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USA Federal Credit Union CEO to Lobby for Mandatory Overdraft Protections

On July 11, USA Federal Credit Union Chief Executive Officer Mary Cunningham testified before the House Financial Institutions Subcommittee on behalf of the Credit Union National Association, in favor of legislation that would enact mandatory overdraft protections.

The Consumer Overdraft Protection Fair Practices Act was submitted earlier this year by Rep. Carolyn Maloney, D-New York. Cunningham said Maloney is against blanket enrollment of bank customers into overdraft protection programs.

“They don’t get to sign a disclosure, find out what fees there are or how they’re assessed,” said Cunningham.

“At an ATM, when you withdraw and are about to trigger an overdraft fee, you should be able to find out and opt out of the transaction, much like when ATMs alert you when there are surcharges.”

Cunningham said she was chosen to represent the 8,800 credit unions in the Credit Union National Association because of USA Federal’s research into overdraft protection issues.

“We did a study and noticed a lot of abuse and misuse and we put in modifications and controls to help our users understand (overdraft protection),” Cunningham said. “They seem to mirror the points of (Maloney’s) bill.”

Cunningham said overdraft fee practices in some institutions are predatory for customers who don’t bank wisely, adding that an overdraft fee is usually between $25 and $35, similar to a non-sufficient funds charge for a check.

The same day of Cunningham’s testimony, the American Bankers Association said in a statement that overdraft penalty fees are avoidable and that any legislation requiring “real-time notification of overdrafts” would be cost-prohibitive.

“Careful tracking by the customer of transactions is an important responsibility,” said Nessa Feddis, senior federal counsel for the ABA, the largest banking trade association in the country.

Chris Crockett, senior vice president with San Diego National Bank, a member-bank of the ABA, said that the bank doesn’t have a stance on the issue.

“Our position is that Washington is going to do what Washington does and we just go with the outcome,” Crockett said.

“It will probably be just like any other regulatory change we’ve encountered; any time there’s a new bill, we have to comply and we do incur costs to make that happen.”

At San Diego National, Crockett said that fee income does not represent a material amount of revenue, but said that many institutions will cover overhead costs with fee revenue.

Cunningham said she recognizes that banks operate to make money and that overdraft fees present a revenue generating opportunity, but said that consumers need to be protected.

“I think the bill is very pro-consumer.

“It’s the day of the Democrats in Congress and this is about putting sanctions and controls in place to protect the consumer,” said Cunningham, who added that, along with Mahoney, Rep. Barney Frank, D-Massachusetts, chairman of the Financial Services Committee, is also backing the bill.

“It has key Democratic leadership behind it.

“It has a way to go, but it’s not unthinkable that it could pass because it’s a Democratic Congress.”

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Poised For Continued Growth:

San Diego Trust Bank, which emerged from its de novo period in October, is in the middle of its first fully taxable year and is still turning profits for the period ended June 30.

“In the early stages, operating losses are incurred so you have an operating loss carry-forward for tax purposes,” said President Mike Perry, who said he didn’t have considerable losses to carry forward and was profitable after 10 months.

“The good news is that we were profitable and profitable early, but along with that, you have the luxury of paying taxes.”

For the second quarter ended June 30, the bank reported net income of $415,000, up from $336,000 the previous year.

In the first half, San Diego Trust had pre-tax income of $818,000, up 26 percent from $649,000 for the same period 2006. Net income after taxes for the most recent half were $473,000 after $345,000 in taxes.

As of June 30, 2006, the company had no provisions for taxes and doesn’t have comparable net income after taxes for the period.

Gross loans as of June 30 increased to $72.5 million, up 27 percent from $57.1 million at the end of June last year.

Deposits increased 12 percent over last year to $77 million from $68.7 million the previous year, which, according to Perry, is the source of the bank’s continued growth.

Perry said that the bank’s consistent 20 percent-plus loan growth from period to period comes from being able to fund the loans with core deposits.

“It’s allowed us to grow our margins and along with that has come profitability,” Perry said.

“You’re going to hear about a lot of banks with margins being reduced,” he said, adding that U.S. Bancorp, which released its earnings on July 17, missed its earnings estimates and earnings were down on a year-over-year basis.

“Other banks fuel a lot of growth with higher priced (certificates of deposit) and it’s difficult to enhance your profitability when putting a lot of high-priced CDs on your books.”

Perry predicts that, in the next few months, San Diego’s banking market will consolidate and merge, “shaking loose” clients and talented bankers, which San Diego Trust intends to capitalize on.

“We’ve already added a few more employees,” he said. “We’re poised for more growth in the near future.”


Send finance news to Andy Killion via e-mail at

akillion@sdbj.com

. He can be reached at (858) 277-6359, ext. 3106.

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