The Washington Post reported on a study released by Moebs Services that showed "credit unions have been raising overdraft fees on ATM withdrawals, checks and debit card purchases at a faster pace than banks to offset a decline in consumers overdrawing their accounts."
According to the article, the median overdraft charge at banks was $30 a transaction for the past four years. However, the median overdraft fee at credit unions has risen from $25 to $28 per transaction in the past two years.
But the article does not adjust for the difference in tax treatment between credit unions and banks, as credit unions are exempt from federal corporate income taxation. If you adjust for the difference in tax treatment, the credit union median tax adjusted overdraft fee is closer to $40 per transaction -- $10 higher than the median overdraft fee charged by banks.
To derive the median tax adjusted overdraft fee divide the current median overdraft fee by (1 minus the tax rate). For this analysis, the tax rate was assumed to equal 30 percent.
This would suggest that the tax exemption is not being passed through to the credit union member.
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That analysis would assume the entire overdraft fee is pre-tax profit. This seems exagerated as it does not include costs associated with systems, compliance, repayment and fraud risk, human resources, and general overhead
ReplyDeleteAnd Dr. Leggett's computed tax adjusted rate would also apply to Subchapter S banks which do not pay federal corporate taxes. And to banks that receive tax credits in areas that created CRA benefits/compliance for the bank.
ReplyDeleteAt the end of the day, this is a bogus number.
It is a very weak argument tying credit union tax exemption to the charge for a single item in isolation of all other related charges and costs. What about daily maximums, daily overdrawn balance fees and monthly service charges? The tax exemption fight is much better focused on business lending and asset growth, not an isolated fee.
ReplyDeleteThe tax exemption is not passed on to consumers and has outlived it's usefulness in 85% of the assets of credit unions....it's still true to cause in 15% of assets ... The 6000 with assets less than 500 million who are still in mission.
ReplyDeleteOur board is willing to pay taxes if we can get regulatory parity.
Of course there are costs associated, but don't let that keep you from seeing the real point. We are distracting ourselves pretending that we are completely in the right when in fact, we need to do better. Too many of us spend too much on too high operating expenses and not enough on lowering fees and improving rates to our members.
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