Bad for Consumers: Banks Charged $32B in Overdraft Fees in 2012

Banks, credit unions and thrifts made $32 billion in overdraft fees last year, a 1.3 percent jump from 2011, according to a new report by Moebs Services, the economic research firm.
But the increase amount doesn’t tell the whole comeback story on these high fees that consumers are forced to pay when they have insufficient funds in their accounts to cover submitted checks or purchases.

In the first quarter of 2012, overdraft volume actually fell to an 11-year low at about 1 billion transactions.
That’s a 29 percent decrease from the all-time high set in the third quarter of 2008, the height of the financial crisis.
However, overdraft transactions surged 4.4 percent in volume for the 9-month period from April 1, 2012 through December 31, 2012, according to Moebs Services.
Here’s the good news for the banks and other financial institutions — and bad news for consumers: at this rate of growth, overdraft revenue could reach a new high by the end of 2016.
Annual overdraft revenue is still down from 2009’s high of $37.1 billion.
Since 2010, banks have sought to make up lost revenues from reform-related restrictions on debit and credit card fees on both merchants and consumers.
Free checking is still offered by some, but is becoming more scarce as minimum amounts required for waiving fees have been on the rise.
Federal Reserve rules prohibit overdraft fees on consumers using debit or ATM cards – unless the card user has opted to join a bank’s overdraft protection plan.
The average overdraft fee ranged from $30 to $35 in 2011, and has increased by 17 percent over the past five years, according to the Consumer Financial Protection Bureau.
According to the Moebs study, credit unions have a national median price of $27 per overdraft while banks are $30 nationally.
“Despite regulation and legislation … consumers’ use of overdrafts shows no indication of going away, and is actually increasing,” said Michael Moebs, author of the Overdraft Study.
About 26 percent, or 38 million, of the 134 million consumer checking accounts are frequent overdraft users, Moebs found. The frequent overdraft users are divided into about 20 million consumers who use payday lenders and 18 million who use banks and credit unions.
“Our research shows the median overdraft account balance is about $40,” Moebs said. “Fifty-seven out of 100 frequent overdraft users go to payday lenders when short on funds, because payday lenders are the low price source for short-term cash needs.”
House Democrats have introduced a bill to crack down on overdraft fee abuse by banks beyond the current “opt-in” protection for debit card transactions.
The Overdraft Protection Act requires consumer consent before banks can permit overdraft fees on paper checks, automated clearinghouse (ACH) charges that usually involve recurring monthly payments and debit card “swipe-terminal” transactions on consumer accounts, such as those at gas stations, said the bill’s chief sponsor Rep. Carolyn Maloney, D-New York, senior member of the House Financial Services Committee.

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