter, the credit union proposed an "inactive account" policy through which the credit union would close inactive accounts with balances between one cent and $500 and mail the member a check for that balance.  NCUA says that the credit union could do so, as long as it had given notice of the policy to all affected members beforehand, and as long as the policy is consistent with the right of a member to bring their account balance back to par value.  NCUA doesn't discuss exactly what they mean by that last point, but I read it to mean this: if you cut a check to a member under such an "inactive account" policy, you have to give the member whatever time is stipulated in your bylaws to bring the account back to par value. If the member does not, they are no longer a member.  I haven't heard of a federal credit union that uses such an inactive account policy, so feel free to leave a comment on the blog if you've heard how it works in the world of reality. 

Reputation.  I've heard some credit unions talk of the process of dealing with these small dollar accounts as "cutting dead wood."  But keep in mind that these are your members, and even though the dollar amounts may be small, a member is a member is a member.  If you want to put together such a policy and/or establish a dormant/inactive account fee, always think of your reputation.  Comply with notification requirements, and consider the reasonableness of your policy and fee structure.  Remember, consumers do not see credit unions a fee-hungry. But a dormant account policy, if properly communicated, can serve both the credit union and the member well.  The credit union wants to serve members that actively are taking away of their membership. And members want to be aware of fees that might affect them if they are not using membership.  A forgotten account is not a benefit to any consumer. 

As always, credit unions that are considering whether to establish dormant account fees or such an inactive account policy should do their own due diligence and research before getting started.  Some of the opinions shared in this posting should be a good place to start.