LAKE BLUFF, Ill.-A new analysis shows overdraft volume at financial institutions continues to climb and credit unions are getting their share, enjoying their best 12-month period for OD revenue in their history.

The increase is due largely to the tremendous checking growth that has accompanied the surge in new members over the past year.

In the last 12 months CUs collected $5.5 billion in overdraft revenue, according to Michael Moebs, economist and CEO at Moebs $ervices, which just completed an OD survey of 2,700 institutions. Previously, the best 12-month period (ending June 30, 2010) was $5.3 billion.

"This revenue came due to credit union overdraft volume being up 4.7% and price being up 2% from the previous 12-month period. Overall, total CU overdraft revenue was up 6.7%," said Moebs.

Credit union checking account growth was 5.4% in the last 12 months, the second highest 12-month total ever, according to Moebs (total CU checking accounts grew by 6.7% for the 12-month period ending June 30, 2007).

"This exceptional checking growth has happened because credit unions stuck to their major brand focus-free checking. So have community banks. Both credit unions and community banks are taking checking accounts from the Wall Street banks and adding to their overdraft income."

Overdraft revenue for all FIs at June 30 shows a year-over-year revenue gain of 2.1%. "It appears the fall in overdraft revenue has bottomed out in 2011," said Moebs. "Overall overdraft revenue in June, 2012, is $31.5 billion. In June, 2011, overdraft revenue was $30.8 billion."

But the reasons for the gain stem from trend lines moving in different directions.

"The price increase was 3.5%, volume decreased 1.4%," said Moebs, pointing to new FDIC OD guidelines that have added costs to banks and reduced their overdraft totals. "Overdraft volume hit a high in the third quarter of 2008 at about 1.5-billion overdraft transactions per year, and fell to a low in 2011's third quarter of a bit over one-billion overdraft transactions, or a decrease of 32.5% from the high three years earlier."

It is important to note, Moebs said, that the fall and rise in overdrafts comes at a time when financial institutions have faced a great deal of OD regulation that have increased operational costs.

As financial institutions wrestle with their cost structures and adjust overdraft pricing, they better pay attention to what their competition for overdraft business is doing, asserted Moebs.

Moebs research shows that 38 million, about 26%, of the 144 million consumer checking accounts are frequent overdraft users. Of the frequent overdraft users, about 20 million consumers use payday lenders and 18 million use banks and credit unions. "More people use payday lenders to cover an overdrawn balance in their checking account than use a bank or credit union," observed Moebs. "The reason is the median charge for a $100 payday lender advance is $16 while a bank would charge $30 and a credit union $27. Our research shows that the median overdraft account balance is about $40. Consumers will find the low price source. The low price source is payday lending which is why 57 out of 100 frequent OD users go to payday lenders when short of funds."

Moebs added that merchants, too, dropped their median price for bad checks from $30 to $25 in the past year, and 4.4% do not charge a fee at all.

"There is getting to be a broader array of pricing options for the consumer, which is good," concluded Moebs. "Payday lenders and merchants are reducing price. Bank and credit union pricing is getting more diverse. Overdraft volume is starting to rise. OD revenue has bottomed out and is coming back, and the bottom line is you can't kill overdrafts."


For info:, Two Years Later, Lessons Learned In Overdrafts

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