By Jason Stverak
Credit unions’ overdraft programs are transparent, optional, and designed to serve members’ needs, not to trap them in debt. Unlike the sneaky “gotcha” fees of the past, these programs require members’ affirmative consent and come with clear disclosures. By law, no one is enrolled in overdraft coverage without opting in, and members can opt out at any time.
In fact, surveys show 7 in 10 Americans value having the option of overdraft protection, and an overwhelming 80% of people who’ve paid an overdraft fee were glad their financial institution covered their payment rather than denying it. This isn’t a “junk fee” – it’s a service people knowingly choose because it provides real value when money is tight.
Think about what overdraft protection really means: if a member’s account is short by a few dollars when the rent or utility bill hits, the credit union covers it. Yes, there’s often a fee (typically around $28 at a credit union, a bit lower than banks’ $31 average), but members consider that a fair trade-off to avoid far worse consequences. Without the option to occasionally overdraft, that member would face a bounced rent check or a late bill, incurring hefty late fees or penalties far exceeding a one-time overdraft charge. For someone living paycheck-to-paycheck – as nearly 4 in 10 Americans are, unable to cover a $400 emergency expense from savings – a briefly negative balance can be a lifeline to keep the lights on and paydays rolling.
Crucially, credit union overdraft programs are voluntary safety nets, not automatic traps. Members decide if they want this protection, and they use it when it truly matters – to cover essentials. Many credit unions even build in consumer-friendly safeguards: for example, forgiving small overdrawn amounts, limiting the number of fees per day, or offering grace periods to repay. The goal is to help members bridge short-term gaps, not to profit from their misfortune. And any fees that are incurred don’t line someone’s pockets on Wall Street – at not-for-profit credit unions, fee revenue is reinvested in serving members. There are no wealthy stockholders to please; the “shareholders” are the members themselves. Every dollar a credit union earns (including from overdraft fees) goes back into lower loan rates, higher savings returns, modernized services, and yes, sometimes even dividends or patronage refunds to members. This cooperative structure is why, on average, credit union members pay far less in fees overall than bank customers. One comprehensive study found that members paid less than half the total checking account fees annually compared to bank customers ($72 vs. $183 per year). In short, credit unions aren’t nickeling-and-diming working people – they’re saving them money while providing an emergency backstop.
Wall Street’s Hypocrisy And Distractions
It is beyond ironic to hear for-profit mega-banks slamming credit unions over overdraft practices. The very banks decrying these programs are the ones that pioneered overdraft fee gouging and made billions from it. In 2019 alone, U.S. banks pulled in roughly $15 billion in overdraft and bounced-check fees, with just three giant banks – JPMorgan Chase, Wells Fargo, and Bank of America – accounting for nearly 44% of that haul. In fact, overdraft/NSF fees made up about two-thirds of all fee revenue for banks that year. For years, these Wall Street institutions deliberately re-ordered transactions and charged $35 penalties multiple times a day to maximize their fee income. They’ve treated Americans’ misfortunes as a lucrative profit center.
Now that public pressure and regulatory scrutiny have forced some modest reforms, big banks are trying to rehabilitate their image – not by truly atoning, but by pointing fingers at credit unions. It’s a calculated distraction. Rather than fully cleaning up their own exploitative fee structures (many still charge fees nearly as high, just with a friendlier face), big banks and their lobbying groups launch broad-brush attacks implying “everyone does it.” They want Washington to lump not-for-profit credit unions in with the worst actors on Wall Street. This smear campaign is nothing new; it echoes the tired banking-industry talking points we’ve heard whenever credit unions’ mission or tax status is discussed. It conveniently ignores the major advantages banks enjoy, from huge tax breaks and taxpayer-funded bailouts to economies of scale that let them choke out competition. The banking lobby would love to see credit unions – their member-owned competitors – crippled by bad press or onerous rules.
Let’s call this out for what it is: bank hypocrisy. The same Wall Street banks that raked in billions from overdraft fees and got caught in scandal after scandal (fake accounts, anyone?) are now casting themselves as consumer champions by demonizing credit unions. They are hoping policymakers don’t know the difference – or will ignore it. But there is a world of difference. Credit unions exist to serve communities, not exploit them. Our boards are made up of member-owners, not wealthy executives, and our mission is financial well-being, not maximizing quarterly profits.
The Real Cost Of Killing Overdraft Options
If regulators and lawmakers give in to this misleading narrative and eliminate or severely restrict overdraft programs across the board, the result will be disastrous for working families. I don’t use that word lightly. We have to ask: What happens when the option of courtesy pay is gone? The short answer: people don’t stop needing short-term funds – they just get them elsewhere, often from much worse sources.
First, necessary payments will start bouncing. That means more returned checks and declined transactions, which carry their own fees (merchants often charge $30+ for a bounced payment) and can wreak havoc on a person’s finances and credit. An important bill like rent or a car payment that isn’t covered on time can spiral into late fees, termination of services, or even eviction/repo in extreme cases. Overdraft protection exists precisely to prevent those cascading harms. It’s a head-in-the-sand fantasy to think banning overdraft fees will magically make every budget balance to the penny. In reality, it will just remove the buffer that currently stops a small misstep from turning into a crisis.
Second, people will turn to predatory lenders. For millions who don’t have pristine credit – roughly one in five Americans have no access to affordable credit lines – a regulated overdraft program is the only lifeline they have to cover urgent needs. If we take that away, we’re effectively pushing them into the arms of payday lenders and pawn shops. Those alternatives charge interest rates of 300-400% (or higher) annualized, trapping borrowers in debt cycles far worse than a one-time courtesy fee. It is tragically common for a payday loan to snowball over months, costing hundreds in fees – whereas a single overdraft fee is finite and transparent. Even consumer advocates who dislike overdraft admit that driving people to payday loans or unregulated loans is a cure far worse than the disease. Removing overdraft protection would send vulnerable Americans from the frying pan into the fire.
Don’t just take my word for it. The Federal Reserve Bank of New York cautioned in a recent study that aggressive fee caps or bans can lead banks to cut off services, reducing financial inclusion for low-income households. In other words, if institutions can’t charge a fair fee for the risk of covering overdrafts, many will simply stop offering that safety net – and those who can least afford it will be left adrift. Even the American Bankers Association – hardly a cheerleader for credit unions – warned that if the CFPB’s sweeping overdraft rule isn’t stopped, banks will restrict or eliminate access to overdraft, “harming those consumers who have few, if any, other options for meeting short-term liquidity needs.” They noted that survey after survey shows consumers value and appreciate overdraft services and do not want them taken away. This is backed up by hard data: 69% of consumers told a Morning Consult poll they find overdraft protection valuable, versus only 13% who don’t. Why would we strip away something that a strong majority of Americans want available for their financial security?
At the Defense Credit Union Council, we are particularly alarmed about what this means for military families and veterans. Those who serve our country often face unique financial challenges – frequent relocations, deployment gaps in pay, unexpected expenses when moving or transitioning to civilian life. As a result, service members can be at higher risk of cash shortfalls. A bounced rent or utility payment due to a deployment-related delay is not a mere inconvenience; it’s a serious threat to family stability. Overdraft protection has proven to be an essential financial tool for military households to smooth out timing issues and ensure bills are paid on time. Anthony Hernandez, the CEO of DCUC and a veteran, put it bluntly: without overdraft protection, “late fees from utility companies, rental agreements, and other day-to-day expenses would become overwhelming” for military members and vets back home. Why would we ever create that hardship, especially for those who have given so much? Yet a blanket ban or price cap does exactly that – it would pull the rug out from under the very people we should be protecting, all in the name of “consumer protection.” It’s as perverse as it sounds.
Don’t Paint Credit Unions With The Wall Street Brush
It’s time for policymakers and regulators to get the message: Credit unions are not the culprits here, and one-size-fits-all rules that treat community cooperatives like Wall Street megabanks will only hurt consumers. We urge lawmakers to stop lumping credit unions in with big banks when crafting financial regulations. The recent push to label all overdraft programs as abusive “junk fees” ignores the context and the community-oriented approach that credit unions take. Yes, excessive overdraft fees at for-profit banks have been a problem – and those banks are finally being shamed into change – but credit unions have already been doing overdraft the right way: with transparency, compassion, and the members’ best interest at heart.
Instead of chasing headlines by cracking down indiscriminately, regulators should be looking at outcomes and member satisfaction. The data is clear that credit union members are highly satisfied with their institutions’ service and fee fairness (credit unions consistently lead in consumer satisfaction). And as noted, consumers themselves say they want overdraft services to remain available as a backup. Eliminating these services “for their own good” would in fact be a grave disservice. It would mean ignoring the voices of millions who use overdraft protection responsibly and gratefully. It would mean ignoring the reality that not everyone has wealthy parents or perfect credit to rescue them from a short-term jam.
If Washington regulators truly want to help consumers, they should focus on encouraging competition and transparency – areas where credit unions excel – rather than imposing heavy-handed price controls or bans. Competition and member ownership are what keep credit union fees low and fair. A bureaucratic fiat capping fees (as the CFPB has attempted) only distorts the market and removes the cushion that financial institutions provide to those in need. The end result of such regulation is painfully predictable: big banks, with armies of lawyers and resources, find new ways to profit (or they simply hike other fees), while smaller institutions like credit unions, which lack endless resources, may have to suspend helpful programs because they can’t run them at a loss. Who wins in that scenario? Not the consumers – they end up either paying more elsewhere or losing access entirely.
Overdraft protection, done the credit union way, is pro-consumer. It’s a prime example of the difference between member-owned cooperatives and profit-driven banks. Where banks saw overdrafts as dollar signs, credit unions see a service that, when used prudently, can save a member’s financial well-being. Our overdraft programs come with counseling and solutions attached – if a member is frequently overdrafting, a credit union will typically reach out to help with budgeting or offer a small-dollar loan alternative. We treat our members like family, not fee targets. That ethos cannot be more different from the big-bank mindset that created this mess.
Protect Consumers – By Preserving Their Options
As policymakers consider new rules, I implore them: don’t fall for the false equivalence being pushed by those who caused the overdraft crisis in the first place. Painting credit unions with the same brush as the Wall Street banks not only does an injustice to community institutions – it actively endangers the people you intend to protect. A blanket crackdown on all overdraft programs would amount to telling responsible, lower-income Americans: “We know what’s best for you, and we’re taking away your safety net. Good luck out there.” That kind of paternalism has no place in a country where financial empowerment and choice should be the goals.
Instead, lawmakers and regulators should be working with credit unions to expand access to fair, affordable financial services. They should recognize the role overdraft protection (as part of a broad suite of services) plays in keeping people away from truly harmful debt traps. And they should hold the big banks accountable without collateral damage to credit unions and the millions of members we serve. Don’t let Big Banking use credit unions as scapegoats to dodge their own accountability.
At the end of the day, this debate isn’t just about fees – it’s about trust and fairness in our financial system. Credit unions have earned the trust of their 135 million members by operating ethically and putting people over profit. We’ve proven that you can offer things like overdraft protection without abusing consumers – and actually to their benefit. That model should be uplifted, not undercut by ill-conceived regulations.
Policymakers: Listen to consumers. Listen to that 70% who say keep overdraft available. Listen to the veterans and working moms who write to us saying, “Thank you – that overdraft coverage saved me from eviction or kept food on the table.” And listen to the common sense that says real consumer protection means preserving access to a service that, when used as intended, protects consumers from greater harm. We can have a financial system that is both responsible and responsive to people’s needs – credit unions have been doing it for over a century.
It’s time to stop the misguided assault on credit unions and keep the focus where it belongs: on empowering consumers and holding actual bad actors accountable. Overdraft programs in credit unions are part of the solution, not the problem. Let’s treat them as such, and let’s not allow Wall Street’s cynical blame game to destroy a lifeline that so many hardworking families rely on.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.