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Banks Earn Ghoulish $38 Billion From Overdraft Fees in Recession

From: "Banks Earn Ghoulish $38 Billion From Overdraft Fees in Recession",, 8/10/09

The Financial Times reported on an independent nationwide survey, showing banks ghoulishly profiting from the plight of consumers during a recession, by raising overdraft fees, with the banks poised to collect $38 billion in fees this year. The survey found that this is the first time banks have increased overdraft fees during a recession for more than 40 years.

Many of the banks gouging its customers to boost profits are the recipients of federal bailouts. At a time when the White House is pressuring banks to expand credit and lending to a greater number of consumers, the banks instead, have increased the cost of overdraft credit for a group of consumers who are the poorest and the most vulnerable.

The survey was conducted by Moebs Services, an independent firm in Lake Bluff, IL. that surveyed 2,000 commercial banks, savings institutions and credit unions across the nation. The survey found that the median bank overdraft fees increased this year from $25 to $26 and have nearly doubled since 2000. The Southern region of the country charged higher fees than the Northeast, with Wall Street  banks having assets exceeding $50 billion, charging the highest overdraft fees.

The $50 billion club includes banks such as, Citigroup, Bank of America , JPMorgan Chase and Wells Fargo, which all charge a median overdraft fee of $33.

One finding from the survey jumps off the page. Among the 2,000 banks surveyed, 44.5 percent show overdraft income greater than net income. The overdraft fees cause untold hardship for many consumers. The survey found that 90 percent of overdraft profits are extracted from just 10 percent of the 130 million checking accounts in the U.S.

Additional findings from the survey show overdraft fees accounting for more than three-quarters of all fees charged to customers.

Cash strapped consumers forced to use overdrafts often have the lowest credit scores, making them ineligible for other sources of credit, the survey found. Some bank customers plunge into a never-ending cycle of bank overdraft fees, eating away at their funds.

The Financial Times notes for example, customers with the Bank of America could overdraw their accounts by as little as $6, which would trigger a $35 overdraft fee and if the customer is unaware of the overdraft and continues to spend, the overdraft fees could dwarf their funds, totaling as much as $350. Additional fees of $35 are charged if the customer fails to pay the overdraft penalties within a few days.

Banks defend the high overdraft fees contending they need to be compensated for the risk they take when they pay a customer’s overdrafts. Consumer groups however, note that banks experience low loss rates for overdrafts, compared to other forms of credit, while at the same time it’s the most expensive form of credit for consumers.

Mike Moebs, the survey firm’s founder noted the extraordinary rise in bank overdraft fees saying, “The results from this year’s survey are among the most compelling we have seen, both for consumers and financial institutions.”

Written By: rnybeck
Date Posted: 8/12/2009
Number of Views: 2408