A Preview of What Call Reports Are Likely to Reveal

By Ray Birch

LAKE FOREST, Ill.—An early analysis of what call reports are likely to show this year when it comes to overdraft revenue indicates credit unions should be prepared for increased scrutiny and criticism from legislators, the media, consumer groups and, of course, the banking industry.

All credit unions of more than $1 billion in assets—438 out of 4,702 CUs—will need for the first time ever to report their overdraft revenue separately this year.

And when they do, data from the latest Moebs $ervices OD survey—which is based on a company poll in January of FIs’ 2023 year-end data—indicates the attention being paid to how credit unions price overdrafts and the income generated is going to heat up, according to Michael Moebs, economist and chairman of Moebs $ervices.

It’s an issue America’s Credit Unions is already trying to get in front of.

‘Not Going to be Good’

Based on his survey’s findings, Moebs told CUToday.info he expects the data will show credit union reliance on overdraft revenue is much greater than banks.

“Some CU, bank, thrift and fintech data is available for the first quarter of 2024, but it has not been verified or posted in total financial institution summary form yet, and will not be until June by FFIEC (Federal Financial Institution Examination Council), which has final approval on all call reports,” Moebs said.

But when that Q1 data is adjusted in June, Moebs believes the story is not going to be a good one for credit unions. Year-end 2023 data show credit unions have substantially more fee income on a relative basis using assets as the base measure to determine a percentage, according to his company’s analysis.

“Simply put, overall fee income, largely made up by overdrafts, since 2018 has fallen for banks but risen for credit unions,” said Moebs.

The ‘Evidence’

Moebs said the “evidence” he believes credit unions are going to need to address includes:

• Interest revenue is about the same for banks and CUs
• CUs have more than three times the fee income of banks
• Other fee income (loans and interchange) of banks are twice that of CUs
• Bank expenses, including taxes, are still 4.5% less than CUs
• Net income is 65% higher at banks
• If no fee income (mainly ODs), banks’ net income is more than four times that of CUs
• 65.2% of CU net income is fee income, or mainly OD revenue

Michael Moebs

‘Painted as Greedy’

“With OD and NSF data available in early June, CU competitors and the media will paint credit unions as greedy, and more greedy than banks, using the final numbers,” contended Moebs. “The state of California and the CFPB will use the fact that CUs collect three times as much fee income than banks, especially as the November elections gets closer.

Moebs believes all the data around overdraft revenue is going to be a “big test” for the credit union movement.

“As COVID faded in late 2022, checking and transactions began a major transformation,” Moebs said. “And a key component is fees, mainly ODs. Banks moved to less dependency on fee income. CUs did not do this.”

Moebs reminded that Walmart’s OD price fell to $15 to keep its interchange costs low. Bank of America dropped its OD price to $10, stressing relationships with a BofA car loan or mortgage, Moebs added.

The ‘Key’

“Credit unions emphasize membership is ownership,” said Moebs. “The consumer facing stagnant wage growth and high inflation will go to which of the financial institutions? Credit unions must quickly differentiate their overdraft brand from banks—it’s crucial, as it is an election year. Credit unions can’t sit back and allow governments to rule, otherwise the banks will grab the white hat away.

“The key will be for America’s Credit Unions, state leagues and individual credit unions establishing brand differential,” he continued. “An example is how Southwest Airlines distinguishes themselves as the airline for common folks over United and American airlines. The consumer needs to know how the credit union brand is better for them.”

Worry About ‘Reputational Risk’

Indeed, as CUToday.info reported earlier, America’s Credit Unions is already worried about what the data will reveal and what the fallout could be.

“There’s still a concern for us relative to reputation risk, so we’re seeing if we can get NCUA, at a minimum, to delay any public release of that information until some more analysis can be done,” said America’s Credit Unions’ chief advocacy officer, Carrie Hunt.

Hunt said America’s Credit Unions has asked those CUs that are collecting the OD/NSF income on their 5300s to also collect other data about the value they provide to members.

“But I don't think the answer to this is reporting data,” Hunt said. “I think we have to go back to the law. Credit unions and other financial institutions, of course, are lawfully allowed to engage in these programs. It is fully disclosed and credit unions in particular constantly monitor their programs to make sure there isn't overuse.

Much of the concern is that a similar scenario will develop nationally as happened in California, where the release of a report by the state regulator on overdraft/NSF income at state-chartered CUs has led to media scrutiny, criticism by banks and now, a congressional investigation.

White Hat Still On, For Now

For his part, Moebs emphasized his belief credit unions have yet to lose their white hats, even with the focus CUs have undergone in the Golden State and elsewhere, although he said the white hat definitely now “has a couple of bullet holes.”

“…The Consumer Financial Protection Bureau, which reports directly to the President, raised questions about OD revenue at CUs. Credit unions have weathered these attacks by stating, ‘Where does the consumer go when short funds before payday?’ If CUs do not watch out, banks will have a say in the answer.”