Michael Moebs, Moebs $ervices
LAKE FOREST, Ill.—Overdraft prices in community banks with $100 million or less in assets have remained unchanged for almost a decade, according to a new study that shows the small banks charge $3 less per OD compared to similar-asset-size CUs.
The study also shows the CU median overdraft price to be on par with the median price of all banks for the first time since 2008.
As community banks have held the line on overdraft charges, other Main Street depositories of similar asset size, such as thrifts and credit unions, have increased their prices during the past decade and no longer have a competitive marketplace advantage in overdrafts, according to the Moebs $ervices report.
Main Street overdraft pricing ($100 million in assets and less) varies by financial institution: banks charge a $25 OD fee, whereas credit unions charge 12% more at $28 and thrifts charge 20% more at $30 per overdraft.
Big Banks Charge Most
When comparing the smaller community banks to larger FIs, larger banks charge 40% more at $35 per OD. In the <$100M asset price level credit unions and thrifts have driven up the price to a median of $28, but the small banks stay at $25.
“Those community banks, which are independent from any bank holding company, are now the institutions the consumer wants to join for the below-market overdraft price,” noted Michael Moebs, economist and CEO at Moebs Services.
Customers of the small community banks benefit from the low $25 OD price, said Moebs.
“The financial institution also benefits from this low price. Call reports show service charges on deposits to total assets is 0.23% for these community banks, under $100 million in assets. In comparison, all financial institutions have 0.24% service charges to assets,” said Moebs. “Using percentages and not absolute numbers so asset size doesn’t matter, community banks are making just as much money as big banks, and they are doing so with a price at least $5 lower than the national median of $30 per OD and $10 lower than the big banks. Community bankers figured out many years ago not to compete on high price, but high volume with a low price.”
CFPB Targeting Payday
The CFBP is expected to target payday lenders with new regulations in early 2016, and in the past has called the loans a "debt trap.”
“The CFPB will introduce new rules to restrict or substantially curtail payday lenders,” said Moebs. “More than half of the 43 million people who overdraw go to a payday lender to get sufficient funds to cover their overdrawn accounts. If the CFPB can substantially curtail payday lenders, then these borrowers would seek assistance and go to the next lowest price source, which is the smaller community banks.”