The debate over overdraft programs offered by financial institutions has mainly revolved around the issue of price, but volume is another, more important, factor involved that often gets overlooked.

The debate has been fueled by reports of the $35 cup of coffee and has targeted institutions that charge what are deemed as outrageous fees to unsuspecting consumers. Financial institutions have defended their programs by saying it is service that many consumers enjoy using as a cost benefit to having their checks or charges returned. However, data collected by Moebs Service, an economic research firm and overdraft program provider, showed that volume plays a more important role than price in dictating overall overdraft fee income.

The data collected by Moebs Services, depicted in the chart on page 22, shows that credit unions that charge an overdraft fee in the range of $10 to $15 have an overdraft income of around 0.21% of assets. Credit unions that charge an overdraft fee in the range of $40 to $50 have an overdraft income of around 0.35% of assets. Mike Moebs, economist and founder of Moebs Services, pointed out that the overdraft income of credit unions that charge $40 to $50 should be three to four times more than those that charge $10 to $15. But the data he collected showed that is not the case. At that high pricing level, Moebs said, the credit union should be bringing in overdraft income at around 0.75% of assets. On the other hand, credit unions charging $10 to $15 for an overdraft should only be obtaining one-quarter of the basis points in income that the credit unions in the higher price range are seeing, but they are seeing much more income than that.