Apr 13 2010

Overdraft Regulation: A Silver Lining to the Clouds?


Changes to Reg E mean big changes to fee income and credit union profitability. Georgetown law professor Adam Levitin draws on in-depth credit union survey data to estimate that a worst-case scenario could chop credit unions’ fee income by 11% and lower already plunging ROA. Those are the clouds.

This report compares a 185-respondent credit union survey with indepth legal and marketplace research. The result: an analysis of the proximate changes and an estimate of their effects on credit unions. Using far-ranging research and the results from Filene’s in-depth survey, Levitin finds that:

  • For those credit union members who do overdraft, overdrafts are quite common. The median (mean) percentage of members with multiple overdrafts is 11% 19.13%). Repeat overdrafters are clearly the most profitable: Of those who paid overdraft fees in 2009, the median total paid was $238.25.
  • Assuming, in a worst-case scenario, that no members who do not currently opt in to overdraft would opt in, total fee income could sink by 11%.
  • From 2004–2009Q2, the loss of all overdraft revenue from debit and ATM transactions would have had an impact of around 9 basis points (bps) on credit union ROA.

The silver lining is that bank reactions to the new rule could make credit union checking accounts clear marketplace winners. Levitin also includes a half-dozen strategies for playing on this new regulatory field.

Report Number 211