LAKE FOREST, Ill.—Overdraft revenue at banks, thrifts and credit unions fell sharply in the first quarter of 2015, dropping 3.8% on an annualized basis.
The latest Moebs Services Study of Overdraft Revenue reveals that in Q1 total overdraft revenue annualized was $30.6 billion, down from the actual $31.8 billion of 2014. After moving off a high of $37.1 billion in 2009 to $33.1 billion in 2010, overdraft revenue among all FIs has hovered around $32 billion annually—$31.6 billion in 2011, $32 billion the following year and $31.9 billion in 2013.
“Consumers’ usage of overdrafts fell to 6.7 overdraft transactions per checking account per year in Q1,” said Michael Moebs, economist and CEO at Moebs Services. “This compares to 7.0 in 2014 and a peak of 10.5 in 2008. This is a significant change in behavior and reflects the more cautious or deliberate behavior of the American consumer. At a median of $30 for an overdraft per Moebs Services surveys, having on average 2.3 less ODs per year saves the average consumer $69 per year.”
OD Volume Lowest Since '98
The 6.7 overdraft usage volume has not been that low since 1998, noted Moebs, who said that in the past, fee increases would camouflage minor changes in OD usage. But with the CFPB’s focus on limiting overdrafts, OD fee hikes have been fewer, and the usage decline’s impact on overdraft revenue “can no longer be camouflaged,” said Moebs.
Moebs added that lack of accessible data has made the study of overdraft usage and behavior difficult to track.
“This year, for the first time, the FDIC required banks with greater than $1 billion in assets to specifically report overdraft revenue. This was mandated by regulation prompted by the Consumer Financial Protection Bureau,” said Moebs. “Overall this was a good step forward in getting more accurate overdraft information. This limited data for banks of $1 billion and greater in assets did indicate that Moebs estimates for the past 23 years have been accurate and potentially even underestimating the full amount of revenue from overdraft services.”
While a good step in the right direction, only 85% of the banks required to report did report the data, said Moebs, leaving 102 banks unaccounted.
“While some may criticize the FDIC for not doing a better job of policing bank participation, the main fault lies in bank operation systems and related general ledgers,” observed Moebs. “Many banks still have legacy operating systems which cannot report details of revenue and expense. In time, operating systems will catch up to the needs of the financial services community. Credit Unions need to take note of what is happening with the banks on overdraft data.”
Some Banks Estimating Revenue
The Moebs study found that some banks were estimating overdraft revenue and often underestimating to avoid projecting too robust of revenue, asserted Moebs.
“Also the FDIC study asked for only OD and NSF revenue and failed to obtain revenue data for transfers, stop payments, return of deposited items—all of which are part of the full landscape of overdraft revenue,” said Moebs.
Moebs added that community banks, or banks less than $1 billion in assets, were excluded from the FDIC reporting requirement.
“Again, the bank regulators need to follow ‘full transparency’ as expressed by Senator Elizabeth Warren,” said Moebs.
Moebs said the economy is changing consumer behavior, making Americans more frugal.
“Overdraft data is getting better but open for some marked improvements,” concluded Moebs. “Overall, overdrafts are still part of the financial services landscape, and appear to have a strong future under current conditions.”