LAKE BLUFF, Ill.-After falling for six straight quarters, overdraft revenue for banks and credit unions is rising again, and one economist predicts credit unions will have a record year for overdraft income.
In fact, that same economist believes credit unions are the "big winner."
Since its peak at $37.1 billion in 2009, overdraft revenue has fallen, ending at $30.1 billion for the first quarter of 2011. "Like the mythical bird-the phoenix- overdrafts are rising from the ashes," said Michael Moebs, economist and CEO of Moebs Services. "Overdraft revenue at the end of the second quarter of 2011 is up over $700 million at both banks and credit unions."
Additionally, the average number of overdrafts per household increased during the same period, Moebs said. "From our study of usage, behavior and prices of over 2,500 depositories and a million checking accounts, Americans not only want overdrafts but are using overdrafts with increased frequency."
Moebs had earlier asserted in Credit Union Journal (Sept. 19) that there is enough overdraft and checking revenue up for grabs in the final months of 2011 to cover credit union assessments and any interchange losses for the entire year. He shared numbers that indicate CUs are now moving to take significant overdraft share. Moebs Services' data shows that credit union annualized overdraft revenue increased to $5.2 billion at the close Q2, up from $5 billion at the end of Q1. With mega-banks getting out of the overdraft business and chasing away checking accounts, Moebs predicted that by the end of 2011, CUs will have their best year ever for overdraft revenue, topping out at over $5.4 billion.
"CUs are the big winner in this whole thing," said Moebs. "Credit unions need revenue and their regulator is not being like the FDIC and OCC and issuing overdraft guidelines, so they are taking advantage of the bank situation."
Moebs, told Credit Union Journal that banks are on pace to hand over approximately $4 billion to $5 billion in checking and overdraft revenue this year.
Changing Consumer Behavior
Moreover, Moebs said consumers are not turning away from overdraft, thanks in large part to a change in consumer behavior. Moebs has asserted for the past year that consumers do not see overdraft as a penalty, but a service. He noted that a quarter of a million consumers intentionally overdraw their checking accounts. "They see overdraft as a safety net."
Moebs continues to urge credit unions to lower their overdraft price to below $20-a trigger point Moebs' research has shown encourages consumers to switch their checking accounts, and the price competes with payday loans.
Despite all of the regulatory efforts to inhibit the use of overdrafts, over 100 million American consumers (77% of more than 130 million checking accounts) have opted in for overdrafts on debit and ATM card transactions, pointed out Moebs.
"The FDIC and now the OCC are trying to dictate to consumers something that Americans do not want. Consumers see overdraft as a service. Like the single mother who's struggling to pay her bills; eliminate overdraft and payday advances and she is left with only loan sharks."
