Since the Dodd-Frank Act of 2010, some experts say credit unions and other financial institutions may have manipulated their overdraft fee practices to maximize revenue.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 placed new federal restrictions on institutions’ use of riskier investment practices.
At the same time, a drop in the stock market drove investors to move their assets into government-insured bank and credit union accounts — causing those institutions to pay more in insurance premiums.
Some experts say institutions responded to those new costs and lost avenues of income by seeking more revenue from overdraft fees.
The Consumer Financial Protection Bureau issued a report in June 2013 expressing concern that credit unions and banks might be gaming their own overdraft fee systems in ways that generated more fees.
One way institutions can maximize their overdraft fee income is to tweak the order in which they process transactions. If a credit union makes a point of processing drafts in order of largest to smallest dollar amount, the larger transactions will be more likely to drain the account, causing the larger number of smaller transactions to be overdrafts. Credit unions can also make overdrafts more likely by processing debits before deposits.
The CFPB also noted some institutions impose limits on overdraft coverage. Limits can reduce the likelihood of overdraft but increase the chance of non-sufficient fund fees.
Many institutions also use overdraft fee agreements so complicated that the CFPB is concerned consumers may not be able to figure out how to avoid getting unnecessarily charged.
The details of overdraft fee services vary widely among institutions, as does the amount of revenue those fees generate. New information from the FDIC shows that fee revenue for banks can now make up a significant portion of an institution’s revenue.
The FDIC now requires banks with assets of $1 billion or more to disclose in their quarterly regulatory filings how much income they get from overdraft fees. The dollar amounts revealed are eye-opening.
Fee revenue may be propping up some of the wealthiest credit unions as well. Some of the nation’s 50 wealthiest credit unions include local operation, such as:
- Teachers Federal Credit Union (Smithtown, N.Y.)
- ESL Federal Credit Union (Rochester, N.Y.)
- Delta Community Credit Union (Atlanta)
- Police & Fire Federal Credit Union (Philadelphia)
- Pennsylvania State Employees Credit Union (Harrisburg, Pa.)
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