Banks Move Ahead To Increase Overdraft Protection Fees

The cost of not having enough money just got steeper.

The median overdraft fee banks charge customers surged to $30 from $27.50 last year, according to a study released Tuesday by Moebs Services, an economic research firm that tracks pricing at financial services companies. The survey looked at overdraft fees from more than 2,500 banks and credit unions of all sizes across the country.

Mike Moebs, an economist and CEO of Moebs Services, said the jump was the largest one he has seen in 30 years of collecting data. He said that banks are trying to make up for money lost due to regulatory changes. "We went to banks themselves, and first thing they told us was that the regulatory cost is so onerous they have to offset it with higher fees," Moebs said. Credit unions had not increased their fees, he added.

Until new regulations were put in place in July 2010, banks enrolled debit card users automatically into overdraft protection, which provides short-term loans when a bank account falls below zero. Often, bank customers were unaware their accounts were in negative territory and kept using their debit cards. Fees quickly piled up -- in 2009 banks cleared an all-time high of $37.1 billion in overdraft fees, according to Moebs.

A 2010 rule enacted by the Federal Reserve called Reg E requires customers to actively choose to enroll in overdraft protection. Those who do not opt into the program learn when they are over their limit on funds the old-fashioned way: Their card is declined.

The regulation has cost banks billions. Last year, banks made "just" $30 billion from overdraft protection. Nearly half of the drop came from decreases at Bank of America, which lost an estimated $3.3 billion in the first year under the regulation, according to research from a Credit Suisse analyst published last month. Wells Fargo and JPMorgan Chase each lost more than $1 billion.

Losses may get steeper. More recently, the Federal Deposit Insurance Corporation issued guidelines around what types of transactions can trigger overdraft fees and how the banks process transactions. The FDIC recommends, for example, that banks do not charge overdrafts on small-ticket items, so a card holder who overdrafts his or her checking account for a $4 latte won't be on the hook for a $30 fee.

Banks have also seen a drop-off in the amount of money they make from debit card swipe fees, which merchants pay every time a customer makes a purchase. The so-called Durbin Amendment, part of the Dodd-Frank financial overhaul, caps the amount banks can charge merchants for debit swipes. Banks have been scrambling to make up for the decline in revenue.

In addition to raising overdraft protection fees, banks are also making a push to get customers using credit cards more often. And it's worked, in the last week JPMorgan Chase and Citibank reported that credit cards are a growing area of business.

Comments

[Frank David Nall]

06:41 PM on 01/20/2012

HA AHA AHAHA HA> if you are still banking with any of these shill companies.

[Dogvane]

11:47 AM on 01/20/2012

Here's something the new consumer protection agency can cut their teeth on.

[Judy75201]

07:55 PM on 01/19/2012

I just found out from BBVA Compass that there is nothing short of closing my account that I can do about the scammers fron MY LIFE taking recurring payments out of my account. I was previously told that canceling my card would do it, which I did. Today I was told that all MY LIFE, thru VISA has to do is call and get the new card info to keep charging me, which they did. It is sick that you have to watch your account like a hawk to keep from being raped by your own bank.

[mwr133]

07:04 PM on 01/19/2012

How hard is it not to overdraft? If you are worried about overdrafting, then switch to cash.

[Judy75201]

08:02 PM on 01/19/2012

Sorry, did not mean to "like". It's very easy to overdraft, because your bank actively tries to make it happen. Bundelling and then paying the largest amount first, regardless of when it was incurred, insures multiple overdraft charges for the successive smaller amounts.

[mdsman]

09:12 AM on 01/20/2012

That is just untrue....
You know how much you have and how much you spent
Balance your book regularly and it will never happen
this is no ones fault but their own.
In 40 years of having a checking account, I have never bounced a check.
And that is using banks all over the world from all over the world.
More whining form those that feel that they are victims and entitled to better.
And it cost those of us that are responsible adults more

[viper1ex19]

06:59 PM on 01/19/2012

Regardless of where you do you rbanking there will be overdraft fees.

But for anyone still banking with the BIG banks,, you deserve it.
They screw you and tell you they're doing it and yet you stay with them?

Community Banks and Credit Unions are the only way to solve the problem of excessive fees.

[rolse]

05:31 PM on 01/19/2012

The banks didn't cause the problem of overdrawn accounts. Nor did they cause there to be so many people lacking the skills needed to balance a checkbook or keep track of their deposits and withdrawals. They didn't cause the great number of people's lack of ability to read and understand the agreements they enter into to obtain credit or establish a checking account. The government is not going to protect them largely due to the fact that government is who is responsible for dumbing them down in the first place.

[dross4319]

05:07 PM on 01/19/2012

Another good reason to go to credit unions

[RespectMyAuthoritah]

05:02 PM on 01/19/2012

Buck fanks. Close your account and put your money in a credit union. This is the only solution for people who are tired of being ripped off by banks and their need to make $40 million a year instead of $39mil.

B/uck F/anks.

[skyeagle]

05:06 PM on 01/19/2012

Credit Unions do not pay taxes. They do not pay federal taxes or property taxes. That means we all subsidize credit unions whether we bank there or not. When credit unions become popular enough and step outside of mission charter then they may become subject to property and federal income taxes. Then the interest rates they pay to customers will go down and the rates they charge to borrowers will go up. Right now the playing field is tilted in the credit unions favor, but it is paid for by all American taxpayers.

[boogie albert 56]

07:08 PM on 01/19/2012

and the governemnt already has their hands in these credit unions.

[dedhead013]

04:48 PM on 01/19/2012

Overdraft protection is a CREDIT CARD that covers overdrafts in your account. The banks are betting that you won't pay the overdraft off thereby letting it ride from month to month paying the minimum or thereabouts forever. It's a bank gotcha. Big mistake, been there, done that. Our bank rarely charged overdrafts on "pendings" in our account. That was til it was sold to a greedy Canadian banking outfit. Now they're just like all the rest though they bill themselves as "America's most convenient bank"

[adam646l]

04:48 PM on 01/19/2012

I have been poor and not so poor in my life. Given the choice, of course, I would choose not so poor every time. But, and I know how hard it can be when you have very litle money, the one lesson I took with me from the poor times was to live within my meager means. If you fall into the trap of paying fees to use money, you will never dig out of a financial hole

[muzzled]

04:39 PM on 01/19/2012

look it's the new 99%r's 99% of the greed card players in here have a FICO score below 351

[Robert Leos]

04:26 PM on 01/19/2012

Large banks are greedy. But they have never presented themselves a non-profit organization.

Is it our responsibility to protect those are unwilling to take responsibility for their own personal finances?

[map1246]

04:25 PM on 01/19/2012

If you don't want to pay the fee, don't seek overdraft protection. This is not a tough fee to avoid.

[rickahight]

04:24 PM on 01/19/2012

Guess the public expects banks to cover overdrawn bank accounts. Some make balance mistakes, some have the wrong amount taken from their account, most flat write checks they know can not be covered.

Have we become so entitlement driven that we expect banks to cover customers for free? How does a bank know if the customer can even pay the overdraft and where does it stop? There are not enough telephones and employees to respond to the overdraft excuses with no limits.

It is amazing how many on Huff have such an illogical attitude about business including banks. Have you read so much propoganda that you actually believe there is this big conspiracy? Some business aren't nice just like a lot of politicians who claim to be on your side go home to fancy mansions and live an elite life.

It is facinating to now see the liberal perspective on Huff. Originally it was so liberal many left AOL. I decided to stay and do read the rational responses. Athough there are only a few some liberals make readable, heartfelt statements. Far too many are irrational and show nothing but contempt and hate. Most conservatives are not anywhere near rich and live close to the vest but are ignored particularly by the media.

There is a big division in our country and it can't be both ways. As far as capitalism is concerned, you better be careful of what you wish for because you might get it and the consequences.

[sheeplesuks]

03:56 PM on 01/19/2012

if you are dumb enought o write a check without having the money you deserve the fee! And i can tell you- more and more stores aren't taking any checks