Banks and credit unions face an increasingly challenging environment. Inflation is easing, but prices remain high. Consumers have less in savings. Credit standards are tightening. And regulators keep changing the rules on overdraft services.
For people managing their day-to-day cash flow, and for financial institutions trying to balance policy and budgets, having fair, reliable liquidity solutions is more critical than ever.
A Shrinking Financial Safety Net for Consumers
Consumers feel the current economic pressure. The personal savings rate is just 4.6%—well below the 10-year average of 6.9%. This leaves many with little to fall back on when unexpected expenses arise.
Recent data shows 65% of consumers are living paycheck to paycheck, and credit card balances have soared to a record $1.2 trillion. These trends drive more demand for short-term liquidity tools like overdraft protection and small-dollar credit.
Consumer sentiment has also plummeted. The University of Michigan’s Index of Consumer Sentiment dropped to 52.2 in April 2025 (down from 77.2 one year ago), reflecting anxiety over inflation, job stability and overall economic volatility. An April 2025 study by the Federal Reserve Bank of New York’s Center for Microeconomic Data backs this up, showing households expect higher unemployment and slower income growth, further adding to their financial stress.
A New Era of Regulation and Scrutiny
Regulators are watching overdraft services more closely. The Consumer Financial Protection Bureau (CFPB) introduced a rule capping overdraft fees between $3 and $14, with stricter disclosure requirements on overdraft loans for financial institutions with $10 billion or more in assets. Then, in May 2025, President Trump overturned this rule.
This back-and-forth suggests the future of overdraft regulation is still up in the air. But the message is clear: transparency, fairness and putting consumers first are now the baseline.
With such rapid changes and uncertainty, it’s difficult for most banks and credit unions to keep up. A strategic partner with regulatory expertise can help navigate the shifting regulatory environment—reducing risk, ensuring compliance and freeing up your team to focus on what matters most: serving account holders with confidence.
Credit Tightens While Liquidity Dries Up
On top of this uncertainty, credit is harder to get too. Lenders are raising approval standards, limiting account holders’ access to loans and lines of credit, even for consumers with decent credit scores.
For community banks and credit unions, this is doubly frustrating. They must manage risk, but cutting off liquidity to the very people who need it most can send long-time account holders toward risky, costly alternatives.
Previous research has shown that, when faced with a monthly bill they’re unable to pay, consumers will most likely turn to family or friends—which can strain relationships—or not pay the bill and face late fees and credit damage.
Other options like payday loans and pawning personal possessions have drawbacks as well.
That’s why offering fair liquidity options—like overdraft protection for a one-time fee or small-dollar, short-term loans at reasonable rates—matters.
Tight credit and drying liquidity push consumers toward risky alternatives, highlighting the need for fair financial options.
How Consumer Behavior is Changing
The Federal Reserve’s 2025 Diary of Consumer Payment Choice reveals some timely and clear trends:
- Payment activity is up. People are making more transactions overall, continuing a post-pandemic trend. Given the aforementioned economic struggles, it is likely that many consumers now rely on digital and short-term payment options.
- Cash still matters. Despite the rise of digital wallets and cards, cash still makes up 14% of all payments, particularly for smaller-ticket items. Older adults and people in households earning less than $25,000 per year use cash more than average.
- Diverse payment preferences. People want flexibility and use a mix of debit, credit, cash and mobile payment apps, depending on the situation.
With more transactions, continued reliance on cash by some consumers and the use of multiple payment options it’s easy for people to lose track of their balances—and risk overdrafts.
Overdraft protection helps consumers keep using their preferred payment options without missing important bills and purchases.
Why Reliable Liquidity Builds Trust
Liquidity solutions that are clear, fairly priced and easy to use can be a powerful tool for building account holder trust. When community banks and credit unions offer responsible overdraft protection and other short-term liquidity services, they do more than keep someone’s account in the black; they reiterate their mission: “We’re here when you need us.”
Trust sticks. People who feel supported during difficult times stop shopping around, recommend their bank or credit union to others and consider it for future financial needs. And in an age where changing banks is easier than ever, loyalty carries immense value.
In this way, reliable liquidity solves short-term problems while creating long-term relationships.
Adapting to Serve, Not Just Comply
Regulations may be in flux, but forward-thinking financial institutions look beyond compliance. They’re reimagining how to serve their account holders better, not simply reacting to compliance rules.
That means:
- Using data-driven insights to set responsible individual overdraft limits.
- Offering real-time alerts and tools to help consumers avoid fees.
- Replacing flat fees with dynamic pricing.
- Adding liquidity services into the digital banking experience.
None of these are regulatory requirements, but they are smart relationship strategies. Credit unions and community banks that adopt them aren’t just checking the boxes; they’re positioning themselves as trusted partners.
Leading financial institutions are prioritizing smarter service over simple compliance to build lasting customer trust.
The Cost of Inaction
The price of doing nothing is not $0. Financial institutions that don’t offer responsible liquidity options risk reputational damage and losing account holders, especially younger ones who value fairness, flexibility and transparency.
As household budgets tighten and economic uncertainty persists, demand for liquidity won’t disappear. It will just shift to places people trust more. It’s a challenge for community banks and credit unions, but also an opportunity.
Implementing a Strategic Vision
Reliable consumer liquidity isn’t just about efficiency or compliance—it’s about trust. In today’s climate, trust is an extremely valuable currency.
In uncertain times, the financial institutions that deliver certainty through trust, transparency and access will be the ones account holders turn to again and again. Those that don’t may find themselves watching relationships (and relevance) slip away.
Transparency isn’t just important for your account holders. Your overdraft program should be equally clear and understandable to your staff—and to regulators. With overdraft practices under heightened regulatory scrutiny, clarity has never been more essential. Check out our white paper to find out if your overdraft program is a black box—and how you can open it up.
Read the white paper
Tim Barrett, ILS Product Owner, Executive DDA Strategist & Senior Data Analyst
With decades of experience in banking and technology consulting, Tim is a trusted advisor to hundreds of financial institutions of all sizes. His leadership focuses on delivering optimized account holder experiences through revenue-driving, compliance-focused software solutions. As Product Owner of the Intelligent Limit System® at CSI, he leads enhancements to the Consumer Liquidity Engine™, integrating advanced data analytics with regulatory expertise. Tim began his consulting career at Sheshunoff Consulting, where he led teams specializing in software-based liquidity strategies and risk management. A proud member of Texas A&M’s Class of ’95, he lives in College Station, Texas with his wife of over 30 years and their growing family.