Banks Seize Opportunity On Overdraft Law While CUs Lag

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LAKE BLUFF, Ill. – Community banks are taking advantage of a new law on overdraft protection programs, lowering fees and aggressively seeking new business, while many credit unions are giving up on the program altogether, according to a new survey.

“Banks are being incredibly smart on this and credit unions are being incredibly dumb,” said Michael Moebs, president of Moebs Services, which conducted the survey of 2,000 lenders, including 1,100 credit unions and 900 banks.

The survey found that more banks are starting new overdraft protection programs, some making formal what were informal, ad hoc overdraft programs, and many more are lowering their pricing for overdrafts. “For every 10 banks starting an overdraft protection program, there’s one bank getting out,” Moebs told Credit Union Journal yesterday. “For every two credit unions that are starting it, there’s three getting out of it.”

The banks' strategy, according to Moebs, is to raise fees on non-sufficient funds transactions while lowering fees on overdraft protection, in order to drive more customers towards overdraft protection.

At the same time, more credit unions are raising their pricing for overdraft protection to compensate for a projected decline in volume, he said.

The trend comes as some big banks, including Bank of America, are exiting overdraft protection altogether, leaving a big new market to serve.

“My concern is credit unions don’t really see the advantage here,” said Moebs. “The banks are saying, ‘there is a business here, I’m going after it;’ they’re treating the consumer better.”

The survey also found that both credit unions and banks are being aggressive in seeking the consent, or opt-in, of consumers for overdraft protection are getting big responses, with less than 5% of customers opting-out.

Credit unions and banks are preparing for the effective date of the new law, which goes into effect for new customers on July 1 and for existing customers on Aug. 15, requiring them to obtain consent from their members/customers to cover their overdrafts on non-recurring debit transactions or ATM withdrawals.

Moebs predicted the opt-in law will create a decline in overdraft protection revenues initially, but an increase in revenues over the long-term.


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