If you’ve ever taken money out of the ATM and found out later it overdrew your account and set you back an extra $25 or $30, you’re not alone.
It has happened to so many people that Congress and federal regulators are aiming to put new regulations in place to limit overdraft fees.
Responding to the outcry from Congress and the public, however, many banks have already taken voluntary action to reduce the penalties.
$40 Billion in Fees
Overdraft fees have been on the rise. Charlottesville, Virginia-based SNL Financial said U.S. banks will generate more than $40 billion this year in deposit fees, based on the first half of the year. The fees brought in less than $25 billion eight years ago.
The Center for Responsible Lending says the fees rose 35 percent in the last two years. The Center estimates 27 million Americans overdrew their checking account more than five times in a 12 month period.
Chase Bank was one of many large banks, including Bank of America, to announce more consumer-friendly terms for overdraft fees in late September.
Chase said it was eliminating fees for overdrafts of less than $5. It lowered the maximum number of overdraft fees per day from six to three. And it dropped overdraft service on debit card transactions unless customers opt in, said Nancy Norris, a spokeswoman for Chase Bank.
Chase left its fee rates alone, but PNC Bank lowered its fee on a first overdraft from $31 to $26. Chase charges $25 for the first overdraft. Both banks’ fees rise for repeat offenders, a system many banks use.
Banks Responding to Concerns
Despite the outcry, most banks said they haven’t raised fees this year. Chase has gone three years without raising them.
“These fees are not new,” Norris said. “[The changed fee structure] is in response to what customers want and in reaction to the economy.”
SNL Financial Senior Analyst Derek Ferber remains unconvinced by the changes, however.
‘A PR Stunt’
“This is very much of a PR stunt,” Ferber says. “Banks are trying to make good with the lawmakers and public in general.”
Chase doesn’t let customers take out more money from an ATM than they have in their account, but most banks do. Rep. Carolyn Maloney (D-NY) said during a recent House Financial Services Committee discussion that 81 percent of banks allow ATM overdrafts, according to the Federal Deposit Insurance Corp. They then charge the overdraft fee.
In November the Federal Reserve announced rules that prevent banks from charging for overdraft protection on ATM and debit-card transactions unless consumers opt in. The Fed’s consumer studies showed most consumers don’t want overdraft coverage for those transactions. They prefer it to be limited to essential bills.
Proposed Overdraft Caps
A House bill, HR 3904, would cap the number of overdraft fees that can be charged, require banks to disclose fees clearly, require banks to withhold overdraft protection unless customers opt in, and prevent banks from manipulating the recording of transactions to maximize fees.
The banks’ own actions won’t go far enough, Maloney said through a spokesman.
“The industry needs the prodding of regulators and legislators,” she said.
The Fed’s action doesn’t eliminate the need for the House bill, she argued, because it doesn’t limit the number of overdraft fees and doesn’t make fees proportional to the overdraft amount.
“Under the Fed’s new rule, a $5 cup of coffee could still become a $40 cup of coffee after an overdraft fee is added,” she said.
Law Could Backfire
The Independent Community Bankers of America trade association is concerned banks wouldn’t be allowed to offer discretionary overdraft services, through which bankers can evaluate overdrafts on a case-by-case basis.
“If this bill is enacted, a significant portion of community banks will stop offering discretionary and automated overdraft programs, and consumers will face a significant increase in the amount of returned checks and debit card transactions,” ICBA Chairman Michael Menzies told the House committee.
Menzies argues an opt-in overdraft policy is anti-consumer and controls on pricing and the number of overdraft fees would cause banks to drop overdraft coverage.
Steve Watkins ([email protected]) writes from Cincinnati.