Courtesy of Moebs $ervices, moebs.com
The result would be:
- 678.2 Million debit cards purchases of gas, groceries, dentist, etc., would be declined.
- 60 Million Americans’ ACH payments returned NSF for cell phones, auto loans, mortgages, etc.
- $33.4 Billion of overdraft revenue would not be charged to the consumer.
- 111,000 financial institution employees would lose their jobs.
This is what the Consumer Financial Protection Bureau, not Congress, is considering doing. The CFPB reports to the President of the United States, not Congress.
What follows is Moebs $ervices’ Study on The Evolution of Overdrafts done in two parts.
- This is Part I – the History of Overdrafts.
- Part II – the Overdraft Solution is subsequently provided in the next issue.
(If you would like a copy of the full study now, email [email protected]).
The Evolution of Overdrafts
Study by Moebs $ervices, Inc. ©2022
Consumers make financial mistakes. Most are just ordinary errors while some are intentional and even fraudulent. Checking accounts, or transaction accounts, as the rest of the world calls them, suffer the brunt of these errors. The leading cause of these mistakes, or 77.4% of all service charges on deposits, are overdrafts.
These facts come from an extensive Overdraft Study by Moebs $ervices, an economic research firm.
An overdraft is defined as a credit, but not a loan by the Federal Reserve and other regulators. An overdraft is when a transaction account has a debit balance, or withdrawals (debits) mainly debit cards, exceed deposits (credits) mainly direct deposits of payroll or ACH credits.
Click here to read the full article
Related reading: Summary in CUToday.info “One Forecast: ‘Half of CUs Could Close”
From CU Times: The answer to how credit unions can replace lost overdraft fee revenue lies in their card programs
Some of the biggest players in financial services are eliminating overdraft fees. Bank of America and Wells Fargo are just a few of the big names either reducing or eliminating overdraft fees, and many credit unions are also scrapping these fees.
While overdraft fees have been a nuisance to consumers, they are not the only ones pushing for this change. Regulators are becoming increasingly suspicious of overdraft fees, too. With this kind of pressure building, more and more financial institutions are likely to follow suit and say goodbye to overdraft fees.
Without this revenue source, where does this leave financial institutions? A study from the Center for Responsible Lending found that, for institutions with assets of $1 billion or more, overdraft or insufficient funds fees are about 5% of their non-interest income. When overdraft fees disappear, how can a credit union replace that revenue? For many credit unions, the answer lies in their card programs.
The Current State of Cards
Credit and debit cards are another source of non-interest income for credit unions because of the interchange fees they bring in. Most institutions get their interchange check every month and take it for granted. It’s easy money. If it’s not broken, why fix it?
The fact of the matter is credit unions have a huge opportunity to grow their interchange revenue by making some adjustments to their card programs and this growth can help soften the blow of losing out on overdraft fees. Regardless of their overdraft fee strategy, however, this is an important opportunity for credit unions to become more successful and help their bottom line, while also meeting the needs of members.
Read More Here
Courtesy of Kelly Payne, Credit Union Times
Related article: ‘One Of The Biggest Concerns’ Facing The Movement
Is the growing trend by some large banks and larger credit unions to reduce or even eliminate their nonsufficient funds fees creating a dilemma for smaller CUs? One credit union CEO told CUToday.info the issue is “one of the biggest concerns facing the credit union movement in many years.”