Bank Overdraft Fees Studied

In news that will be hardly startling to anyone who has had any experience with banks, checking accounts, debit cards, etc., USA Today (2008, December 2) revealed the results of an 18 month long study of FDIC-regulated banks and their associated fees. The study, the largest of its kind, was performed by the Federal Deposit Insurance Corp. (FDIC) and revealed...drum roll, please..."Overdraft fees are boosting banks' profits at the expense of consumers" (USA Today).

That's right; it hasn't been your imagination that the exorbitant fees associated with overdrafts, ATM use, and creative accounting have been digging into your wallet. A study has confirmed what you've suspected all along. The banks and credit unions included in the survey bring in $17.5 BILLION annually, an estimate provided by Center for Responsible Lending, a consumer advocacy group (USA Today). If one takes the numbers the Government Accountability Office (GAO) arrived at, that number swells to $36 BILLION annually (Geoff Williams).

Although the survey done by the FDIC was the largest to date, some of the largest banks in the United States are not included due to not being FDIC-insured. So the figure above, startling enough as it is, represents only a portion of all banks and credit unions income from bank fees, largely overdraft fees.

Since stating the obvious seems to be pattern, here's a quote from Chi Chi Wu of the National Consumer Law Center, "The most vulnerable consumers are getting hit with these fees" (USA Today). The most vulnerable being those of low income and young people (many of whom fit into both groups).

What's the cause of the majority of these fees?

* Most banks automatically sign customers up to allow them to have overdrafts. "Half of all overdrafts occur at ATMs or via debit card transactions" (USA Today). A pretty profitable practice for the banks, eh?

* Banks practice "creative accounting," processing largest debits before smaller ones, and/or processing debits before deposits.

Industry professionals argue over the pervasiveness of overdraft fees. One bank consultant states that his research shows that almost 50% of consumers pay overdraft fees each year, while the FDIC study and that of the American Bankers Association (ABA) put that number at 25% of consumers paying overdraft fees within a year.

The impetus of the ABA's assertion is that overdraft fees are preventable by consumers, since 75% don't incur overdraft fees in a typical year. This claim is intended to shift the responsibility for the outrageous bank fees associated with overdrafts from the financial institutions that charge them and put the monkey on the back of consumers.

I can't help but wonder with the windfall profits the financial institutions made from consumers in overdraft fees alone, how some of those same institutions could need a bailout. There's been a lot of talk about irresponsible consumers and their responsibility for the economic down turn currently being experienced, but considering just the numbers mentioned here, I think it is a case of someone living in a glass house throwing stones.

Resources: "FDIC: Bank Overdraft Fees Hit Young, Low-Income Customers". Kathy Chu. USA Today

http://www.usatoday.com/money/industries/banking/2008-12-02-fdic-study-overdraft-fees_N.htm

"Government Agency Overseeing Banks Criticizes Bank Fees". Geoff Williams. 2008, December 3.

http://www.walletpop.com/blog/2008/12/03/government-agency-overseeing-banks-criticizes-fees