Top credit union regulator advocates decreased overdraft fees, or no fees altogether

Credit unions should begin decreasing overdraft fees – or drop them altogether — the top federal regulator of the institutions said in a speech late Tuesday.

In remarks to a credit union group meeting in Las Vegas, Nev., National Credit Union Administration (NCUA) Board Chairman Todd Harper said more and more financial institutions are decreasing emphasis on the overdraft programs.

“The time has come for credit unions to do the same,” Harper said, “if they want to remain competitive and live up to the statutory mission of credit unions of meeting the credit and savings needs of members, especially those of modest means.”

Harper noted that, in a recent report, the Consumer Financial Protection Bureau (CFPB) issued a report that stated roughly two out of three banks with more than $10 billion in assets have eliminated NSF fees, saving consumers nearly $2 billion annually. He said three out of four banks that earned the most in overdraft and NSF fee revenue in 2021 have now eliminated NSF fees.

“Now, contrast those numbers with the CFPB’s findings for credit unions,” Harper said. “Among credit unions with over $10 billion in assets, 16 of 20 continue to charge NSF fees, including four of the five largest. So, as it stands, credit unions — especially the largest ones — are behind the curve. And, how can it be that banks, on this metric, are more consumer friendly than credit unions? That fact should give everyone in the credit union industry pause.”

Harper said he encouraged credit unions that plan to maintain an overdraft program to consider features such as linking to savings accounts, offering affordable lines of credit or short-term, small-dollar loans, and helping members build their savings.

“However, as more financial institutions dramatically decrease overdraft fees or drop them altogether, consumers will begin to expect their institution to follow suit,” he said.

The credit union regulator said it is “time for credit unions to rethink their overdraft programs if the industry wants to remain competitive and achieve its statutory mission and purpose.”

He offered that the “good news” is that credit unions and banks that have already made the switch have not had to cut services to members or pare back operations. “Instead, many have created new income streams,” he said. “You, too, can diversify your revenue streams in creative ways.”

NCUA Chairman Todd M. Harper’s Remarks at the 2023 REACH Conference