Overdraft Fees Are Out, Interchange Fees Are In

From CU Times: The answer to how credit unions can replace lost overdraft fee revenue lies in their card programs

Some of the biggest players in financial services are eliminating overdraft fees. Bank of America and Wells Fargo are just a few of the big names either reducing or eliminating overdraft fees, and many credit unions are also scrapping these fees.

While overdraft fees have been a nuisance to consumers, they are not the only ones pushing for this change. Regulators are becoming increasingly suspicious of overdraft fees, too. With this kind of pressure building, more and more financial institutions are likely to follow suit and say goodbye to overdraft fees.

Without this revenue source, where does this leave financial institutions? A study from the Center for Responsible Lending found that, for institutions with assets of $1 billion or more, overdraft or insufficient funds fees are about 5% of their non-interest income. When overdraft fees disappear, how can a credit union replace that revenue? For many credit unions, the answer lies in their card programs.

The Current State of Cards

Credit and debit cards are another source of non-interest income for credit unions because of the interchange fees they bring in. Most institutions get their interchange check every month and take it for granted. It’s easy money. If it’s not broken, why fix it?

The fact of the matter is credit unions have a huge opportunity to grow their interchange revenue by making some adjustments to their card programs and this growth can help soften the blow of losing out on overdraft fees. Regardless of their overdraft fee strategy, however, this is an important opportunity for credit unions to become more successful and help their bottom line, while also meeting the needs of members.

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Courtesy of Kelly Payne, Credit Union Times

Related article: ‘One Of The Biggest Concerns’ Facing The Movement
Is the growing trend by some large banks and larger credit unions to reduce or even eliminate their nonsufficient funds fees creating a dilemma for smaller CUs? One credit union CEO told CUToday.info the issue is “one of the biggest concerns facing the credit union movement in many years.”