Overdraft Regulation: Is There a Silver Lining for Credit Unions?

Filene Research Institute Research Brief No. 211

Georgetown Law and Economics Research Paper No. 10-15

36 Pages Posted: 17 Jul 2010

See all articles by Adam J. Levitin

Adam J. Levitin

Georgetown University Law Center

Date Written: July 15, 2010

Abstract

This research brief examines the potential impact of overdraft regulation on credit unions using a unique data set developed from a survey of 185 credit unions' overdraft practices. It provides the first-ever empirical overview of credit unions' overdraft practices, as well as data on credit union products that compete with overdraft: credit card and payday loans. The study finds that in the unlikely worst-case scenario under the Reg E revisions, in which no credit union members opt-in for overdraft services, total average fee income could sink as much as 11% and that overall ROA could fall by as much as 9 basis points. A smaller impact is more plausible, however, given that credit unions will control the overdraft opt-in solicitation process and that repeat overdrafters -- the source of the majority of overdraft fees -- often value the service and would likely opt-in. The study concludes by suggesting that credit unions see repeat overdrafting as presenting an opportunity to serve members with affordable, short-term loans coupled with financial counseling -- a return to employer-based credit unions' roots as the original (and affordable) payday lenders. Offering affordable credit coupled with financial counseling has proven a successful product for the credit unions that have attempted it and presents a major opportunity to profitably build member loyalty.

Keywords: credit union, overdraft, payday, credit cards, Reg E

Suggested Citation

Levitin, Adam J., Overdraft Regulation: Is There a Silver Lining for Credit Unions? (July 15, 2010). Filene Research Institute Research Brief No. 211 , Georgetown Law and Economics Research Paper No. 10-15, Available at SSRN: https://ssrn.com/abstract=1544888

Adam J. Levitin (Contact Author)

Georgetown University Law Center ( email )

600 New Jersey Avenue, NW
Washington, DC 20001
United States

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