Credit unions are not offsetting income from overdraft (OD) and non-sufficient funds (NSF) fees through reduced fees for other services or lower interest rates, according to a “research note” issued Thursday by the institutions’ federal regulator.
Those results, the agency indicated, may mean it’s time for credit unions to reconsider use of their programs.
In a release, the National Credit Union Administration (NCUA) said the findings of its note (“Observations from the NCUA’s New Data on Non-sufficient Funds and Overdraft Fees”), prepared by the agency’s office of the chief economist, highlight two observations:
- Credit unions with higher combined OD and NSF fees per member do not seem to have lower fees per member for other services, and
- Those same institutions do not seem to be using the fees to subsidize better interest rates.
“Credit unions that rely heavily on fee income from overdrafts and NSF fees have concentration risk issues, which raises potential safety-and-soundness concerns,” the agency said. “And, on the other side of the transaction, consumers who can least afford it are often paying an oversized portion of those fees.”
NCUA Board Chairman Todd Harper indicated that the research note suggests “it’s time for credit unions to rethink their overdraft and NSF programs.”
The agency began collecting information on year-to-date revenues from NSF and OD fees a year ago. Credit unions with assets more than $1 billion were required to submit their year-to-date revenues from OD and NSF fees on separate Call Report accounts.
The research note, the NCUA said, analyzed statistics for OD and NSF fees, with a focus on evaluating program revenues as a fraction of total revenues.
“Using revenues for the first three quarters of 2024, credit unions are put into categories based on the share of their revenue derived from these two sources,” the NCUA said. “While other ratios could be used, this ratio measures the relative importance of such fees to the credit union’s overall revenue generation.”
The agency indicated that 444 credit unions submitted OD and NSF fee data to the NCUA in the third quarter of 2024. The results show that such fees make up about 2% to 5% of total revenues for most of these credit unions, “although some deviate significantly from this range.”
“Federal credit unions (FCUs) and federally insured, state-chartered credit unions (FISCUs) are not significantly different in their reliance on such fees, with nearly identical medians and similar distributions,” the NCUA said. “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 relative to those without those designations.”
NCUA Releases Research Note on Overdraft, NSF Fees at Credit Unions
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