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Overdraft Fee Revenue Drops to 2008 Levels for Banks and Credit Unions

From: "Overdraft Fee Revenue Drops to 2008 Levels for Banks and Credit Unions. Moebs Study Shows $6 Billion lost in Revenue & Added Cost due to New OD Regulations", Moebs $ervices, 9/15/10

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Moebs Study Shows $6 Billion lost in Revenue & Added Cost due to New OD Regulations

Period Total Overdraft Revenue

2011 Estimate $38.0 B
2010 Estimate $35.4 B
2010 1st Half Actual $34.8 B
2009 Actual $37.1 B
2008 Actual $35.4 B
2007 Actual $34.1 B
2006 Actual $31.5 B
2005 Actual $29.7 B

(Lake Bluff, IL) September 15, 2010 – By the end of 2010, the banking industry is expected to earn $35.4 billion in overdraft fee revenue, down from $37.1 billion in 2009 and on par with 2008.   According to a recent Moebs $ervices study, total revenue bottomed out in the first quarter of the year and started to rebound in the second quarter.  The study analyzed fee revenue from 2,284 financial institutions and over 15,000 depositories, for the first six months of 2010. “We expect with the regulation requiring opt-in for debit cards and ATMs coming in the third quarter revenue will fall again, but this will recover by the same amount in the fourth quarter,” said Michael Moebs, economist & CEO of Moebs Services.  “We also estimate that overdraft revenue will increase in 2011 to $38.0 billion and be the highest ever for the industry.”

According to Mr. Moebs, about $2 billion in revenue was lost in 2009 in the fourth quarter, when banks and credit unions started to implement their own floors and ceilings on overdrafts, in response to consumer and Congressional complaints.  Another $2.3 billion in revenue was lost during the first quarter of 2010 due to the introduction of an Opt-In regulation by the Federal Reserve and changes made by depositories.  Finally, it cost banks and credit unions about $2 billion in operational costs and training to implement the opt-in regulation and their own changes to overdraft services. “When you add the lost revenue and the additional cost of the new overdraft regulations, it amounts to about $6.3 billion erosion into profitability for all banks and credit unions,” stated Michael Moebs.

Opt-In Varies 
44.3 percent of banks and credit unions made some type of change to their overdraft program.  55.7 percent did nothing.  About a fifth or 20.5 percent increased prices to offset cost increases and loss of revenue, according to the Moebs Study.

6.5 percent decreased their overdraft price.  “We have never seen this many institutions decrease the price of a fee service in almost 30 years of tracking bank and credit union pricing,” pointed out Moebs.  “Our data shows institutions which decreased their overdraft fees, actually maintained or increased their overall revenue in the past year.”  The decline in industry overdraft fees due to institutions, such as Bank of America and Citibank, exiting the overdraft business, were more than offset by Main Street institutions, community banks and credit unions, started offering overdraft protection for the first time.  “Institutions that got into overdrafts, are doing so to build capital by increasing fee revenue, because interest rates are so low,” noted Moebs.

Price Is No Objection
 About 90 percent of overdraft revenue comes from frequent users.  The Moebs study noted frequent users, those with 10 or more overdrafts in a year, almost all opted in.  For all consumers, consent varied between 60 percent and 80 percent with a median of about 75 percent. The median overdraft price increased to $28 per check in 2010 from $26 in 2009.  NSFs, where the institution returns the check, increased from $25 per check returned in 2009 to $27 in 2010 “Even with the price of overdraft protection going up, it appears from the opt-in numbers that the American consumer is saying they want and need overdrafts.”


About Moebs $ervices Since 1983, Moebs Services has been collecting 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

Written By: rnybeck
Date Posted: 9/16/2010
Number of Views: 16524