LAKE BLUFF, Ill. — Total overdraft revenue for 2014 slipped by 0.31% to $31.8 billion (down from $31.9 billion in 2013), but credit unions were near the forefront of that slide with a 3.9% decline — the first ever for CUs.
That's according to a recent study from Moebs Services, which found that thrifts exceeded credit unions' overdraft declines with a 7.3% drop. Banks, on the other hand, continue to dominate the overdraft market and saw a 1.1% increase last year, but those gains weren't enough to offset the overall decrease in OD revenue.
"With banks having the primary share of ODs, the banking industry's increase in OD revenue is significant," wrote Moebs, noting that while lower-income consumers are a main customer source for traditional banks, the banks' shift away from free checking has also impacted those consumers.
"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," he wrote. "Banks are the first to move away from free checking to get their portfolio to break even, something credit unions are reluctant to follow."
While overdraft prices have stayed stable for about two years — a median of $30 per overdraft, according to Moebs — shifts in revenue are largely due to declining volumes, which Moebs found dropped from 7.1 overdraft transactions per household in 2013 to 7.0 in 2014. The reason for that 10 basis point drop, continued Moebs, boils down to an improvement in consumers' checking account balances, which are at an all-time high.
"Since the consumer has nowhere to place short-term funds and get a decent rate of return, the average Joe & Jane store money in their transaction account," said Moebs. "With extra money in checking there are fewer errors and lower overdraft transactions."
Overdraft volumes fell by 1.4% last year, and have dropped a whopping 28.6% over the past six years, down from 2.8 in 2008 and 2009 — the height of the Great Recession — to 7.0 in 2014.
Moebs' study emphasized tha4t declines in OD revenues reflect Middle America's continued effort to make ends meet.
