LAKE FOREST, Ill.—There is a surprise to be found in the direction credit unions and banks are moving when it comes to pricing overdrafts.
The average national overdraft price may be starting to inch downward, largely due to banks and thrifts cutting their fees, while a majority of credit unions are moving in the opposite direction, according to a new study.
“In the past six months, 11% of all depositories changed their overdraft price,” said Michael Moebs, economist and CEO of Moebs $ervices, who did a survey of more 3,800 financial institutions during January. “The national overdraft price has remained at $30 for the past five years, signaling a new trend may be emerging. Although the national price has remained constant, there are significant price changes taking place at many depositories. Of those who adjusted their price, 34.9% decreased it, which is the largest amount decreasing their price in the past five years.”
Banks Headed Lower
Moebs Overdraft Study shows that the group of financial institutions that have moved to decrease fees associated with overdrafts is led by banks and thrifts, which historically have set the price precedence in the overdraft market place, said Moebs. The high number of banks and thrifts decreasing their price indicates the industry may have reached a cap at $30 per item, added Moebs.
Michael Moebs, Moebs $ervices
“Credit unions, which currently on average charge $1 less for an overdraft than banks and thrifts, seem to be reaching the $30 cap, with the majority of CUs still raising their price, and only 25.9% of those CUs who made a price change decreasing their price,” said Moebs. “This many banks and thrifts decreasing their price is unprecedented. It implies that many depositories are beginning to shift strategies from pricing overdrafts as a penalty fee.”
The analysis shows that certain U.S. markets have seen significant changes in pricing around overdrafts, the Moebs Study shows.
The largest increase was in New York City at $3 per item, or 10% price increase, followed by Chicago with a $1 increase. In contrast, the Washington, D.C. market has seen a price decrease of $2.25, or 7%. Increases in overdraft pricing were seen in five of the largest U.S. cities for an average of $0.50 per item, which is statistically significant change for a service that has not changed its overall price in five years, said Moebs.
Prices Change In States
Pricing changes have also taken place in six states. Depositories in Kansas and New York State increased their prices considerably, while four states saw decreases in overdraft pricing. Two states, Pennsylvania and West Virginia, had many financial institutions lower their price meaningfully, said Moebs.
There was also a regional increase with FIs in the West increasing pricing by an average of $1 per item. Credit unions lead the price expansion in the West, while the banks and thrifts remained constant.
“It is rare to see states, and especially a region, change OD price when the industries are not changing, let alone this many,” noted Moebs. “This points out a more open market for overdrafts and related services is emerging.”