Skip to main content

Many CUs Likely to Face New Operating Challenges "Michael Moebs"

04/08/2024 09:04 pm

By Ray Birch

LAKE FOREST, Ill.—The trend lines don’t lie: Financial institutions charging high overdraft fees will likely face operating challenges in the near future and may even be forced to merge if they don’t follow the market trend of lowering their OD charge.

Michael Moebs, economist and chairman of Moebs $ervices, is offering that forecast following his company’s new overdraft study, which has found overall net OD revenue for 2023 was down 5.7%, with banks dipping by 8.1% to $31.4 billion, thrifts falling by 28.6%. and credit unions actually increasing net revenue 2.2%.

Feature 2023 OD Year End

The study further reveals the median actual overdraft price across the nation, among all FIs has fallen to its lowest level in 30 years at the close of 2023, while transaction volume has increased. Total overdraft transactions at the end of last year stood at 1.237 billion, a 6.2% increase over 2022.

“The most significant reason for the volume increase is more FIs are lowering OD prices,” said Moebs.

The Prediction

Moebs is predicting the revenue the actual median OD price will be even lower when the study is conducted again next year.

Moebs Mike

Michael Moebs

“The actual OD price per transaction will fall below $20 by 2025,” predicted Moebs. “Want to keep the high price of $30? Then, switch processing from price per OD transaction to one charge per day based on end of day balance like USAA. Or, exit the overdraft business by not charging at all like Capital One. Finally, be like BofA and waive OD fees for customers with car loans or mortgages—or possibly a combination of several of these options.”

The Other Option

Of course, institutions do have one other choice, according to Moebs.

“You can do nothing and wait for hundreds of FIs to take steps before you. If so, what are your merger plans?” he said.

As Moebs has explained in previous CUToday.info reports, the “old method” for determining the median overdraft price among FIs surveyed only the price for institutions offering checking.

“The new method weights the OD price by the number of checking accounts at each financial institution, which truly gives the most accurate picture—the actual price the average consumer is paying,” he said. “Think of this OD pricing measurement approach as a market of 10 providers of checking. Nine of these depositories charge $30 per OD transaction, while one charges $10.

“The one charging $10 has 75% of all checking accounts in the market, while the other nine have 25%. The old-fashioned way calculates the market price as $28 an OD, while it in fact is closer to $10.”

Led by Bank of America’s dramatic overdraft fee price drop to $10, other FIs are returning to basic economics, stated Moebs.

“Lower price makes volume go up,” said Moebs, who has stressed that point in previous CUToday.info reports. “BofA moved to relationship OD pricing, thus losing more OD revenue but increasing profit from other services. The CFPB—the junkyard dog of banking—continues to attack the overdraft marketplace, but the results are not what they hoped.”

Some, like Capital One and Citibank, have eliminated overdraft fees, closing their doors on OD users, noted Moebs.

A New Model

“Others, like USAA, have switched their OD price protocol, moving away from charging per transaction to only one OD charge per overdrawn daily balance, thus rejecting the ‘junk fee’ premise of the junkyard dog altogether,” Moebs asserted. “As one BofA customer said, ‘Why would anybody call an OD fee of $10 junk when this price is really low, helping me manage money better?’”

Moebs said credit union OD revenue climbed slightly in ’23 because CUs, overall, lowered price more than banks and have greater website transparency on OD pricing, which helps consumers make decisions on overdraft use.

Comments

Popular posts from this blog

NCOFCU YouTube Video Minies

  https://www.youtube.com/playlist?list=PLT3lzRTXnHw4YHnT2TzILxP7Rfkjn0eT1  __ ______________________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board

Sunday Reading - 401(k) plans, explained

  Worker Nest Eggs       401(k) plans, explained Originally intended for corporate executives, the 401(k) is now, arguably,   the most famous section of the US tax code   and a staple in worker benefits packages and personal finance guides ( watch 101 ). Roughly 70 million Americans, with a total of more than $7T invested , use these long-term, tax-advantaged accounts to build toward a more secure retirement. Some critics claim that with 401(k) plans, companies offloaded the risk of retirement savings to workers without the training to avoid volatile portfolio mixes. Amid the 2008 financial crisis, many 401(k) plans lost over a quarter of their value , an event that hit those near retirement particularly hard. ... Read our full explainer on the plan...

Why credit unions need to be formulating a strategy for crypto & digital...

“The future of money isn’t coming – it’s here, growing at $4 trillion and accelerating,”  DaLand CIO, Jon Ungerland said in a statement. “Their solution ensures the institutions that matter most to American communities don’t miss the transition.” https://www.dalandcuso.com/videos-podcasts __ ______________________________________________ Check out NCOFCU's additional features: First Responder Credit Union Academy Podcasts YouTube Mini's Blog Job Board

Fed Gets Green Light for Interest Rate Cuts as Unemployment Rate Jumps to 4-Year High

The Federal Reserve is now seen as likely to   cut interest rates   multiple times before the end of the year, following another weak jobs report that showed unemployment jumping to a four-year high. The U.S. economy added just 22,000 jobs in August, less than economists had expected, the  Bureau of Labor Statistics  reported Friday. The unemployment rate rose to 4.3%, up slightly from 4.2% in July but hitting the highest level seen since October 2021, when the economy was still recovering from pandemic-driven layoffs. Although the new jobs report was troubling news for the economy, for prospective homebuyers with secure jobs it likely means further easing in  mortgage rates  in the days to come. Mortgage rates hinge primarily on the yields of  10-year Treasury notes , which plunged Friday to their lowest level since early April, when President  Donald Trump 's Liberation Day tariff announcement sparked panic in financial markets. It signals furth...

The Federal Reserve and How it Works

  The Federal Reserve       Background No institution wields more power in US finance than the Federal Reserve—but opinion polls indicate most Americans  don’t know  what it does. Known casually as “the Fed,” the century-old independent central bank sets interest rates, determining how much ordinary people pay for mortgages, car loans, and more, all to achieve its dual mandate of price stability and maximum employment ( read 101 ). Consisting of a central board of governors working in tandem with 12 regional banks, the Fed also manages the US money supply and acts as the lender of last resort. The Origins of the Fed Throughout the 19th century, the US faced  periodic economic downturns , which resulted in financial panics. Customers raced ...