Overdraft fees at American financial institutions declined in the first quarter of the year, suggesting that overdraft prices are no longer inelastic, according to data recently published by the Illinois economic research firm Moebs Services.
Overdraft revenue for all institutions declined 4.6 percent between the last quarter of 2018 and the end of the first quarter of this year, falling to $32.9 billion for all depository institutions.
“The expectancy was about 0.5 percent decline or drop of $200 million in overdraft revenue,” Michael Moebs, CEO of Moebs Services, said in a statement. “This deep decline starting 2019, more than eight times higher than normal, is very unusual.”
Banks saw a 4.2 percent decrease and credit unions saw a and 5.3 percent decrease in the first quarter. It has been five years since credit unions overdraft revenue declined in the first quarter. Bank overdraft revenue has declined in the first quarter for the past two years.
Overdraft transactions fell for much of 2018, picked up in the fourth quarter of 2018 and then dropped another 50 million transactions in the first quarter of 2019, according to the study.
“Falling overdraft revenue is expected in the first part of every year,” Moebs said. “January is the best month for overdraft revenue in the year followed by the worst month in February, with March just average.”
The study notes that possible causes of this unusual decline could be related to the fact that in the last half of 2018 overdraft prices increased from $30 to $32 for banks and from $29 to $30 for credit unions.
“The days of increasing the overdraft price and expecting an increase to the bottom line are over. Now an increase in overdraft price decreases overdraft revenue,” Moebs said. “The only way to increase overdraft revenue is by reducing the cost to the consumer. An amazing thing will result from this. It is classical supply and demand. More revenue for financial institutions coming from more transactions at a lower price.”