Bank overdraft revenue dropped

Bank overdraft

Despite a huge public backlash last year, bank overdraft charges are still not extinct. Image: m.prinke/Flickr/CC BY-SA

The economic research firm Moebs Services said Friday that there were fewer overdraft fees levied against U.S. consumers in 2011. However, the fees were generally higher than they were for the previous year.

Overdrafts drop 4.5 percent from 2010

Moebs polled 2,273 banks in its annual survey, conducted in February. In addition to the poll, Moebs looked at more than 12,000 banking industry reports relating to service charge income. According to the Moebs report, U.S. banks charged customers $31.6 billion in overdraft fees during 2011. That is down 4.5 percent from the $33.1 billion recorded in 2010.

U.S. consumers becoming better managers

On the face of it, that sounds like good news for the consumer, who may well be learning from adversity to manage finances with more aplomb than in the past. Banking customers are increasingly opting out of overdraft fee protection and staying within their balances more frequently.

Moebs said:

“The average number of overdrafts per account, per year, has fallen from a peak of 10.5 percent in the third quarter of 2008 by 29.5 percent, to 7.4 percent almost three years later.”

Overdraft charges rise

However, the median fee charged by lending institutions has also escalated. The average cost of an overdraft fee in 2010 was $27.50. In 2011, that figure had grown to $29. Analysts say the increase is a result of larger banks trying to recoup losses caused by stiffer federal regulations.

Mega-banks keep fees high

But not all institutions raised overdraft charges. According to the report, nearly 30 percent of all lending institutions changed the cost of overdrafts. About 15 percent of those institutions lowered rates, however. Most of those were regional banks and credit unions, where the average overdraft cost of $29 dropped to a median of $25. The average cost of an overdraft at a large, commercial bank was $33.50.

Payday loans cheaper than overdraft

Moebs also said that many American consumers will continue to use payday loans to prevent overdrafts as long as banks keep the fees higher than the interest on a short-term loan:

“More and more banks and credit unions are lowering the price of overdrafts. This decision bodes well for these institutions as they try to reclaim lost market share to payday lenders, who only charge consumers a median price of $17.50. The closer financial institutions get to payday lenders, the more consumers will bank with Main Street institutions, and rely less on Payday lenders and the mega banks during this difficult economy.”

[Don’t pay those high overdraft fees. Payday lenders charge less.]

Consumers want reasonable overdraft charges

Moebs concluded that the U.S. consumer is not opposed to overdraft fees in general, but wants them “as a reasonably priced safety net overdraft, and not an old fashion high penalty priced overdraft.”


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