Last year, I wrote an article on what I dubbed “the Overdraft Issue.” Essentially, it was a deep dive into the many perspectives and feelings towards overdraft fees, from credit unions that rely on the income, to the members who use overdraft to cover needed expenses, to the members who felt the high fees were unfair, to the Consumer Financial Protection Bureau’s claim that high overdraft fees are downright predatory.

At the time, the Biden administration was working to cap overdraft fees while credit unions were fighting to keep them, and consumers seemed to fall on both sides of the issue. Whichever way the ruling went, it was clear that one side was going to be unhappy regardless. In the end, the rule was shot down, overdraft fees—at any amount—were allowed to stay, and credit unions breathed a sigh of relief.

That seemed, to me, to be the end of the discussion. One side lost, the other won, and that was that. But recently, I realized maybe there was another layer to the discussion, a possibility I hadn’t considered before: a compromise.

An unexpected outcome

I cannot take credit for the discovery, though. Last fall, I attended a conference of credit union CEOs—a roundtable of about 50 credit union CEOs from mid-sized institutions in the Midwest, discussing topics ranging from member service to technology, AI, and more. As the topic of overdraft fees and income was discussed, one CEO raised his hand. The CEO in question asked the other CEOs present if any of their credit unions had chosen to lower their overdraft fees as a result of the regulatory and member pressure or simply because they believed it was the right thing to do for their members.

The room was fairly quiet, and only one other CEO shared that they had.

The CEO who posed the question noted that his credit union had chosen to lower fees for several reasons, including taking financial burden off struggling members, and to start preparing for restrictions on fee amounts, accepting the fee income loss as a result of what they felt was a necessary move. Then, he shared something unexpected. Instead of the credit union’s fee income taking a dive, they had seen the exact opposite: the credit union’s fee income had begun increasing after the fees were lowered.

Now, to be clear, the credit union didn’t drop the overdraft fee significantly, merely dropping it to around $20-25 instead of the usual $30-35. However, thanks to the change in fee amount, members had become more comfortable using overdraft when they needed it and paying the resulting fee. Thus, while the amount fee per overdraft was lower, the total number of overdraft charges had gone up.

The compromise

The hit show Stranger Things once defined compromises as “halfway happy,” a middle ground where everyone gives a little and no one is entirely happy with the outcome. Most people would probably agree with this sentiment, as compromises require acquiescing or sacrificing to a certain degree.

However, despite what Stranger Things may say, I believe this compromise is a win-win for both parties. For consumers who experience the accidental one-off overdraft every now and again, lower overdraft fees will feel like less of an excessive punishment for a small crime. For those who may rely on overdraft from time to time to cover necessities, such as groceries or rent, the credit union can still collect fee income for the convenience, while also not significantly adding to the member’s financial burden.

In the end, members are still paying overdraft fees at a much higher rate than the $5 limit the Biden administration was imposing, ensuring credit unions can continue to rely on fee income, while also providing relief in the amount they were paying. For lower-income families, those few extra dollars can make a huge difference.

Benefits

The credit union benefits heavily (if not more) from these lowered fees as well. For one, there’s a positive perception associated with lower fees. Members view financial institutions with lower fees, overdraft included, as more understanding, prioritizing people over profits. Therefore, having lower overdraft fees than the rest can not only continue to support fee income, as our example showed, but it can also serve as a great marketing tool to bring in new members.

Additionally, lowering overdraft fees can also prepare credit unions for any future restrictions that may be imposed on overdraft. While the current administration has not seemed eager to do so, nothing is off the table. President Trump has recently strived to improse 10% interest rate caps on credit cards, demanding compliance from both credit unions and banks alike in a very short amount of time. There’s nothing to say that energy won’t be directed toward overdraft or other such fees next.

And even if not in this administration, the next may take up the issue, as former President Biden’s attempts were incredibly popular with both consumer protection groups and consumers/members themselves. Now is the perfect time to gauge how your members will respond to lower overdraft fees and make adjustments as needed, giving your credit union time to learn, problem solve, and experiment, so that if it ever does become required, you’ll be well prepared.

Finding a solution together

Everyone wants to do what is best for the credit union and its members, but when it comes to overdraft fees, those two goals can seem at odds with one another. To provide the credit union with needed income, overdraft fees need to be charged, but excessive and heavy fees can have a costly impact on a member’s finances, especially for lower-income members.

But the needs of the credit union and the financial well-being of its members should never be in conflict with one another, as member needs should be the credit union’s needs. Therefore, instead of working in opposition, all parties should be working to find a solution that works for all. A compromise.

While the solution offered by the credit union CEO may not work for your credit union, it’s a great starting point to begin discussions and find a solution that does work. Doing so will not only strengthen the relationship between your credit union and its members but will also help future-proof your credit union in the event fees come under fire once more.