Credit unions have come under fire by the Consumer Finance Protection Bureau (CFPB) over the way they assess fees for overdrafts.

In a report issued in June 2013, the CFPB said that certain practices by credit unions could stand in the way of their members’ ability to anticipate and avoid overdraft fees and other irregular charges.

The report notes that credit union’s fee revenue had increased by 15 percent since 2008, at the same time bank and thrift charges on deposit accounts decreased. In 2012, fees from overdrafts and non-sufficient funds (NSF) constituted 11.6 percent of credit unions’ operating revenues, compared to 6.9 percent for banks and thrifts.

The CFPB’s study found that consumers who opt-in to overdraft protection service actually tend to pay more in the long run than if they hadn’t opted in.

Credit unions have provided this service on an “opt-in” basis since 2010, when a new federal regulation required the consumer’s consent before a financial institution could charge fees for overdrafts on ATM withdrawals and certain debit card transactions.

The study found that consumers with a history of overdrafting who opted out of overdraft coverage saved an average of $450 in the second half of 2010 compared to those who had agreed to overdraft protection.

Overdraft protection also correlates with higher rates of involuntary account closures. The CPFB reports that rates of involuntary closure for accounts with overdraft protection were 2.5 times higher than those without that service.

Generally, overdraft protection is an arrangement by which the credit union will advance a member enough funds to cover an overdraft when it occurs, as an alternative to rejecting the draft as NSF. Credit unions typically charge a fee for this service. The fee-charging practices vary widely from one institution to another.

The federal agency says that the complexity of certain financial institutions’ practices can make it hard for members to avoid overdraft charges and other fees. The order in which transactions post to the member’s account can affect the assessment of fees. A given credit union’s limits on overdraft coverage can be hard to determine, as those limits are sometimes based on a number of factors and can vary among different institutions.

The variance of practices among credit unions can also be hard to keep track of. Some institutions may not charge for overdrafts worth less than a certain small amount, while others charge for all overdrafts regardless of size. Some institutions may limit the number of allowable overdrafts per day, while others do not impose any limit at all.

Some of the most fully capitalized credit unions could expect to be on the receiving end of litigation over their overdraft fee practices – and some of them already have.

The top five U.S. credit unions by value of assets are Navy Federal Credit Union, State Employees’ Credit Union, Pentagon Federal Credit Union, Boeing Employees Credit Union, and Schoolsfirst FCU.

Schoolsfirst and four other California credit unions were hit with class action lawsuits in 2012 over practices that allegedly increased the occurrence of overdrafts and accompanying fees.

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