LAKE BLUFF, Ill.—The national price for overdrafts is rising, and credit unions are driving up that fee.
A recent study by Moebs $ervices indicates the median overdraft fee in the U.S. moved up in 2013 to $30, from $29 last year. In that same period, credit unions increased their median OD charge to $28 from $27. Bank and thrift pricing remained unchanged at $30, the same price they charged in 2010. Credit unions have raised their overdraft charges each of the last two years, going to $27 in 2012 from $25 in 2011.
The survey covered 2,906 depositories reporting fees as of June, 2013, compared with OD fees reported six months previous in December.
"Looking at this longer term, this is not good for credit unions," asserted Michael Moebs, economist and CEO at Moebs $ervices. "Credit unions keep raising their price and soon they will price the same as banks."
Moebs cautioned the fees increase the attention of the Consumer Financial Protection Bureau as well as independent consumer advocacy groups and, eventually, NCUA.
What's driving CU OD charges up, concluded Moebs, are macro-economic issues affecting consumers' attention to their budgets, as well as credit unions having difficulty building capital in a time when earnings are challenged and deposits are heavy. A recent Moebs' study pointed out that overdraft revenue fell, on an annual basis, for banks, thrifts and credit unions, by almost one billion dollars in Q1 2013, from the end of 2012 (Credit Union Journal, June 10). The decline, said Moebs, resulted largely from consumers seeing smaller paychecks this year due to the end of the Social Security payroll tax cut Jan. 1, as well as from after-effects of holiday spending.
'Not Doing Themselves A Service'
"Overall, overdraft volume is down at banks and credit unions, and therefore revenue is down," said Moebs. "But credit unions raised their price to offset some of this volume drop-off, while the banks and thrifts did not. The credit unions are not doing themselves a service by following banks in their overdraft pricing."
Moebs emphasized that the $2 spread between the average bank and CU OD charge is still a statistical difference that allows CUs to say they offer better OD pricing than banks. However, he urged credit unions that have raised price to make up for a loss in OD revenue to instead cut price, below $20, making the service more affordable for members and a safety net.
"In every case we have seen credit unions do this they make more money due to increased volume, and they provide members with a much-needed service that competes with the payday lenders."
Poor Timing
Raising OD price now is also poor timing, added Moebs, who said that will not help credit unions attract all the checking accounts the big banks are shedding with their fees. "The door is wide open for Main Street institutions—and credit unions are going the wrong way. This is an opportunity for credit unions and community banks to lower their price, maybe take an initial hit for several months, but in the long run come out much better—not only due to the increased overdraft volume, but because they will have many new checking relationships."
The Moebs survey noted that the increase in CU overdraft pricing came largely from those in the $200-million to $3-billion asset range. Moebs also noted that overdraft prices are becoming disparate, ranging from a single low of $8 in North Dakota to a single high of $50 in Florida, and large differences from East Coast to West Coast, and Midwest to South.
