Credit unions see steep decline in overdraft revenue in 1Q: Report

Credit unions and banks are seeing a sharp decline in revenue from overdraft fees.

Overall overdraft revenue declined by 4.6%, to $32.9 billion, in the first quarter from the end of 2018, according to a new study from economic research firm Moebs Services. Overdraft revenue decreased by 2% from a year earlier.

“The expectancy was about 0.5% decline or drop of $200 million in OD revenue,” Michael Moebs, CEO and economist of Moebs Services, said in a statement. “This deep decline starting 2019, more than 8 times higher than normal, is very unusual.”

Overdraft prices increased from $29 to $30 for credit unions and from $30 to $32 for banks during the second half of last year. That caused these transactions to decline more than normal and cut into revenue, the report said.

Banks posted a 4.2% drop in overdraft revenue while credit unions had a 5.3% decline. This is the first time in five years that credit unions reported overdraft revenue falling in the first quarter, the report said.

"The days of increasing the OD price and expecting an increase to the bottom line are over," Moebs said in the report. "Now an increase in overdraft price decreases OD revenue. The only way to increase OD revenue is by reducing the cost to the consumer. An amazing thing will result from this. It is classical supply and demand. More revenue for financial institutions coming from more transactions at a lower price.”