By Jason Stverak
A recent CUToday article highlighted that consumers paid $12.1 billion in overdraft and NSF fees in 2024 – with credit union members shouldering about $5.4 billion of that total. The piece suggests credit unions are “hitting” their members harder with these fees than banks.
As representatives of defense-focused credit unions, we strongly disagree with this portrayal. Overdraft protection is a service – a valuable safety net that members choose, not an unfair penalty imposed on them. It’s time to set the record straight for policymakers and credit union leaders: credit unions provide overdraft programs to help members, not hurt them.
When a member’s checking account falls short, an overdraft program can prevent far worse consequences than a fee. Imagine a family whose rent check would bounce without coverage – they could face a hefty late fee or even eviction proceedings. Or consider a deployed servicemember whose automatic bill payments might be declined – they could come home to shut-off utilities, late payment penalties, or damage to their credit. By paying the item, the credit union spares the member these domino-effect troubles. The overdraft fee is the price of averting those larger crises, and members overwhelmingly recognize its value.
Surveys confirm nearly 67% of consumers find overdraft protection valuable, compared to only 16% who don’t. In fact, 8 in 10 consumers (79%) who incurred an overdraft fee were glad their financial institution covered the payment rather than returning it unpaid. This isn’t a “gotcha” fee – it’s a service that the majority appreciate as a lifeline when needed.
Credit Unions Offer Transparent, Lower-Cost Protection
Crucially, credit unions – especially defense credit unions serving our military communities – structure overdraft programs with transparency and member choice at the forefront. Members must opt in to overdraft coverage for debit and ATM transactions, ensuring no one is unknowingly “enrolled” in the service. At any time, a member can opt out if it no longer suits their needs. In fact, awareness is high: two-thirds of consumers know they can cancel overdraft protection at will, and 78% of those enrolled have never considered opting out. This tells us that those who use overdraft protection want to keep it. It’s a voluntary tool for financial flexibility, not a trap. Moreover, credit unions typically charge lower fees and provide more lenient terms than big banks. Many credit unions have reduced their overdraft fees or eliminated certain charges entirely in recent years
Ethical structuring of overdraft programs is standard practice in credit unions. Transactions are often posted in the order they occur (not re-sequenced to rack up fees), daily fee limits prevent excessive charges, and many credit unions forgive small overdraft amounts as a courtesy. Most importantly, credit unions proactively educate and work with members to manage finances. If a member finds themselves frequently overdrawing, a credit union will typically reach out, discuss budgeting or debt solutions, and might suggest alternatives like a small-dollar emergency loan or financial counseling rather than let a cycle of fees continue. This collaborative, mission-driven approach is a far cry from the unfair characterization of credit unions “penalizing” their own members. On the contrary, credit unions exist to serve their members’ financial well-being, and overdraft protection is one tool to do exactly that.
A Matter for Members and Their Credit Unions – Not One-Size-Fits-All Mandates
Given how and why credit unions offer overdraft services, we firmly believe that overdraft policies should remain a matter between members and their credit unions. Imposing blanket government mandates – however well-intentioned – can strip away the financial flexibility that members rely on. The Consumer Financial Protection Bureau (CFPB) has, for instance, finalized a rule capping overdraft fees at $5 for large institutions. This one-size-fits-all regulation not only misunderstands the nature of overdraft as a service, but it also threatens to remove access to that service altogether. If forced into an unrealistic $5 cap, many credit unions (especially smaller ones) might simply stop offering overdraft programs because they cannot cover the costs at that price point. As credit union advocates have warned, this outcome would put institutions in an “impossible position” – either operate the service at a loss or discontinue a popular member benefit. Either scenario hurts consumers.
When regulators dictate a one-size rule, they risk punishing responsible institutions and their members for the sins of a few bad actors. As DCUC and others noted in opposition to the CFPB’s rule, punishing responsible financial institutions ultimately harms consumers by reducing access to affordable services and pushing them toward more costly alternatives. In other words, heavy-handed rules could drive people right into the arms of high-interest payday lenders or overdrawing on credit cards – clearly a worse result. We must remember why overdraft programs exist: “credit unions offer overdraft programs because their members need this option to make ends meet”. It is simply not true that credit unions want members to overdraft; rather, credit unions want members to have a safety net when life happens. Eliminating or curtailing that safety net by government fiat doesn’t make the need go away – it just removes the most convenient and low-cost option available to cover that need.
Data bears out that consumers want choice. Nearly 69% of Americans say they prefer their financial institution offer overdraft protection as an option (even if fees apply) rather than not offer it at all. Members and credit unions know their own situations best. A blanket mandate from Washington cannot account for the diverse needs of millions of members – but it can certainly take away a valuable choice from all of them.
The Real Story: Member-Centric Overdraft Programs And Positive Outcomes
Let’s dispel the myth that credit unions are clinging to predatory fee structures. The reality is far more positive. Member satisfaction with credit union overdraft services is high, and usage tends to be concentrated among those who genuinely find it helpful. In surveys, nearly 72% of consumers view overdraft fees as reasonable when they understand this service ensures important bills (like rent or mortgage) are paid on time and avoids other penalties. In other words, once people consider the context – that a $25 overdraft fee might save them a $50 late charge or a utility reconnect fee – they see the wisdom in having overdraft coverage. It’s often the lesser of two evils, and one that protects their financial stability.
Credit unions also continually refine their programs to be more member-friendly and preventative. Many offer alerts (texts or emails) to warn members when their balance is low, helping them avoid overdrawing in the first place. Others have grace periods – for example, if you can bring your account positive by the next day, the credit union may waive the fee. Some even rebate the first overdraft fee of the year as a courtesy. And virtually all credit unions provide free or low-cost financial education on budgeting and saving, aiming to reduce situations where overdrafts occur. These are not the actions of institutions “slow to change” out of indifference – they are deliberate choices to balance member service with financial prudence. Yes, as the CUToday article noted, large banks in aggregate reduced overdraft fee revenue faster in recent years (often after decades of charging $35 per item). But credit unions were never in the business of charging $35 fees ten times a day or reordering transactions to maximize penalties. In fact, numerous credit unions quietly led the way in overdraft reforms long before it was in vogue – lowering fees, eliminating NSF charges, and putting stricter limits on fee frequency. The credit union movement’s track record is one of ethical, member-centric service. That’s the real story that shouldn’t be lost in an oversimplified fee total statistic.
Consider also the context of those we serve. Defense credit unions cater to military members, veterans, and their families – communities that often face unique financial challenges. Young enlisted servicemembers might live paycheck to paycheck, and unexpected expenses can hit hard. Deployments or training exercises can make day-to-day account management difficult, no matter how responsible the member is. In these situations, overdraft protection can literally safeguard a military family’s financial readiness while the servicemember safeguards our nation. As DCUC President/CEO Anthony Hernandez observed, military and veteran families rely on robust overdraft protection programs, especially when servicemembers are in harm’s way and cannot easily adjust finances from the field. Without this support, “late fees from utility companies, rental agreements, and other day-to-day expenses would become overwhelming,” he notes. We have seen this in practice: during deployments, the knowledge that the credit union will cover an important payment back home provides enormous peace of mind to our troops. It is part and parcel of the “financial readiness and resilience” that defense credit unions work to foster for those who serve. Removing that safety net through regulation would directly undermine the financial stability of the very people we aim to help – an ironic and unfortunate result.
Furthermore, if overdraft services are restricted, the likely outcome is more bounced payments – and those carry their own steep costs. DCUC has warned that without a credit union’s overdraft safety net, we could see higher rates of declined transactions, leading to more penalties from non-bank entities like landlords, utility companies, and municipalities. A $30 overdraft fee (at most) from a credit union could be far cheaper than a $50 bounced check charge from a landlord or a $75 reconnect fee from a utility company. These knock-on fees hit consumers directly in the wallet, and unlike credit union fees, they don’t support the member’s own cooperative institution – they’re simply lost money. Thus, banning or severely capping overdraft fees might reduce fees recorded in a study, but it doesn’t magically make the underlying problems disappear. Instead, it shifts the burden in a less transparent, often more costly way onto consumers. We should solve the root causes (like financial education and income volatility), not demonize a stopgap measure that many members freely use to manage those challenges.
Protecting Members’ Financial Flexibility And The Credit Union Mission
Defense credit unions and all credit unions have one overarching mission: to enhance the financial well-being of our members. Overdraft protection, when provided responsibly, is entirely in line with that mission. It promotes member resilience by giving an option to handle short-term shortfalls without resorting to far more expensive or damaging alternatives. It’s also a service born out of the trusting relationship between member and credit union – a relationship government should be careful not to undermine. Every credit union is owned by its members; policies like overdraft programs are developed with member input and tailored to community needs. That cooperative model is what ensures accountability: if a credit union’s overdraft practices were truly unfair, its member-owners would demand change (and many have, prompting the wave of fee reductions we’ve seen). In short, credit unions answer to their members – a built-in check and balance that for-profit banks simply don’t have.
Policymakers should recognize that reality and resist calls to micromanage or outlaw consensual services that members clearly find useful. Overdraft policies should remain between the member and credit union, where they can be customized and adjusted as needed, rather than subject to rigid government mandates. We urge regulators and lawmakers to support the autonomy of credit unions to meet their members’ needs. By all means, crack down on truly abusive practices wherever they occur – no one supports egregious or deceptive fees. But do so with a scalpel, not a sledgehammer. As we have emphasized, broad-brush rules like fee caps can produce unintended consequences that leave consumers worse off. It’s imperative to listen to the people who matter most in this discussion: the members themselves, who by and large value overdraft protection and do not want it taken away.
The Defense Credit Union Council firmly stands by our member-centric approach to overdraft protection. We will continue to advocate passionately for our members’ right to financial flexibility and for the tools that support their financial readiness. Credit unions have always been partners in our members’ financial health, not antagonists. It’s this core principle that guides us as we provide services like overdraft protection. We call on policymakers and industry leaders to protect the cooperative autonomy and mission of credit unions, so we can keep doing what we do best: helping our members – including the brave men and women of our armed forces – build financial resilience, instead of punishing them for momentary lapses. Overdraft protection is a lifeline for many; let’s treat it as such and keep the focus on empowering consumers, not restricting them.
Bottom line: Don’t buy into the narrative that credit unions unfairly “hit” their members with fees. The truth is, credit unions are on the front lines of financial advocacy for their members, providing critical safety nets like overdraft protection with transparency, fairness, and compassion. Let’s preserve that trust and keep financial decisions where they belong – between members and their credit unions, in pursuit of the greater goal of member financial well-being and mission readiness. Protecting the ability of credit unions to serve their members freely is ultimately a move to protect those members’ financial futures.
Jason Stverak is Chief Advocacy Officer at the Defense Credit Union Council.