LAKE FOREST, Ill.—Annual overdraft revenue at credit unions reached its highest total ever last year—$5.9 billion—according to a new study.
The report from Moebs $ervices also shows that overdraft revenue among banks, thrifts and credit unions increased 2.1% last year, the biggest increase in five years, “Nearly a $700-million increase,” said Michael Moebs, economist and CEO of Moebs Services.
According to Moebs, three factors led to the record CU revenue, the highest total since 2013’s $5.8 billion:
- Credit unions steadily inching up their median overdraft price to within $1 of the banks’ $30 average.
- CUs gaining checking business from banks.
- And consumers feeling better about their personal finances so they don’t monitor their checking balances as closely.
Steady National Median
The national median overdraft price has held steady at $30 for three years. In 2015 credit unions increased their OD price 1.8%, resulting in part of the additional revenue.
“Our study covered almost 2,800 banks and CUs,” stated Moebs. “The CUs’ OD price is not statistically different than the bank OD price. This is not unusual, because in 2005 through 2007 the bank and credit union price was the same at $25.”
Michael Moebs, Moebs $ervices
Consumers continue to use overdrafts, said Moebs, as volume of ODs was up 0.65% in the past year.
“For 15 years, since 2000, overdraft usage has been above one-billion transactions per year,” said Moebs. “In the past two years there have been three quarters where OD volume dipped below annualized forecasts of one-billion transactions per year. However, volume in the second half of the year typically offsets a low first-half year due to the summer and holidays. The low point of consumer OD usage was in 2014, mirroring similar economic activity in the GDP and the stock market.”
Meanwhile, the new numbers come after CFPB Director Richard Cordray confirmed with the Consumer Bankers Association in a recent speech that new rules on prepaid cards and payday loan will be out soon.
Prepaid Is Checking
“The CFPB has proposed prepaid cards not be allowed to use overdrafts as a feature,” said Moebs. “Fundamentally the prepaid card, especially the reloadable prepaid card, is a checking account. More checking accounts for all financial institutions will come from prepaid’s endorsement with proper rules by the CFPB. Also, the CFPB rules curtailing payday lending use will give an immediate opportunity for FIs to pick up OD volume from those consumers seeking an alternative to payday loans being reduced. I believe this will be the first time a move by the CFPB will be good for both consumers and banks, although bad for the payday loan industry.”
Moebs said there is a “changing climate” for overdrafts and checking, pointing to continued growth among both products.
“Driving the price of the overdraft much past where it is now is not a way to achieve continued revenue growth,” said Moebs. “A greater understanding of the consumer risks, lower prices, regulations, and changing behavior of the consumer is mandatory for sustainable and productive growth.”