We recently came across an account for a local church credit union that has been banking with our bank for the past 30 years. We discovered that they are using their main account here to clear their customer deposits, hence we are accepting 3rd party checks which we generally do not do. The tellers never questioned the account since it has been here for so long and there's never been an issue with returned checks or fraud. Since I am new to the bank, I'm just wondering what the risks would be in continuing this relationship. The only reason this account was looked at is because they would like to use Remote Deposit Capture. Any help would be greatly appreciated.

Since I am new to the bank, I'm just wondering what the risks would be in continuing this relationship.

Zero.

Common practice for small credit unions to use a local bank for checking clearing purposes in this manner.

simple correspondent banking relationship, happens quite frequently.

Thanks for the response rlcarey.

We are a small bank and I've never personally dealt with a credit union. I was confused with whether or not we would be considered a third party payment provider. This account was opened long before any of the current employees started working here. Now that the manager found out that they are using us to clear their items, he thinks the account needs to be closed. I'm just trying to understand his reasoning for no longer wanting the account. He claims the risk of fraud and endorsement issues but I'm not that familiar with the "bookkeeping" side of banking.

They are either a State or Federally chartered financial institution. I see no such risks. If there is fraud or an endorsement issue - you kick it back the credit union and they kick it back to their member. You already said there has never been a problem with the account.

it could be the old "bank v credit union" struggle where banks are angry that CUs pay no taxes and have greatly expanded their membership eligibility and he doesn't want to help the competition.

FDIC Chairman Jelena McWilliams "Net interest income increased 8.7 percent compared to a year ago – the largest annual dollar increase ever reported by the industry."

I don't think there is a need to fight each other really. Banks seem to do pretty well.

many a long term banker would disagree. i used to work for a correspondent bank, that is all we did, and no way would they entertain a credit union as a customer - and that is prevalent among many still today.

I assume that the credit union account is on analysis and the bank is making money on the deal. If the bank choose to close the account, then I suggest that you give the credit union plenty of time to make other arrangements, or you can bet that the phone lines between the CU's regulator and your regulator is going to light up.

Happy I understand where you are coming from. I just think there is enough pie for everyone to be full.

I was a fire fighter as a young man. There are cops and fire fighters who actually hate each other because of a budget struggle. Not saying it is exactly the same but they both have their place.

One problem bankers have with CU's is this petty claim that they are serving their community so they should be tax exempt. Last I checked banks serve their communities just as much if not more and have to also comply with CRA and pay taxes. I'm sure you can see why CU's are disliked by those in the banking community, no-one like an unfair advantage. I can guarantee any hostilities would go away if CU's paid taxes and were subject to the same regulations and enforcement.

RockChucker: I have often been worked up about the charitable deeds of Credit Unions so no argument there. I asked about a regulator that would enforce the level of involvement and deeds that a CU would have to partake in. Some seem to do a great job while others literally put there name on a table at convention style events and give out pens (and like objects). Ally does more than that at events at their booth. There should be solid commitments to the community and regulated to guarantee it or subject to massive fines and what nots.

Sure though no one likes an unfair advantage. All institutions should be made to follow the rules closer even the ones like serving the community. Then again with some institutions it seems it is cheaper to break the rules and be fined than to actually follow them. Perhaps it is too early and I should drink coffee before posting all negative like

This has morphed from a legitimate banking question into a discussion that best belongs in the private forums or the water cooler.

I figure it's over anyway. Sorry rlcarey