Overdrafts aren’t the problem—outdated strategies are

By Chad Jolly, Regional Director

How credit unions can deliver responsible service and reliable income in today’s economy.

Credit unions are feeling the squeeze. Interest margins are narrowing, deposit growth is harder to sustain, and non-interest income (NII) has become increasingly volatile. Overdraft income has long helped offset that pressure, yet it’s also one of the most scrutinized areas. Years of inconsistent or unclear practices across the industry fueled consumer distrust and heightened regulatory attention.

The question for credit union leaders today isn’t whether to offer overdraft protection, but how to do it responsibly — in a way that supports both financial performance and member well-being.

The revenue reality

Stabilizing NII is a top priority for credit union executives. When appropriately structured, overdraft programs remain one of the most reliable sources of non-interest income.

However, the old “set-it-and-forget-it” approach no longer works. According to NCUA data, non-interest income across credit unions declined by 7.4 % in the first quarter of 2025. Stagnant programs eventually lose compliance alignment, transparency, and member engagement — eroding both income and trust.

Modernizing overdraft management can make revenue more predictable and responsible. Data-driven tools, clearly disclosed limits, and consistent member communications ensure fairness and compliance. The right solution should simplify operations, strengthen transparency, and protect revenue while reducing the risks tied to outdated systems.

The member-service reality

Members still need access to short-term liquidity. Industry data shows that overdraft and NSF activity continues to affect a significant share of U.S. households — proof that cash-flow challenges remain a daily reality for many. Meanwhile, the Federal Reserve Bank of San Francisco reports that middle- and lower-income households now hold about 13% fewer liquid assets than before the pandemic, leaving less financial cushion for unexpected expenses.

Even so, most consumers say they value overdraft protection when it’s needed. Surveys show a strong majority prefer having the option available, even with a fee, rather than having payments declined. A consumer-first overdraft solution can prevent costlier outcomes, such as turning to payday lenders or missing payments that trigger higher fees.

The key is transparency and choice. Members should know exactly how the program works, when fees apply, and what alternatives exist. A “responsible overdraft” mindset treats the service as a financial tool, not a penalty — empowering members to make informed decisions and reinforcing trust in their credit union.

Where revenue and responsibility meet

When revenue goals and member care align, the results are powerful. ADVANTAGE clients consistently see improved NII and stronger member engagement because disclosure is the foundation for sustainable growth.

A transparent overdraft program can generate consistent income while supporting inclusion and long-term loyalty. It protects the franchise value: a stable, trusted member base that views the credit union as a true financial partner.

Strengthening relationships and income resilience

Credit unions that take a fresh look at their overdraft programs beyond compliance to drive continuous improvement will uncover new opportunities to enhance member trust and strengthen financial performance.

Economic uncertainty will continue to challenge margins in 2026 and beyond. Those taking a proactive, data-informed approach to overdraft management will be best positioned to balance financial needs while delivering greater member value.

Responsible overdraft solutions prove that credit unions don’t have to choose between purpose and profitability — with the right strategy, they can deliver both.

ADVANTAGE is a preferred provider for Cornerstone Resources. Request your complimentary program review to start strengthening member relationships, improving program transparency, and uncovering sources of reliable, compliant income.