Moebs study: FIs rethink overdraft, CUs still most reasonable

July 29, 2014

LAKE BLUFF, Ill. (7/30/14)--Competitive and regulatory pressures are causing financial institutions to rethink their overdraft fee structures. Within an extensive report, the author includes information that describes how credit unions remain the most reasonable financial institutions in forgiving members for overdrafts.

About 52% of financial institutions (FIs) with assets over $50 billion have a de minimis balance, while 15.3% of FIs with assets less than $100 million use a de minimis balance, according to the Moebs Services study.  

 De minimis--Latin for a small amount--is a methodology for assessing overdraft fees that depends on how much the charge will overdraw an account.  If the overdrawn amount is below the FI's hurdle, the fee is waived.

For example, the national average for de minimis balance fee assessment is $7.40, with 25.8% of institutions using this methodology, according to Moebs. Transactions that cause an overdraft of less than $7.40 may not be charged an overdraft fee.

Credit unions have the lowest participation at 10.8% --due in large measure to their more personal handling of overdrafts, according to the Moebs study.  Banks have the highest de minimis participation rate at 33.9%. 

The Moebs Fee Study found de minimis balance hurdles range from a high of $50 to a low of $1.

The wide range is due to the competitiveness of the market for checking, according to the study.  The higher the de minimis balance the more competition by FIs to get checking accounts.

Another change in overdraft fee practice is the use of caps, or limits on the number of overdrafts fees charged during a single day. Nationally, 24.3% of FIs have instituted some form of caps. Caps ranged from a low of two, with fees for overdrafts over two in a day waived, to a high of 12 in a day, with the national average at five, Moebs said. 

Moebs said 63% of Wall Street FIs with more than $50 billion in assets, use an overdraft fee cap, while 12.2% of the credit unions and community banks with under $100 million in assets use a cap.  As with the De minimis balance, main streets FIs often provide de facto caps by phoning the consumer to advise them of multiple overdrafts, Moebs said.