CUs: Higher Overdrafts Reflect Lower Member Incomes

Credit unions with an unusually high dependence on overdraft and non-sufficient funds fees said they also have an unusually high number of low-income members, and their programs help them avoid power shut-offs and predatory lenders.

The NCUA began including overdraft and non-sufficient fund (NSF) fees in Call Reports starting in this year’s first quarter.

A CU Times analysis of NCUA data, some pulled through Callahan’s Peer Suite, compared the annualized combined fees for the first half against average assets. The first half of 2024 data for overdraft and NSF fees showed:

• Only 10 credit unions charged no overdraft or NSF fees in the first half out of the 448 credit unions in the reporting threshold of more than $1 billion.
• The 438 remaining credit unions collected $1.86 billion in fees in the first half, which were an annualized 0.21% of average assets.
• 93 credit unions were in the top 20% of fee dependence. Their $926.7 million in fees were an annualized 0.43% of average assets.

CU Times gathered comments from some of the nine credit unions that were in the top 2% for fee dependence. Their $16.0 million in fees were an annualized 0.66% of average assets.

At the top of the list is Michigan First Credit Union of Lathrup Village, Mich., about 17 miles northwest of Detroit ($1.5 billion assets, 166,064 members as of June 30). It generated $12.1 million in overdraft and NSF fees in the first half, or an annualized 1.62% of average assets.

President/CEO Jennifer Borowy said a major reason for Michigan First’s higher rate of overdraft and NSF fees is that its assets are much lower than average in relation to the number of members it serves. While its membership is more than 165,000, she said the average credit union with about $1.5 billion in assets serves less than 90,000 members.

Also, Michigan First is a Community Development Financial Institution (CDFI) that supports modest-income and credit-challenged individuals.

“Many of our members live paycheck to paycheck,” Borowy said. “Our courtesy pay service, ‘MoneyNow,’ offers immediate access to up to $2,500 during financial hardships, acting as a vital lifeline to those trying to make ends meet.”

After Michigan First reduced MoneyNow fees in 2020 during the COVID-19 pandemic, it found members used it more.

Fees are now $19 and up per use, allowing access to up to $2,500 without impacting a member’s credit. Members have 30 days to pay back the money used interest-free. Also, members can waive fees by using “MoneyPerks” points earned by banking with the credit union.

“These terms are ideal for the members we serve,” she said. “This service helps members to avoid predatory lending practices at payday lenders.”

Greater Nevada Credit Union of Carson City, Nev. ($1.8 billion assets, 88,946 members) generated $6.9 million in overdraft and NSF fees in the first half, or an annualized 0.78% of average assets.

Michael Thomas, its chief strategy officer, said its fees are priced to cover its risks for offering programs that are critical for members navigating economic challenges.

“We continually evaluate these fees and adjust when appropriate, but reducing them too quickly could lead to an overreliance on overdraft services, which is unsustainable and harmful,” Thomas said.

“In the meantime, we have increased educational initiatives to help members understand how to avoid overdraft fees, set up account alerts and manage their expenses,” he said. “We are dedicated to helping our members avoid these, and all fees, wherever possible.”

Family Savings Credit Union of Gadsden, Ala. ($1.0 billion assets, 76,188 members) generated $3.7 million in overdraft and NSF fees in the first half, or an annualized 0.74% of average assets.

Lesli Bishop, chief marketing officer for Family Savings, said its program is voluntary.

“Our cooperative proudly serves a large group of members who are truly of modest means, and they consistently express gratitude for the support our program provides them, especially in preventing disconnect fees and service disruptions,” Bishop said. “We offer a more economical alternative to traditional payday lenders and title pawn services.”

The top 2% of overdraft and NSF fee dependence were these nine credit unions:

1. Michigan First Credit Union.
2. AllSouth Federal Credit Union of Columbia, S.C. ($1.3 billion assets, 118,939 members) generated $7.8 million in overdraft and NSF fees in the first half, or an annualized 1.21% of average assets.
3. Five Star Credit Union of Dothan, Ala. ($1.2 billion assets, 64,582 members) generated $4.3 million in overdraft and NSF fees in the first half, or an annualized 0.88% of average assets.
4. OnPath Federal Credit Union of Metairie, La. ($1.0 billion assets, 84,600 members) generated $3.4 million in overdraft and NSF fees in the first half, or an annualized 0.83% of average assets.
5. Greater Nevada Credit Union.
6. Elga Credit Union of Grand Blanc, Mich. ($1.5 billion assets, 97,296 members) generated $5.8 million in overdraft and NSF fees in the first half, or an annualized 0.77% of average assets.
7. One Nevada Credit Union of Las Vegas ($1.4 billion assets, 75,088 members) generated $5.1 million in overdraft and NSF fees in the first half, or an annualized 0.75% of average assets.
8. Mazuma Credit Union of Overland Park, Kan. ($1.0 billion assets, 73,232 members) generated $3.8 million in overdraft and NSF fees in the first half, or an annualized 0.75% of average assets.
9. Family Savings Credit Union.