Moebs Services

FOR IMMEDIATE RELEASE  Contact:  Kim Kellogg/Pat Harden
October 15, 2008
     
Disparities in Checking Overdraft Fees by Geography and Size
of Financial Institutions Revealed in National Survey
Moebs Survey May Be a Harbinger of Higher Consumer Fees to Come from
Ongoing Bank Mergers

CHICAGO (DATE 2008)-- The three highest-priced markets in the U.S. for average overdraft (OD) service fees on consumer checking accounts are Miami, Washington D.C. and Denver, while Florida ranks as the highest-priced state for OD fees, and the South leads as the highest-priced region for consumer OD fees, according to a nationwide survey. The study of 2,041 commercial banks, savings institutions and credit unions was conducted by Moebs Services, an independent economics research firm in Lake Bluff, Ill. It examined financial-institution pricing for OD service fees as well as returned-check charges on bounced checks levied by both financial institutions and national retailers.
 
      Geographic Locations
       The survey found that financial institutions in Miami charge an average fee of $30.26 per OD coverage when a consumer has overdrawn his/her account, while the average fee per overdrawn check in Washington D.C. is $28.15, and in Denver is $28.02. 

       Florida ranks as the highest-priced OD state in the country with an average OD fee of $29.55 per check, and the highest-priced region in the U.S. is the South, with an average OD price of $27.30 vs. the East at $25.57, the Midwest at $25.33, and the West at $24.61.

       The three lowest-priced cities in the country are San Francisco, Sacramento and Los Angeles, with respective OD prices of $22.39, $22.72 and $22.92.  The lowest-priced OD states are California, Illinois and Wisconsin.  The West is the lowest-priced region.

       Size Matters
       When it comes to the size of a financial institution, bigger is not better for consumers when they overdraw their checking account, the survey found.  Banks and credit unions with less than $100 million in assets charged an average of $24.28 per overdrawn check; those with $100 million to $1 billion charged $26.74; financial institutions with more than $1 billion charged an average of $27.93; and banks with more than $20 billion in assets charged $33.43.

       “With the current wave of bank mergers and the likelihood of more to come, customers of newly merged, bigger banks should be prepared for escalating checking fees,  according to the evidence from our survey,” says Mike Moebs, CEO of Moebs Services. 
      
       National Findings vs. Geography and Size
       The geographic and asset-size results compare to the survey’s findings of a national average OD fee per check of $25.67, with all banks representing an average OD fee of $27.03 and credit unions registering an average OD fee of $24.24.  “While statistically there is still a difference between banks and credit unions, both prices are increasing and the gap has been narrowing over the past five years,” said Moebs.  “There is a clear trend that market forces are at work in establishing the fees that banks and credit unions charge in different parts of the country, and that financial institutions of different sizes charge,” said Moebs.   “ For consumers, the upcoming regulatory changes by the Federal Reserve for  OD charges will promote greater disclosure of OD services and fees, and will allow more flexibility and choice for consumers who can opt in or out of using these services.  This could result in putting downward pressure on pricing and increasing competition further among banks and credit unions.”

       Opt-Out Choices
       Survey results showed that 88.8 percent of banks offered consumers an opt-out choice from overdraft coverage and 90.8 percent of credit unions provided this choice.  The national average for opting out of overdrafts was 89.9 percent.

        “Throughout the 20 years we have been collecting data from financial institutions we have found that consumers want the credit-reputation benefits that overdraft services or protection offers and are willing to pay for it, if they are properly communicated to by their bank or credit union and are given the chance to opt-in or opt-out of these services,” said Moebs.

Nationwide Retailers Also Surveyed - Returned-Check Fees
Now Total $53.17

       Simultaneous to the financial institutions survey, Moebs Services conducted a separate survey on returned-check fees charged by nationwide retail merchants if a consumer’s check bounces.  A national retail merchant was defined as a retail company doing business with a consumer in two or more of the four major regions of the U.S. Over 120 national retail merchants were surveyed, including Banana Republic, Staples, Walgreen’s, Restoration Hardware, Marriott, IKEA, Borders and Northwest Airlines.

       “When a bank pays an overdrawn account it’s called an overdraft, and when a bank returns a check on an overdrawn account it is an NSF charge (Non-Sufficient Funds), or a bounced check charge,” explained Moebs.  “Many consumers do not understand the difference between the two types of charges, and the financial differences between them can be significant,” he added.

       “Consumers can be hit by two fees if they bounce a check -- one from their bank if they don’t have an overdraft service and one from a retailer that charges for returned checks,” said Moebs.  The financial institutions survey found that the national average price for a returned check, or NSF charge, is $25.39. The retail merchant survey found that the average Merchant NSF charge for a returned check was $27.78. 

         “This means that one bounced check could cost a consumer an average of $53.17,” said Moebs.  “This is why we consistently find that consumers want banks to provide OD coverage and protection.  It safeguards the consumer’s credit reputation and their budget.”

       
      US Postal Service Leads Pricing in Most Markets: $29

“One of the biggest surprises to come out of the Merchant Survey was that the Post Office charges more than most merchants for a bounced check,” said Moebs.  According to the survey, the US Postal Service charges a customer $29 for writing a bad check.  “This is higher than the average Merchant NSF charge, and in communities around the country, it might be that merchants use this government figure as a benchmark to help them figure out their competitive pricing,” said Moebs.

       OTHER FINDINGS FROM FINANCIAL INSTITUTIONS

       Debit Card/ATM Overdrafts
       Of the financial institutions surveyed, debit-card overdrafts are allowed by an average of 47.8 percent of banks and 57.9 percent of credit unions.  The national average for debit card overdrafts is 52.7 percent ATM overdrafts are allowed by an average of 33.5 percent of banks and 40.5 percent of credit unions.  The national average for ATM overdrafts is 36.9 percent

       “Overdrafts of any kind -- paper, electronic, or plastic -- are becoming a way of life, like cell phones and seat belts,” said Moebs.  “The consumer would like to pick and choose the use of OD services on these various channels of paper, electronic, or plastic.  The Fed’s proposed changes are trying to alert the 308 providers of operating systems to banks and credit unions of this need, so banks and credit unions can give the consumer what they want.  Right now the banks and credit unions are handcuffed by severe operating-system limitations,” Moebs noted.

       Size Matters with OD Price
       The asset size of financial institutions also affects pricing, according to survey findings.   Among institutions with less than $100 million in assets, the average OD price was $22.54; for financial institutions with $100 million to $1 billion in assets, the average OD price was $26.74; and for those institutions with more than $1 billion in assets, the average OD price was $27.93.

        “The $5 price difference between big banks and community institutions in an overdraft fee is significant, and consumers who want to reduce their costs could benefit from shopping around,” Moebs added.

       Overdraft Prices in Line with Consumer Price Index
       Since 2004, the average price of an overdraft has gone from $23.25 in 2004 to $25.64 today, an increase of 2.49 percent per year.  The CPI has gone up 3.18 percent on average per year, according to the Labor Department for the same period. Big banks are almost at $33.43 and $6 to $8 higher than a community bank or credit union.

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