Despite an increase in regulation and costs, credit unions are unlikely to abandon free checking anytime soon, according to Michael Moebs, economist and CEO for Moebs $ervices.
"Free checking is really a major symbol of the gap between banks and credit unions," Moebs said. "They're staying the course with it."
Moebs said credit unions are helping to pay for services such as free checking by increasing their overdraft fees. Overdraft fees at credit unions almost equal those at banks, Moebs said. He also said the revenue generated by overdraft fees is increasing among credit unions.
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He added his firm's research showed the average overdraft fee at credit unions has reached $29, compared to $30 at banks.
At the same time, financial institutions, including credit unions, are under pressure from the CFPB to offer no overdraft alternatives to consumers.
Moebs said banks are conceding the free checking field to credit unions based on an assumption that financial institutions do not make money on checking accounts.
Moebs' comments come on the heels of a new survey conducted by Bankrate, which found 76% of the checking accounts at the largest 50 credit unions carry no transaction fees or service fees. However, Bankrate also reported 37% of the banks offered those services, a sharp drop from 2010, when 65% of banks had free checking.
"Free checking was a staple among credit unions long before it was fashionable," Greg McBride, Bankrate's chief financial analyst, said.
That trend is likely to continue, even though credit unions are subject to the same regulatory pressures banks have been facing since the financial crisis, he added.
Moebs also said credit unions are incurring higher costs because the number of transactions per account holder has increased. He said in the past 15 to 20 years, the number of monthly transactions per account has doubled or tripled.
Aside from increasing overdraft fees, Moebs said to offset the cost of services such as free checking, credit unions can generate revenue by improving their cross-selling of products to account holders.
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