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.