U.S. banks are easing how much they charge customers on overdraft fees, according to new data from a bank-consulting firm, but the move isn't likely to derail a sweeping round of regulations.
During the past five months, U.S. banks raised their standard overdraft fees at the slowest pace in 17 years, according to Moebs Services Inc., based in Lake Bluff, Ill. Banks charge overdraft fees to customers who run negative account balances.
And after months of horror stories about customers who claim they unwittingly paid $40 for a cup of coffee, overdraft fees at the largest U.S. banks in assets posted a modest decline for the first time in 17 years. Big banks generally charge the highest overdraft fees.
"This is the first time in 17 years that I have seen any of the big retail banks lower fees,'' said Mike Moebs, founder of the consulting firm, which samples more than 2,000 financial institutions. Retail banks with more than $50 billion in assets hold 45% of the nation's checking accounts.
Since June, the average overdraft fee at U.S. banks rose at a 2.1% annual rate, slower than the pace of inflation. At the biggest banks, the average overdraft fee shrank at an annualized rate of 1.3%. The median industry fee, a measure watched by economists, rose to $27 from $26.
Over the past 10 years, overdraft fee prices rose by a much steeper 8.3% a year.
The Federal Reserve issued a new rule last week that will require banks to get customer consent before charging overdraft fees. Congress appears ready to draft wider legislation in the coming months.
"With the Federal Reserve voting its rule, the writing is on the wall,'' said Rep. Carolyn Maloney (D., N.Y.), who drafted legislation to rein in overdraft fees.
Bank of America said earlier this year that it would abandon a plan to raise overdraft fees and offered other concessions, like lower daily limits on fees and assistance for unemployed customers. Above, a Bank of America branch in New York in May.
"Too many consumers…aren't notified when a transaction might put them into overdraft status, and most banks still manipulate the posting-order of transactions to maximize fee income,'' Rep. Maloney said. "It`s why Congress will be acting.''
Overdraft fees are a key source of revenue for banking institutions, which earned $39.5 billion last year from service charges on deposits even as banks accepted billions of dollars in taxpayer support. U.S. banks are on pace to earn record revenue from the fees this year.
"Everyone has their eye on the unfolding drama in Washington,'' said Robert Hedges, managing partner of Boston-based consulting firm Mercatus.
He said some banks are also trying to court new customers with lower, less complicated pricing. Bank of America Corp. said earlier this year that it would abandon a plan to raise overdraft fees and offered other concessions, like lower daily limits on fees and assistance for unemployed customers. The Charlotte, N.C., bank has received more than $45 billion in public support through the Troubled Asset Relief Program. Overdraft changes will reduce Bank of America's fee revenue by $200 million per quarter. Wells Fargo & Co. has also eased its overdraft fee policies, a move that will cost it $300 million after taxes in 2010, the San Francisco bank said in a regulatory filing earlier this month.