A new study has found that overdraft income at credit unions has increased greatly in the first quarter of 2018. This may be due to new consumers flocking to credit unions from traditional banks and then accruing credit union overdraft fees.

The Credit Union Journal reports that Moebs Services Inc., an economic research firm based in Illinois, has put out a new study claiming that the first quarter of 2018 has seen a surge in credit union overdraft fees income.

According to the Credit Union Journal, Moebs reports that there was a “6.6 percent increase in overdraft revenue at CUs comparing the first quarter of 2018 with the first quarter of 2017.” However, traditional banks saw a 1.3 percent decline in overdraft fees income and savings institutions saw a significant drop in overdraft revenue income: 6.6 percent.

Some point to this and say that it is because traditional banks are releasing customers who are unprofitable. These customers are flocking to credit unions, it seems. In a statement, Mike Moebs of Moebs Services said, “What’s happening is banks and thrifts are shedding single-services households when the only account is checking.”

In essence, traditional banks are getting rid of customers who do not have large savings accounts or use the banks for other services besides checking accounts. These customers are reportedly moving their business to credit unions.

He went on to explain that credit unions are welcoming these customers in the hopes that they will be able to reap new income from credit union overdraft fees and other charges.

The Credit Union Journal reports that “overdraft revenue at all depositories fell by 0.1 percent from the first quarter of last year, with the gains at CUs not enough to compensate for the drops in revenue at banks and thrifts.” Essentially, regardless of type of institution, all overdraft fees combined dropped.

Moebs went on to explain that the total balances of demand deposit accounts, or checking accounts, has risen. According to Moebs, that total balance rose 6.2 percent to exceed $2.1 trillion in the first quarter of 2018.

He told the Credit Union Journal, “Normally [demand deposit account balance] is about 4 percent of total money stock, yet currently is 13.2 percent of money stock. This signals the consumer has not yet reengaged with the economy.”

In essence, more people are putting more money in their checking accounts, but overdraft transactions are rising at credit unions. Each year, Moebs reports, overdraft transactions number about 1.1 billion transactions. This can potentially mean high credit union overdraft fees income or bank overdraft fees income.

Considering the decline in the overdraft income for traditional banks, this data would seem to indicate that overdraft transactions are moving to credit unions. He noted that traditional banks are encouraging two or more services per household.

Credit Union Overdraft Fees Income

For banks and credit unions, bank and credit union overdraft fees can be big business. Each transaction that overdraws a consumer account can bring in upwards of $30-$40 for a financial institution.

Additionally, customers who overdraw their account, tend to do so more than once or even frequently. In these cases, credit union overdraft fees can have cyclical effect on a consumer, putting them deeper into debt because of bank fees.

Many financial institutions have gotten themselves into trouble for implementing overdraft practices that allegedly overcharged their customers. HSBC Bank and Capital One both entered into multi-million dollar settlements in the past few years to resolve claims challenging their overdraft fee policies. If you believe you have been subject to excessive overdraft fees, you may benefit from joining a free overdraft fees class action investigation.

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