The Growth of Overdraft Commitments

Daniel Penrod
December 21, 2009 | COMMENTS

As the housing market came to a screeching halt, credit unions in both California and Nevada saw their overdraft protection commitments start to climb in recent years. In the first quarter of 2007 alone, California credit unions watched their overdraft commitments increase 18.13 percent, while Nevada credit unions experienced a 21.63 percent gain. And the commitments have been trending up for both states ever since.

With members no longer able to utilize their home as an ATM, they began looking for a safety net for their finances. They found it in the overdraft services their credit unions provided. In roughly two-and-a-half years (from the end of 2006 to the second quarter of 2009), credit unions in California increased their overdraft commitments by more than 70 percent. Nevada credit unions' commitments more than doubled (114 percent). This translated into an aggregate commitment pool of more than $1.3 billion for California credit unions and almost $27 million for Nevada's.

As the unemployment rate in both states has far exceeded the national pace, members in these locations are looking for anything they can find to provide financial assistance to help them through some rough patches.

Going forward, the short-term outlook is that unemployment rates will remain high in California and Nevada, leaving members in need of continuing assistance. Those members who are taking advantage of the overdraft options available to them are likely to keep doing so, if not increase their usage, in the next couple of quarters.

Even after the states' economies and job situations settle, members will still find value in these products/services, and are likely to continue their reliance on them.

These circumstances provide credit unions yet another opportunity to show how accurate and vast the credit union difference is. While overdraft products or services are not free, studies show the rates and/or fees charged at credit unions are significantly less expensive than at other financial institutions. And this allows members to have a safety net and keep what is rightfully theirs—their hard-earned money.

This article was reprinted with permission from Credit Union Digest, the publication of the California and Nevada Credit Union Leagues.