LAKE FOREST, Ill—Credit union overdraft income fell—for the first time—in 2014, while it rose for banks. And free checking may be at the heart of that trend, according to one economist.
Total FI overdraft revenue ended 2014 at $31.8 billion, a year-over-year decrease of 0.31%. While a modest fall, the composition of the movement of revenue and volume is important, explained Michael Moebs, economist and CEO at Moebs Services.
The data comes at a time when pressure on overdraft income is mounting, including possible intervention from the CFPB, something analysts have stated could spell the death of overdrafts.
Credit union overdraft revenue fell 3.9% in 2014, and thrifts declined by 7.3%, while banks increased by 1.1%, according to the Moebs Overdraft Revenue Study.
“While banks dominate the OD business, their increases could not offset the decline in overdraft revenue and volume by credit unions and thrifts,” observed Moebs.
With banks having the primary share of overdrafts, the banking industry’s increase in OD revenue is significant, said Moebs.
“Lower-Income Americans are a main customer source for banks according to the Federal Reserve’s Survey of Consumer Finances. Banks have moved away from free checking, which has impacted lower Income Americans,” explained Moebs. “Almost 80% of banks in 2008 offered free checking, while free checking is offered by less than half of banks today.”
A lack of free checking has put stress on lower-income Americans in the form of fees for falling below minimum balances and increased overdraft usage from low balances, explained Moebs. “Banks are the first to move away from free checking to get their checking portfolio to break even, something the credit unions are reluctant to follow.”
Moebs Services overdraft surveys indicate that overdraft prices have not changed in two years.
“Median OD price is $30, therefore bank OD revenue increases as credit union and thrift overdraft revenue decreases, principally from volume,” said Moebs.
Household overdraft transactions have fallen from 9.8 in 2008-2009—the height of the Great Recession—to 7.0 for all of 2014.
“This is a six-year reduction of 28.6% with 2014 contributing a 1.4% fall,” said Moebs.