ST. SIMON'S ISLAND, Ga.-Non-sufficient funds fees continued to grow at a substantial rate at credit unions and banks last year, serving as a reliable source of income, even as net interest margin continued to compact, according to a new study.
"As interest margins are being squeezed-primarily at banks, but at credit unions also - these institutions are looking more to fee income," G. Michael Flores, head of Bretton Woods Inc., which conducted the study, told Credit Union Journal.
The study shows that credit unions grew their NSF fee income by almost 8% in 2008 to a new high of $5.5 billion.
Banks increased their NSF income by more than 9%, to $31.7 billion, the study concluded.
The total of $37 billion in NSF fees represents a 130% increase since 2004.
Flores said because of the increasing importance of NSF fees credit unions and banks continue to employ strategies to increase NSF transactions, such as posting the highest transaction amounts to accounts before the smaller ones, even if the smaller ones were conducted earlier and expanding that strategy to different types of transactions.
"The increased use of overdraft protection programs," wrote Flores, "are the key elements in the unprecedented rise in the cost of writing a check against insufficient funds." Release of the study comes as Congress is preparing to debate anew curbs on overdraft protection programs.
Flores, who teaches business at the Pacific Coast Banking School at the University of Washington, has conducted a variety of studies for credit unions and banks.
