LAKE FOREST, Ill.—Credit unions have hit an all-time high in overdraft revenue, according to the latest overdraft study from Moebs $ervices.
CU overdraft income at the close of Q3 2016 reached $6.1 billion annualized. The previous high was $5.9 billion set at the end of 2015.
Prior to 2015, the previous revenue record for credit unions in overdraft revenue was $5.8 billion at the end of 2013.
Overall, according to the Moebs report, annualized overdraft revenue for all financial institutions has increased to $32.9 billion, or 1.2%, since 2015.
“While banks and thrifts increased slightly, the credit unions lead with over a 3.4% increase,” said Michael Moebs, economist and CEO at Moebs $ervices.
3.4% Increase
Surpassing the $6-billion threshold in overdraft revenue represents a 3.4% increase since 2015. Banks and thrifts increased their OD revenue modestly, just over 1%, for the same time period, noted Moebs.
“What is causing the revenue increase, especially with CUs? OD price has remained constant over the past four years,” said Moebs. “Yet volume has increased 3.6% for the same four-year period. In addition, credit unions are seeing a surge in overdraft revenue as a result of 47% of the banks discontinuing free checking, whereas about 80% of the CUs have stayed with free checking. As a result, credit unions have seen their number of checking accounts grow significantly—as well as the number of overdrafts from their members.”
Michael Moebs, Moebs $ervices
The Moebs study shows overdraft transactions continue to grow, underscoring consumers’ needs for short-term financing to solve day-to-day money shortfalls.
“There are approximately 43 million Americans in need of additional money to make ends meet,” said Moebs. “Less than half of these consumers go to banks and credit unions. The rest go to payday lenders.”
ODs And Prepaid
The Consumer Financial Protection Bureau recently issued regulations that make it difficult to offer overdrafts on the reloadable prepaid cards (RPCs). Due to the heavy regulations on RPC overdrafts, nearly every bank and credit union has opted not to offer this feature on their RPCs, said Moebs.
“On the contrary, overdrafts on checking accounts are being offered by almost 98% of all depositories,” said Moebs. “Over 20% of American checking account users make mistakes or need assistance with their finances.”