NCUA headquarters. Credit/NCUA
An NCUA report stated credit unions charging overdraft and non-sufficient funds fees are not using that revenue to reduce the cost of other fees or interest rates.
The Research Note released by the NCUA Thursday showed:
- Credit unions with higher combined overdraft and non-sufficient fund (NSF) fees per member do not seem to have lower fees per member for other services.
- Credit unions with higher combined overdraft and NSF fee revenues do not seem to be using those fees to “subsidize” better interest rates.
- Overdraft and NSF fees make up about 2% to 5% of total revenues for most credit unions in the reporting threshold of $1 billion or more, but some rely much more on them.
“Credit unions that rely heavily on fee income from overdrafts and NSF fees have concentration risk issues, which raises potential safety-and-soundness concerns,” Harper said. “And, on the other side of the transaction, consumers who can least afford it are often paying an oversized portion of those fees. It’s time for credit unions to rethink their overdraft and NSF programs.”
Anthony Hernandez, president of the Defense Credit Union Council, said the NCUA’s data is missing the point.
"Nothing in these reports changes the underlining fact that consumer behavior shows they genuinely need access to small-dollar, short-term loans,” Hernandez said. “Overdraft protection programs are of tremendous benefit when they are properly disclosed, transparent and easily understood by consumers.”
The NCUA’s report said overdraft and NSF fees serve legitimate purposes, and that credit unions’ reliance on the fees will vary. For example, “credit unions that are Minority Depository Institutions (MDIs) and those with low-income designations (LIDs) tend to have slightly higher combined OD and NSF fee revenues as a share of total revenue.”
However, credit unions with higher combined OD and NSF fees per member do not seem to have lower fees per member for other services. In fact, the research found a “somewhat positive correlation: higher OD and NSF fees were associated with higher fees for other services.”
“The relationship shown could simply be the result of differences in the overall credit risk of membership; higher average margins could merely reflect higher average credit risk,” the report said.
Data doesn’t exist to assess risk of all loans, but it is available for mortgages from the loan-level data submitted under the Home Mortgage Disclosure Act (HMDA). NCUA researchers found higher overdraft and NSF fee revenues were generally not associated with more favorable mortgage rates for members, based on HMDA data from 2023, the latest year available.
The report’s release followed a letter Harper sent to credit unions in December warning that overdraft and NSF fees might pose a significant legal, consumer compliance, third-party and reputational risks.
“In addition to potential heightened consumer financial protection risks,” Harper wrote, “the NCUA is concerned that an overreliance on any one revenue stream — including overdraft and NSF fees — can result in concentration risk and impact the financial health of a credit union, its members, and the system as a whole.”
NCUA data from Callahan’s Peer Suite showed the 450 credit unions with more than $1 billion in assets as of Sept. 30 charged $1.93 billion in overdraft and $924.3 million in NSF fees from January through September, or 5.1% of revenue.
The data showed the 90th percentile was made up of 45 credit unions that charged 9.2% or more. Those with more than $5 billion in assets were:
- Police And Fire Federal Credit Union of Philadelphia, Pa. ($9.3 billion in assets, 451692 members), which charged $25.2 million in overdraft and $4.4 million in NSF fees, or 13.1% of revenue.
- Randolph-Brooks Federal Credit Union of Live Oak, Texas ($17.5 billion in assets, 1.2 million), which charged $60.9 million in overdraft and $9.8 million in NSF fees, or 12.1% of revenue.
- Idaho Central Credit Union of Chubbuck, Idaho ($11.7 billion in assets, 656,539 members), which charged $31.4 million in overdraft and $709,251 in NSF fees, or 9.3% of revenue.
- Desert Financial Credit Union of Phoenix, Ariz. ($8.9 billion in assets, 472,620 members), which charged $24.8 million in overdraft and $0 in NSF fees, or 9.3% of revenue.
- MidFlorida Credit Union of Lakeland, Fla. ($8 billion in assets, 472,203 members), which charged $21.1 million in overdraft and $4.5 million in NSF fees, or 9.4% of revenue.
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