By Ray Birch
LAKE FOREST, Ill.—Overdraft volume continues to rise as price for the service continues to fall, according to a new study that also reveals credit unions are seeing more significant volume increases than banks—data one economist says counters criticisms that have appeared in national media recently chastising CUs’ overdraft practices.
The latest Moebs $ervices data, through June 2023, confirms those trends are not fleeting. As CUToday.info previously reported, through Q1 2023, OD volume had increased year over year. Now, the latest Moebs study, based on data through Q2, shows volume increased to 1.4 billion transactions, up from 1.1 billion in Q2 2022.
“The increases underscore that consumers want the service and are willing to pay for the financial safety net,” said Michael Moebs, economist and chair of Moebs $ervices. “Overall, From June 2019 to June 2023, the number of overdrafts rose 37.1% to over 1.4 billion. At the same time, OD prices have tumbled (32.9%) from $30.51 to $20.44.
What FIs Finally ‘Realize’
“Financial institutions finally realize the lower the OD price, the more consumers use overdrafts, especially in these financial hardship times for most American households,” he added.
Why are credit unions outperforming banks when it comes to overdraft volume increases, especially, as Moebs reminded, after banks were the first to lower overdraft prices, making big headlines more than a year ago?
“Banks lowered them down to roughly about $20,” Moebs said. “Now, credit unions have gone a little bit under that and are at $17. If you compare this to pre-COVID times, the drop is substantial. We were looking at $30 for credit unions and $32 for banks per overdraft, going back to mid-2019.”
Higher Limits
Not only is the average credit union overdraft fee lower than that of banks’, CUs’ limits are higher, pointed out Moebs.
Michael Moebs
“Banks are roughly at $600 on their overdraft limits, while credit unions are generally at $1,000 or higher,” Moebs said.
In addition, Moebs pointed out that while bank and thrift overdraft volume is down 14% since Q2 2019, credit union OD volume has climbed by 9% in that same period. Moebs said data, which indicates the decision by credit unions to lower their overdraft price has led to higher volume, counters claims by an opinion piece that asserts credit unions in California are taking advantage of their members with their OD practices.
Response to Being Called a ‘Predator’
As CUToday.info reported, critical opinion piece suggested, “There’s a new predator making money off overdraft fees: credit unions.”
The article, published by Politico under the headline, “Credit Unions Are Making Money Off People Living Paycheck to Paycheck,” was authored by Aaron Klein, the Miriam K Carliner chair and senior fellow in economic studies at the Brookings Institution. Klein served as deputy assistant secretary of the Treasury from 2009 to2012 and as chief economist of the Senate Banking, Housing and Urban Affairs Committee from 2004 to 2009.
The report follows the release of the first annual report from California’s financial regulator following a law requiring data be published showing how much Golden State institutions are making from overdraft fees and NSFs, as CUToday.info reported here.
Credit Unions Leading the Way
“It is clear from our data that credit unions are leading the way now in dropping overdraft price, which is increasing volume,” said Moebs. “Credit unions, too, are making more money by dropping price, providing an even more affordable service. And their members recognize what the cooperative is doing for them today and are taking advantage of a fairly priced short-term small-dollar loan. We are seeing that in the California data.”
Higher OD limits are also helping more credit union members use the service, asserted Moebs.
“Credit unions are standing there with at least $400 more in overdraft limits than the banks offer now,” reiterated Moebs.