WASHINGTON –Credit unions and banks have severally slowed the rapidly rising charges for overdraft protection as Congress debates new curbs on the programs, according to a new study survey issued Friday.
The survey, conducted by Moebs Services, shows that the increase in overdraft protection fees charged by 2028 financial institutions, including 1,100 credit unions, slowed from an average of 8.2% for the past 10 years to an annualized rate of just 1.2% for the five months of June to November, as Congress has intensified efforts to reign in abusive overdraft protection charges.
"There is something substantial going on here. Credit unions, like banks, are scared about what is going on in Washington," said Michael Moebs, president of the firm, who suggested the institutions hope to dissuade Congress, or at least not add fuel to the fire, on efforts to reign in the popular source of revenue.
The new data show that the average overdraft charge for credit unions is till the lowest among the surveyed institutions, $25.12 per incident, up from $24.89 in June.
For all surveyed credit unions and banks, the average cost was $26.88 on November 7, up from $26.68 in June.
For all banks, the November figure was $28.74, up from $28.13.
And for the largest banks, the 29 banks Moebs refers to as the Wall Street banks who are the main target of the congressional ire, the average actually declined during the five month period from $35.50 to $34.96.
"These 29 banks are causing problems for the 16,000 community banks and credit unions," Moebs told The Credit Union Journal on Friday.
Moebs found that the average cost to process an overdraft remains at around $13, ironically the same amount it costs to process a payday loan.
That means that credit unions and community banks will be best situated if provisions contemplated by Congress that will limit overdraft charges to being "reasonable" to recovering a cost are passed.
Moebs also said his study shows that when given the option, consumers at both credit unions and banks overwhelmingly choose to opt-in to the service. In the case of three large credit union clients of his, 98% of members chose to opt-in, he said.
Release of the survey came a week after the Federal Reserve issued new rules to its Reg E requiring that credit unions and banks obtain permission from customers, an opt-in, for all overdraft protection programs on debit card and ATM transactions.
Both the House and Senate are debating legislation that would go much further by limiting the number of overdrafts that could be charged in a month and a year; requiring disclosures of annual percentage rate under the Truth In Lending Act, and limiting overdraft fees to what is reasonable to cover expenses for the service.
