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Updating Overdraft Protection to Meet Member Needs

Overdraft protection (ODP) programs were originally designed to help members but shifts over the years have moved ODP from supportive to potentially harmful for those who can least afford it. How can credit unions update ODP offerings to re-align them with their mission, value proposition, and business model?

Executive Summary

Competitive pressures and shifting consumer expectations are sparking a public re-evaluation of overdraft protection programs. A service that began as a benefit for members, has evolved into one that overcharges a few. The small percentage of members who pay the majority of overdraft fees often have unmet financial needs—such as income volatility, lack of access to credit, and low savings—for which ODP does not provide an ideal solution. 

Neobanks that boast never having NSF fees, lead fee-adverse consumers to being more willing to switch financial products in order to avoid fees. Add in increasing regulatory and legal scrutiny, and it is clear why credit union leaders need to rethink their ODP programs.  

Credit union leaders can redesign ODP to better support member needs, while developing new sources of non-interest income that will support sustainable growth.

Credit Union Implications

Credit unions are at risk of losing relevance—and members—to competitors who are proudly proclaiming their zero overdraft and NSF fees. While some credit unions may not be able to afford completely eliminating overdraft fees, it is still wise to reexamine your ODP programs, learn how they impact members, and look for ways to improve the offering. ODP programs can be updated to become more member-friendly without sacrificing the viability of your credit union.

Download this report today and begin rethinking your ODP programs through three actionable steps.

Filene’s Center for Innovation & Incubation is generously funded by:

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