LAKE BLUFF, Ill.-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, according to a new overdraft study by Moebs $ervices.
The 2.8% drop was the first quarterly drop in OD revenue since the fourth quarter of 2011. The study is based on Federal Reserve call report data.
Michael Moebs, economist and CEO at Moebs $ervices, told Credit Union Journal that the decline largely resulted from consumers seeing smaller paychecks this year due to the end of the Social Security payroll tax cut Jan. 1, as well as from afterefects of holiday spending.
"Consumers are hunkering down a bit, being more watchful of their spending and avoiding overdrawing their checking accounts," said Moebs, who also indicated that overdraft revenue is becoming a barometer of the sluggish economy.
Moebs also stated that some of the drop is seasonal, with February typically being a weak month for OD revenue. "But this time the drop started earlier, in January, and continued through March."
Total service charges from all deposits accounts also dipped by 2.9% in the first quarter, the first time total service charges fell in two years, added Moebs, who said the result also indicates consumers are watching their spending.
OD Revenue Increase?
Moebs believes the drop is temporary and that OD revenue will pick up this year and continue the strong comeback it exhibited in 2012. Overdraft revenue for banks, thrifts and CUs came back in 2012 to $32 billion, according to Moebs. Following the Fed's Reg E Opt-In regulation for debit card and ATM overdrafts in 2010, overdraft fee revenue fell to a low of $31 billion in the first quarter of 2012, down from $37.6 billion in the third quarter of 2008.
Last year an OD survey by Moebs of 2,700 FIs, found that as of June 2012, CUs enjoyed their best 12-month period for OD revenue in history, collecting $5.5 billion.
Moebs also shared that the Consumer Financial Protection Bureau deciding to stretch out potential overdraft regulations for up to two years to provide more study time on the issue has affected overdraft pricing. "That is throwing banks and credit unions into a quandary over how to position price changes on overdrafts," he noted, adding that pricing decisions have been delayed as a result.
