New requirements that credit unions and banks receive permission from customers to sign them up for overdraft protection for their checking accounts proved to be a positive–not a negative–with credit unions expanding their overdraft protection business as a result.
Not only did the vast majority of checking account customers opt-in for overdraft protection, but growing numbers of credit unions are now offering the program, according to Michael Moebs, president of Moebs Financial consultants. “We’ve seen a substantial number of credit unions who were not in the overdraft business getting into the overdraft business for the first time. They exceed the numbers that have gotten out of the overdraft business,” Moebs told the Credit Union Journal yesterday.
Moebs’ survey of 2,488 financial institution, including 1,400 credit unions, as well as information gleaned from one million checking accounts, indicates that 75% of all credit union and bank checking customers signed up for overdraft protection. This number was substantially above the projections of between 45% and 65% of checking users expected to opt-in after the Federal Reserve instituted the requirement. “We were substantially off, all of us,” said Moebs.
Among the two significant groups, the most frequent users of the service–those with more than ten overdrafts in the past year–98% to 99% opted in for overdraft protection.
And of the least frequent users, those who never had an overdraft, some 50% opted in, a finding Moebs labeled as “very surprising.”
“American consumers–about 100 million of them–came roaring back on this and they said ‘stop treating overdrafts (protection) as penalties. We see them as a safety net,’” said Moebs.
Among the factors driving the high sign-up rates, according to Moebs, was the Aug. 15 deadline for opt-in, which fell on a Sunday, cutting off millions of shoppers from use of their debit accounts and unable to call their credit union or bank. “On Monday, Tuesday and Wednesday, credit unions were bombarded with inquiries, saying ‘why aren’t you offering this anymore?’” Subsequent holiday weekends for Labor Day, Columbus Day and others drove home the necessity for the overdraft protection option, he asserted.
In addition, several large banks, like Bank of America, have discontinued offering overdraft protection, driving more and more consumers to credit unions and community banks that do offer the service, Moebs said.
According to Moebs, 75 million Americans use overdraft protection at least once a year because 110 million Americans don’t reconcile their checking accounts. “So they’re going to make errors,” he stated.