With the ink barely dry on tougher credit card laws, federal lawmakers are focusing on banks' out-of-control overdraft policies. These are the fees banks charge checking customers for withdrawing more money than they have in their accounts.
Fee-obsessed banks became overdraft addicts years ago. This year, banks are expected to reap a record $38.5 billion from all those $35 or so overdraft fees. Research firm Moebs Services says that's nearly twice the $20.5 billion they'll get from credit card penalties such as late payments and over-limit fees.
Sensing the public backlash, some of the biggest banks operating in Florida last week unveiled "friendlier" versions of their overdraft fees and policies. Other banks appear to be following.
"It's no fluke," said Mike Moebs of Moebs Services. "It's a trend."
"Overdraft fees have gone up in the past decade with a consistency that would make Tiger Woods jealous," says Greg McBride, senior financial analyst in North Palm Beach at Bankrate.com, which tracks bank fees and rates.
Most banks tweaking their overdraft policies are not changing their fees as much as the rules governing when customers are charged. Said McBride: "It's like saying there are fewer speed traps, but the fines are the same."
So far, four of the bigger banks operating in Florida — Bank of America, Wachovia (owned by Wells Fargo), JPMorgan Chase and BB&T — have unveiled new overdraft policies in the past week. BB&T followed up Monday with its own version.
SunTrust on Monday stated it is "aware of the heightened sensitivity surrounding this issue" and expects its own overdraft rules to change soon. Until then, SunTrust charges $36 per overdraft.
Also among the bigger banks in Florida, Regions Bank on Monday said it evaluates its products and fees for convenience and value but has "not decided to implement any changes at this point."
Banks are a powerful lobbying industry in Washington. But they are hungry in these lean economic times to charge as much as they can without suffering a federal blowback. Banks lost a lot of public trust with wild mortgage lending, and their aggressive credit card gouging earned them tougher laws this year. But lawmakers remain wary about imposing more rules on an ailing industry.
FDIC chairwoman Sheila Bair, in an interview with USA Today last week, wondered if banks were doing enough and whether regulators needed to step in and set a sterner standard of conduct on bank fees. She wants the Federal Reserve to take a tougher stand.
Sen. Chris Dodd, D-Conn., may introduce legislation requiring banks to get permission from customers, rather than allowing overdrafts automatically.
It's a critical issue. Rather than tell customers when they lacked the funds in their accounts to cover a check or ATM withdrawal, the banks chose to cover overdrawn accounts. Then they assessed overdraft fees, a ploy generating much higher profits.
Banks also adopted another dirty trick. Some quietly installed systems that arranged overdrawn checks to be processed, largest to smallest, to maximize the amount of overdraft fees.
If anything is overdrawn, it's public confidence in who banks are really serving.