By Ray Birch
LAKE FOREST, Ill.—If the CFPB eventually zeroes in on overdraft fees, to what part of the country might the agency first turn its attention? According to a new study from Moebs $services, it will likely be the East.
As CUToday.info has reported, both the Bureau and NCUA have announced they will be placing greater scrutiny on financial overdraft programs. The increased attention comes as a number of the largest financial institutions in the country, along with some credit unions, have announced they are eliminating or sharply reducing their OD fees.
In the new report that analyzes median overdraft prices by state and region, the East claims the high mark while Utah has the lowest median price.
“What the map shows is a wide-ranging difference in price between regions and states in the U.S. from a low of $25 in Utah to a high of $35 in the East—that’s a huge statistical difference,” stated Michael Moebs, economist and CEO at Moebs $ervices.
In much of the South and east of the Mississippi River, prices are above $30, including a couple of Midwestern states.
“This is because the culture of these states says it’s wrong to spend more than you have,” suggested Moebs. “Behavior in these states penalizes for making mistakes. The Eastern financial institutions of the mid-Atlantic states—Pennsylvania and New Jersey, along with Connecticut and Rhode Island—believe overdrafts should be penalized because overdrafts are unsecured credit that needs to come at a high cost to the user. Is this wrong? Probably not, because it represents the culture of these regions and states.”
Many New England states, most Midwest states, the Mountain states, along with the rest of the West are cautious and believe change is coming and soon, noted Moebs.
‘An Error, Not a Mistake’
According to the study, there is only one state west of the Mississippi River, Arizona, with above-average prices. There are four states—Oklahoma, Hawaii, Alaska and Utah with OD prices below the national median and average.
“Utah gives the most insight into what the OD price tells us,” explained Moebs. “Utah not only has the lowest price now but has so for many years. Utah also has the highest overdraft limit in the nation. Couple these two significant OD features with a view that overdrafts are an error, not a mistake or penalty, and the result is some of the most profitable overdraft programs in financial services, with consumers who overall pay the lowest price. Have Utah’s depositories figured out offering overdrafts with reasonable prices will produce high volume and therefore profit while keeping the consumer happy?”
The report also reveals that 53 cents is what separates the nationwide average overdraft price from the median OD price of $30.
Michael Moebs
“With inflation skyrocketing, 53 cents is not much of a discrepancy,” Moebs said. “Statistically, the average and median make the OD price stand out.”
Head to the Beehive State
The Moebs Survey includes more than 3,300 financial institutions, including banks, credit unions, thrifts, and now fintechs.
“The price of an overdraft was $10 in 1990. Currently the median overdraft price is $30,” explained Moebs. “However, Bank of America recently moved its price back to $10, putting pressure on others to drop their prices too. Adjusting for inflation, as measured by the Cost-of-Living-Index and Consumer Price Index, the OD price has only increased to $25 in the past 30 years…Lowering OD price increases volume and produces greater profitability by knowing the consumer will pay a reasonable price for their error. Don’t believe this? Then make a visit to Utah.”