Overdraft Revenue Falls by $1 Billion, Per Moebs Study

Quarterly Study Shows Overdraft Transactions at the Lowest Level Since 1999

LAKE BLUFF, Ill.--(BUSINESS WIRE)--Overdraft revenue fell, on an annual basis, for banks, thrifts and credit unions during the first quarter 2013 almost one billion dollars or 2.8 percent from the end of 2012, according to the latest quarterly study on overdrafts by Moebs $ervices, an economic research firm located in Lake Bluff, Illinois. Total deposit service charges fell on an annualized basis 2.9 percent which is the first quarterly fall since the fourth quarter of 2011 and only the second time in two years.

Overdraft Revenue
Period	Amount In Billions Annualized	Annualized Percent Increase
1^st Qtr 2013	$31.1	-2.8
4^th Qtr 2012	$32.0	+0.6
3^rd Qtr 2012	$31.8	+1.0
2^nd Qtr 2012	$31.5	+1.6
1^st Qtr 2012	$31.0	-1.9
Source: Moebs $ervice Surveys

Why the Fall in OD Revenue?

“Overdraft revenue is starting to act like a barometer of the sluggish economy,” suggests Michael Moebs, economist, and CEO of Moebs $ervices. “With the net pay of Americans suffering a jolt under the Affordable Health Care Act’s provisions of increased taxes starting January 1, the savvy checking account user is fine tuning their finances and reducing expenses, especially deposit service charges,” claims Moebs.

“The tax issue coupled with the seasonal nature of overdrafts helped dampen OD revenue,” says Moebs. “February and March are historically the lowest months for OD transactions because the consumer is trying to recover from the holiday season which can be hard on the wallet and purse. So, with the reduction of net pay right after the holidays, February and March moved up a month sooner making the first quarter of 2013 bad,” states Michael Moebs.

Another factor was the Consumer Financial Protection Bureau (CFPB) in decision over regulation on overdrafts. Pending CFPB chief Richard Cordray decided to stretch out potential overdraft regulations for up to two years to provide more study time on the issue. “This threw banks and credit unions into a quandary over how to position price changes on overdrafts,” notes Moebs, “so most financial institutions decided to keep the prices the same while the consumer was overdrawing less – median national charge for an overdraft is $29.”

The Moebs study shows that the final issue, and a consequence of the other factors, is that while population, household formation and newly opened checking accounts continue to grow, overdraft transactions fell to the lowest level since 1999 (Moebs has studied OD Revenue since 1992).

Can the American Consumer Do More to Reduce Fees?

Also influencing OD revenue to a lesser extent was marketing moves by financial institutions to give waivers on the first six OD transactions in a year, to forgo small overdraft balances of less than $5, “Now is the best time in years for the consumer to shop for the best values available in checking, and potentially move their checking account,” comments Moebs who suggests community banks and credit unions offer the best checking account deals.

How Can Banks & CUs Reduce Fees but Increase Revenue?

Economist Moebs points out, “Wal-Mart took a small family business to the giant in the retail business by reducing price and selling more. Our data shows financial institutions that lower prices to help the consumer reduce fees actually increase revenue from having more volume of new checking accounts and transactions. Now is the time to think like you run a Sam’s Club Checking Account Store and offer the best value with the lowest price,” suggests Moebs.

What is the Future of Overdrafts?

The Moebs Study shows ups and downs of OD revenue in the past six months as a financial barometer reflecting economic behavior, legislation, regulation, and social/cultural changes. The history of the Moebs OD Study since 1992 shows this barometer with the same changes in the 1990s and 2000s, yet overdraft revenue continues to grow. “There is currently about 30 percent of the 135 million checking users who range from underbanked to <600 FICO scores, and the percentage was the same 20 years ago,” notes Moebs. “This seems to tell us the consumer and small business person needs a financial safety net and wants overdraft service. Banks, thrifts and credit unions also appear ready to provide the OD safety net, hopefully in a transparent, low price way, free of market restrictions.”

About Moebs $ervices

Since 1983, Moebs Services has independently been collecting statistically significant, primary empirical data about financial institutions’ services, pricing, operating expenses and financial condition and analyzing the data in a counter intuitive manner, which provides solutions that make sense. For more info please visit www.moebs.com