CU Overdraft Revenue Up $500 Million

LAKE FOREST, Ill.—Year-over-year overdraft revenue and volume soared at credit unions through September of 2018, which at the same it declined for both banks and thrifts, according to a new analysis that also offers a theory on what exactly is taking place.

OD Jan

Overall, the latest Moebs $ervices Overdraft Study shows that combined overdraft (OD) revenue among all FIs was up 0.30% to $34.3 billion from a year earlier. Moebs $ervices is forecasting overdraft revenue in 2019 will again increase among all FIs.

The report reveals checking accounts among all FIs increased dramatically year over year after a historic decline in 2017, which could be the reason for the overall revenue increase and why CU growth is outpacing all others, the company’s analysis found.

Michael Moebs, economist and CEO at Moebs $ervices, said overall overdraft prices remained flat year over year among all financial institutions.

“Overdraft revenue increased $100 million year over year for all financial instiutions from Sept. 30, 2017. This was achieved with about a $400-million decrease by banks and thrifts, and approximately a $500-million increase by credit unions,” Moebs said. “The big question is, moving forward, will CUs be able to keep OD revenue increasing enough to offset potential future decreases in OD revenue by the banks and thirfts?”

It should be noted, too, as has reported, the number of members and assets at credit unions have risen dramaticaly during 2018.

An Uncertain Future

Moebs said there is uncertainty over the future of the number of OD transactions.

“For the year through the third quarter of 2018, overdraft transactions were down 7.3% at banks, down 2.2% at thrifts, and up 2.3% at CUs,” said Moebs. “Again, another unpredictable element in activity volume, with overal OD transactions down 5.3% year over year.”

Moebs said the “uniqueness” of this overdraft increase is revenue is up while transaction count is down.

“This implies either prices are up at many FIs—yet we don’t see this reflected in OD prices which are still at median fee of $30—or overdraft limits on the checking accounts are much higher,” said Moebs. “But once again limits appear stable in a range of $300 to $500, where they’ve been since 1998.”

A Possible Explanation

Moebs said his study suggests an explaination for the revenue increase: checking accounts substantially rebounded from the decline in number of total accounts in 2017.

Checking accounts increased 2.1% for the 12 months ending Sept. 30, 2018.


Michael Moebs

“This is the largest increase in checking accounts since the second quarter of 2013, or more than five years ago. Consumer checking now totals almost 359 million accounts,” Moebs said.

And CUs have grabbed their share, he said.

“As the economy improves the number of consumer checking accounts rises—there are 7.5 million more consumer checking accounts today than a year ago. Credit unions appear to have picked up more consumer checking accounts than banks and thrifts according to the latest 2018 data,” Moebs. “These accounts generally are single-service household accounts which tend to produce more fee income especially overdrafts.”

The Forecast for 2019

Moebs shared his predictions for what 2019 holds when it comes to overdrafts, based on Moebs research:

  • Prices for overdrafts will be mixed with many FIs lowering price to avoid overdraft volume declines. “Lower price increases volume,” said Moebs.
  • Overdraft limits will substantially increase to stimulate overdraft volume.
  • Overdraft revenue will increase based on OD price and overdraft limit changes, and as checking accounts advance as the economy expands.
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Word Count: 762
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Copyright Year: 2019
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