SAINT SIMONS ISLAND, Ga. — Mike Flores, CEO of Bretton Woods Inc., a management consulting firm for financial institutions, called into focus the topic of fee income by conducting an analysis of bank and credit union data of not sufficient funds and overdraft protection programs.
"This topic is becoming increasingly important to all financial institutions. Credit unions need to look and see if they can meet the customer needs for short-term credit in a cost efficient way," Flores said.
Flores analyzed data compiled from the FDIC, the NCUA, surveys, bankrate.com and other studies for the report, "2008 Fee Analysis of Bank and Credit Union Non-Sufficient Funds and Overdraft Protection Programs." Key findings he pointed out were that bank and credit union income from not sufficient funds and overdraft program fees exceeded $37 billion, NSF/overdraft fee income by state ranges from nearly $73 million in Alaska to $4.1 billion in California, the national annual NSF cost per household with checking accounts is approximately $368 and the average U.S. household with a banking account incurs 12.7 NSF fees per year.
Looking at data from bankrate.com. Flores cited that from 2005-2008 the average NSF fee increased from $27.04 to $28.95, and the number of debits presented against not sufficient funds increased from 728.4 million in 2005 to 1.28 billion in 2008.
"Based on my own analysis and experience in the industry, I saw that there is high fee income related to NSF fees. It's not considered a negative to bounce a check anymore. With more and more people using electronic transactions and financial institutions ordering them from the highest to lowest dollar amounts there are more insufficient checks."
Mike Moebs, economist and CEO of Moebs Services said that his research indicates that average NSF fee for banks and credit unions is lower than the $28.95 that Flores indicates. The average NSF fee Moebs found was $25.39.
The difference Moebs said is part of the issue of creating a compilation or secondary study. Bankrate.com, Moebs said, gathers data from a nonstatistical consensus, meaning that the data can be skewed if the consensus is made up of a large number of big credit unions and banks.
For just credit unions, Moebs said that he found the average NSF fee is $24.01 and for banks the average is $26.77. For big banks Moebs said the average he found was $33.43.
"Bretton Woods was positive in trying to raise consciousness but highly flawed in trying to take nonstatistical estimates to come up with micro information," Moebs said.
Flores said that he believes his analysis of $28.95 is reasonable, since large banks have most of the banking customers, it should follow that these higher rates will impact more customers.
Flores cited data on the largest banks operating in New Jersey that showed Bank of America charges $35 per NSF charge, PNC charges $31 to $36 per item based on the number of not sufficient items during the current and previous 11 service charge cycles, Provident Bank charges $35 per item, TD Bank charges $35 per item, Wachovia charges $22 for the first item and $35 for each additional item and WaMu charges $34 per item.
In the report, Flores said that an estimated 20.2 million households with bank or credit union accounts write the majority of NSF items, 1.02 billion, and based on that information active households incur 50.9 separate NSF/OD fees per year.
Moebs said he believes this amount to actually be much lower. He found that on average people incur one overdraft fee a month and three NSF fees every two months.
"NSF/overdraft activity is not at those levels. Few credit unions that serve low-income and young members have that level of activity, and many credit unions that see that rate will close those accounts," Moebs said.
Flores pointed out in the report that one of the reasons he has seen NSF/OD fees increase is the pressure bank and credit unions are under due to the narrowing net interest margin. Citing data from the NCUA, Flores said that while the net interest margin has been falling since 2004 fee income has been increasing.
The report overall, Flores said, was meant to be a continuation of other studies performed such as the FDIC's "Study of Bank Overdraft Programs" that was released last December.
"I wanted credit unions to think about how they can do this in a cost effective way rather than just overdrawing accounts."
To read the full report visit, http://bretton-woods.com/452/18901.html.
–lsiegriest@cutimes.com

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