San Diego County-based credit unions collected more than $36 million in overdraft fees last year.
Not-for-profit credit unions have long billed themselves as community-based alternatives to big commercial banks. Yet, KPBS investigative reporter Scott Rodd found that when it comes to charging overdraft fees, they have similar practices.
“Regulators should treat overdraft as a five alarm fire that is burning through low-income communities,” said Aaron Klein, senior fellow in economic studies at the Brookings Institution. “It's so expensive to be poor in America. Credit unions ought to be solving that problem, not exacerbating it.” Banks are for-profit businesses; credit unions are not-for-profit. That means any profits a credit union makes are supposed to benefit its members in the form of things like reduced fees, higher savings interest rates and better loan options. The not-for-profit status also means credit unions enjoy certain tax and regulatory advantages, as well as the PR sheen that comes with the label.
The DFPI report revealed more than just the staggering sum total of overdraft money collected. It also calculated an institution’s overdraft revenue as a percentage of total and net income. By comparison, only one state-chartered bank — CTBC Bank Corp. — collected overdraft fees that amounted to more than 20% of its net income. Overdraft charges at a majority of the banks equaled less than 1% of their net income, according to the report.Some credit unions in San Diego County rank near the top of the list for overdraft charges.
Oceanside-based Frontwave Credit Union collected $7.8 million overdraft fees from its 123,000 members. That equaled 12% of the credit union’s total income and 140% of its net income. In other words, Frontwave could have lost money last year without overdraft fee revenue. But O’Laughlin argues overdraft fees are inherently onerous — even if they’re rebranded to sound like a benefit.
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