NCUA webinar on overdraft programs

Last week, NCUA hosted a webinar to discuss overdraft programs and alternatives. At the start of the webinar, chairman Harper explained how heavy reliance on overdraft programs can harm members, especially during the pandemic when some members had changes in their account use and deposits. Harper also made it clear that a complete discontinuance of overdraft programs was not necessarily the best fit for all credit unions, but encouraged credit unions to review how these programs are used, and whether they benefit members or allow them to make the best use of their checking accounts. Harper also encouraged credit unions to offer a greater variety of loan products, including small personal loans.

The webinar speakers had a discussion on the state of overdraft programs and the banking industry. In general, it was found that overdraft programs can be heavily relied on for income, especially during the long-term decrease in interest rates. In other words, if credit unions can not make much income from loans, there is an increased dependence on non-interest income, which can come from overdraft fees. Additionally, the increase in free checking account offerings has encouraged credit unions to use other fee strategies to offset these costs, as it is not free to credit unions to offer checking account services to members. Further, competition from other market players, like banks and fintechs, lead credit unions to look for ways to make enough money to provide useful services while limiting the types of fees charged to members.

In addition to where overdraft programs stand in the industry, there was discussion around how overdraft protection can affect members’ use of their accounts, and which members are most likely to rely on overdraft protection. Some of the characteristics of members who may need more flexible options include members who:

 

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