In recent years, more consumers have been moving their money from big banks to credit unions based on promises of lower fees and more personalized support. While this may have been the case for a short period of time, it appears that the landscape is changing, and credit unions are looking more and more like their larger banking counterparts.

A Moebs study in 2013 reported that the average bank overdraft fees were $30, compared to $28 for credit unions (up from $25 just two years prior). In the current year study in 2015, Moebs reported that the average of both banks and credit unions are now at $30 per transaction for overdraft fees. In just four short years, credit union overdraft fees have increased by 20%, while banks have essentially remained the same. This has many credit union members wondering if the era of lower overdraft fees has passed.

In today’s economy, consumers are meticulously monitoring their finances, including the fees charged by their financial institutions. Many credit unions are under close examination, facing questions about dubious practices regarding overdraft charges. As these practices are investigated, more and more individuals are looking into information on potential class action lawsuits to seek guidance on how to protect themselves from these seemingly unfair and unwarranted overdraft fees.

Controversy Surrounding Overdraft Fees

Overdraft fees (also known as insufficient funds fees or courtesy fees) are essentially a service charge for a bank or credit union transferring the money from a linked savings account into a checking account to pay for a transaction when there is not enough money in the checking account to cover the transaction.

Some banks and credit unions appear to have questionable practices when applying overdraft fees, accused of processing transactions out of order to generate more daily fees. Overdraft fees can easily cost more than the transactions themselves.  A 2014 study conducted by the Consumer Protection Financial Bureau found that overdraft fees were mostly charged in transactions for $24 or less.

CPFB Board director Conley states, “The result is that some consumers are essentially paying $34 — which is the typical overdraft fee — to have the bank spot them less than $24 for just a few days. If a consumer were to get a loan on those terms, that would equate to an annual percentage rate of over 17,000%.”

There are a number of reasons credit unions may be increasing their overdraft fees. Credit unions have struggled in recent years with financial losses on loans as well as with decreasing net interest margins linked to lower interest rates. Increasing overdraft fees and even charging for formerly free checking accounts have been some of the few ways credit unions have been able to offset their financial losses.

Credit unions are attempting to keep themselves afloat by passing higher costs on to the consumer, while consumers feel betrayed by the institutions that claimed to be more friendly and supportive. Among the 50 wealthiest credit unions who are or have already increased their overdraft fees include: State Farm Federal Credit Union, Mountain America Federal Credit Union, Bank Fund Staff Federal Credit Union, Desert Schools Federal Credit Union, and Logix Federal Credit Union.

Currently, lawyers are investigating consumer complaints against credit unions and their alleged improper practices regarding overdraft fees.  If you are a member of a credit union and have incurred excessive overdraft charges, you may have a legal claim.

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