Addressing Net Interest Income Erosion A Matter of Survival

Credit unions that are considering adopting an overdraft privilege service should consider two things: first is it a well designed product that produces projected results and second, is it member-friendly?


Discretionary overdraft payment programs are helping credit unions meet challenging economic conditions by providing important fee-based, non-interest products to credit unions suffering with revenue streams weakened by declining net interest income.  Today’s economy has compelled many credit unions to pursue creative non-interest income solutions to address ailing bottom lines -- and overdraft payment services fit that need.  For many credit unions, the situation has become critical.  Beyond simply helping to keep the credit union economically healthy, some executives have characterized their current situation as one of survival.  Net interest income has declined substantially and many are feeling the squeeze.

In terms of adding alternative, non-interest financial products to right the ship, one credit union executive put it best when addressing their newly adopted overdraft privilege service for members:  “Overdraft privilege has made us less reliant on interest-based income.  Fees are a constant and can be projected from month to month, independent of interest rates.  The fee income from overdraft privilege has given us the ability to offer other products and services and be more competitive on savings and loan rates.” 

A discretionary overdraft privilege service, when carried out properly, adds value to both the institution and as a member service.  Ask yourself who uses overdraft privilege.  They are hard working and long-standing members of your credit union.  And the majority of them are financially competent and fiscally responsible.   They are by no means reckless and irresponsible.

It’s been our experience that members who utilize our service sometimes need some assistance between paychecks.  We’ve also observed that they are willing to pay a reasonable fee to occasionally help them bridge the gap between their cash flow and an overdue bill.   What’s more, the traditional cost of an overdraft far exceeds the fee paid for overdraft privilege.  When tallying up insufficient funds fees, late fees, interest and penalties, an overdraft can be exasperating, not to mention an embarrassment for the member.

What Makes a Good Overdraft Service?

Credit unions that are considering adopting an overdraft privilege service should consider two things: first is it a well designed product that produces projected results and second, is it member-friendly?   We believe a well constructed and properly implemented discretionary overdraft payment program can do both.

Let’s briefly address “well designed” first.   Make sure your overdraft privilege program provider has the qualifications and reputation to enable you to efficiently implement and manage your program.  The safety and soundness of your credit union is crucial so your provider must also be able to put the proper policies, procedures and processes into place to maintain it. 

Be sure that you have proper program documentation and implementation assistance for your discretionary overdraft privilege service. On-site training for your staff, system automation and testing, help with marketing programs and sample materials, collection and risk management processes, post implementation and support, and perhaps most importantly, up-to-date information on regulatory compliance and disclosure requirements should all be part of your provider’s services.

Member Friendly

When evaluating whether a program is member friendly, proper disclosure is a key component.  Upon implementation of an overdraft service, conduct proper communication, disclosure and education of the product to your members.  Make sure they understand the benefits, features, costs and limitations of the program. 

Carefully assess members’ eligibility.  Thoroughly consider the criteria for eligibility, assignment and suspension of the discretionary “privilege.”  Never promote poor account management.  This should be common sense.  Credit unions should not market the program in a manner that encourages routine or intentional overdrafts.

Train your staff to explain program features as well as other options.   They should be briefed on costs and terms of your overdraft protection program.
Clearly disclose program fees.  In any communications or promotional material on overdraft protection, clearly disclose the dollar amount charged for each overdraft, and any other fees that may apply.

Illustrate the types of transactions covered.  Clearly disclose that overdraft fees may be imposed on such transactions as ATM withdrawals, debit card transactions, telephone and other electronic transfers. 

Allow members to elect overdraft protection or to opt out of the service.  Obtain consent of members to receive overdraft protection.  Alternatively, where overdraft protection is automatically provided, permit members to opt out of the program.

Ultimately, the members should be the focus. For 15 years Strunk & Associates has been integrating our Discretionary Overdraft Privilege Service into financial institutions.  We would be glad to share our experience and expertise so that your credit union can continue to provide your members with exceptional service.

Bill Strunk is Chairman and Founder of Strunk & Associates, LP, a financial institution advisory service headquartered in Houston, Texas.  Strunk is recognized nationally for its innovative design, development and implementation of the original “Overdraft Privilege Service Program” for financial institutions.  To learn more go to or contact the Strunk staff at 1.800.728.3116. 



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April 16, 2007


  • I have heard this info many times over. No added value
  • Hand wringing over loss of fees, a tired outdated tune. The real value and focus should be how to increase the percieved value of the credit union''s account offerings and how best to communicate (advertise) that value to members with bank checking accounts and new prospective share draft members. The potential upside of added new members with share drafts, loans, etc. far outwieghs the benefit of the added ''fees''.