According to the report, while bank and thrift service charges on deposit accounts have declined since 2008, credit union fee income has increased by 15%.
Because credit union fee income as reported to the NCUA includes several sources, the report said, defining how much comes from overdrafts and not-sufficient-funds fees is difficult. The CFPB sourced Strunk & Associates’ as saying NSF and overdraft fees contributed 11.6% of credit union 2012 operating revenues, compared to 6.9% of bank and thrift revenue during the same period. However, Strunk also told CFPB that NSF and overdraft fees accounted for 51% of credit union fee income in 2012, compared to 78% for community banks and thrifts. Large banks report a small percentage of income from NSFs and overdrafts, the report said because they serve more large commercial accounts than small community-based institutions.
Credit unions did get some good news in the report when comparing the amount they charge for NSFs and overdrafts. Although credit unions were categorized along with small banks, the report said small institutions charge median NSF and overdraft fees of $30, compared to $34 by the 33 largest institutions.
The report was critical of opt-in overdraft protection programs, saying that consumers who are heavy overdraft users and opted in to comply with a 2010 regulation paid $450 more during the first six months under the new rules, compared to those who did not. Opt-in users also experienced more frequent instances of involuntary account closures, which the report said makes it more difficult for the consumer to open an account in the future.
The CFPB also referenced class action lawsuits challenging transaction ordering and other policies that have allegedly increased the incidence of overdrafts and fees. In 2012, five California credit unions were hit with similar class action suits: the $9.8 billion SchoolsFirst Federal Credit Union, the $6.4 billion Star One Credit Union and $1.3 billion Kern Schools Federal Credit Union, the $2.1 billion Educational Employees Credit Union and the $812 million Xceed Financial FCU. The first four suits were dismissed in September 2012, and Xceed Financial settled with plaintiff Cuthbert Shillingford in July 2012. The court documents filed by plaintiff attorneys featured language that had been copied from similar suits against big banks.
The CFPB stressed in the report that the information does not imply that banks and credit unions should be precluded from offering overdraft coverage, and in fact, the study found some progress in consumer protections.
“Nonetheless, our findings with respect to the number of consumers who are incurring heavy overdraft fees or account closures and the wide variations across institutions indicate that certain practices and procedures merit further analysis to determine whether they are causing the kind of consumer harm that the federal consumer protections laws are designed to prevent,” the CFPB said.
CUNA Deputy General Counsel Mary Dunn said she told the CFPB that unlike banks, credit unions can build capital only from retained earnings from such things as fees.
In a press call, CFPB Director Richard Cordray said the bureau recognizes that regulators have addressed overdraft and NSF practices in the institutions they supervise. However, the CFPB’s review intends to “help develop more consistent federal oversight of these issues across financial institutions.”
Cordray said the report is just a first step in examining overdraft practices, and said the CFPB would continue to collect more data on the topic.