LAKE FOREST, ILL—A new study reveals that a credit union in Florida charges the highest overdraft price in the country, while a bank in Iowa offers the lowest OD fee, as the checking business continues to change “rapidly.”
The latest overdraft survey from Moebs $ervices has found that St. Joseph’s Hospital FCU in Tampa, Fla., charges $50 per overdraft, while State Bank of Brooks in Corning, Iowa, comes in at $5.
Police and Fire FCU in Philadelphia came in with the second-lowest price at $6 (see chart).
Collectively, at banks, thrifts and credit unions the median overdraft price is $30 per item.
“The overdraft market has finally evolved into open pricing,” said Michael Moebs, economist and CEO at Moebs $ervices.
The wide range of OD prices, said Moebs, is being impacted by the checking account.
“The checking business is changing rapidly,” said Moebs. “Many OD prices are heavily influenced by the overall OD volume.”
Checking Strategy
A financial institution’s overdraft program not only reflects checking price and volume, but also the type of checking account strategy, said Moebs.
“An Institution can choose to be either transaction oriented or sales oriented,” Moebs explained. “Being transaction oriented allows an Institution to focus on their checking account policies, such as ODs, in order to generate the most revenue. Whereas a sales oriented institution focuses more on selling other services.”
Moebs (see chart) noted that Police & Fire FCU, Bank of Orchard, Florida CU, and St. Joseph’s Hospital FCU create above average fee income.
“However, with different OD prices comes different strategies. Bank of Orchard, with an overdraft price of $10, is a transaction-oriented institution, having below-average loans and nearly 50% in checking account deposits to assets,” said Moebs. “Whereas, Florida Credit Union, with an OD price of $41, is a sales-oriented institution, with nearly 85% in loans, and only 20% in checking account deposits to assets.”
Michael Moebs, Moebs $ervices
Above-Average Revenue
The Moebs study shows a strong overdraft program, with a low OD price can bring in the price-conscious consumers and produce above-average revenue. In addition, a high OD price, which Moebs terms “penalty pricing,” shows the market the financial Institution may not be focused on checking users, and more on other services like credit cards and loans, he said.
“Overdrafts will be around for a long time. If a Financial Institution matches their needs to the wants of the marketplace, they will succeed,” said Moebs, who cautioned that while many financial institutions recognize the need for the service and employ pricing strategies to benefit the consumer, the Consumer Financial Protection Bureau is showing signs of wanting to eliminate ODs altogether.
“However, the magnitude of overdraft users, approximately 43 million annually, is too large to eliminate a service consumers have come to rely on to fund short-term cash needs,” said Moebs. “Along with the number of OD users, the revenue generated, about $32.8 billion, would be too big of a hit on financial institutions. Eliminating overdrafts would wreak havoc with consumers’ finances and many depositories who count on OD revenue.