The Real Cost of Overdraft Fees: Leading the Shift to Sustainable Banking

A word from Paul Kundert, CEO and President

The UW Credit Union branch located on the University of Wisconsin La Crosse campus.

UW Credit Union is a pro-consumer financial cooperative. When we choose our members’ best interest, our business does well.

This simple, imperative truth has laid the groundwork for industry-leading practices that span everything from diversity and inclusion to digital banking and fraud protection. This truth also prompts us to examine (and re-examine) ways to further advocate for our members, specifically the most financially vulnerable.

Today, we introduced a new policy that reduces all overdraft fees from $30 per occurrence to $5. It is a straightforward change, with no offsetting tactics. The result will be an 84% reduction in overdraft fee income, or about 1.3% of our projected 2022 revenue.

We understand that no one wants to overdraft their account. Life happens. Everyone comes up short sometimes.

But at what cost?

At UW Credit Union, there is no place for excessive penalty fees. With national overdraft fees climbing to $33 in recent years, and credit union overdraft averages between $25 and $38, a common mistake should not cost members groceries or a new pair of shoes for their child. 

But many pay a much greater price, one that extends beyond tangible items. Overdraft fees can take a substantial toll on members’ mental and emotional wellbeing, too. Accidental overdrafts can quickly escalate into a financial crisis, creating a domino effect of stress and anxiety. This is particularly true for lower-to-middle income households, who don’t just “bounce back.” Instead, these charges often compound, creating a dangerous cycle that threatens their financial health and independence.

The new fee is designed to be a meaningful reduction and is a path we’ve been on for more than a decade. In 2010, we introduced three consumer-friendly policies that remain in effect:

  1. A cap of one fee per day, regardless of the number of transactions involved.
  2. A -$10 grace threshold, under which no fees will be charged.
  3. Elimination of overdrafts related to everyday debit card purchases and ATM withdrawals.

The market may not deliver equitable banking fees, but leadership can. Current industry practices don’t make sense for consumers. At some point, be it through market forces or regulatory action, hefty overdraft fees will be a thing of the past. Today, a sustainable financial services model is one without overdraft income.

Innovation often comes out of need. Our leadership team is no stranger to identifying new ways to prompt growth and improve efficiency on the heels of cost-cutting member initiatives. We did this when we dropped debit card overdrafts and we will do it again. The substantial fee reduction is a welcome change to our employees, many of whom invest significant time and resources explaining applied account fees to members. I am confident about our future, because doing the right thing is always good for business.

And we won’t stop at fee reductions. As a financial partner, we will work more closely with members to inform them of the various safeguards in place to protect their hard-earned income.

Money is private, personal. The trust members put in us matters. Doing the right thing matters. These are two things that will not change, and they are things that we will always take personally.

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