A quarter of Americans with bank
accounts have paid overdraft charges over the past 12 months, with
banks and credit unions collecting almost $24 billion in such fees
in 2008, according to a new study from the Centre for Responsible
Lending (CRL).
The report has been published at a time when
most of the big commercial banks in the US are radically
overhauling overdraft policies to make them more transparent and
assuage a growing political ire against excessive retail banking
fees and charges (see RBI 619).
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The $24 billion represents a 35 percent
increase on 2006 figures, according to the CRL (see table right).
Though Bank of America, JPMorgan Chase, Wells Fargo and others have
already announced significant reductions to their overdraft charges
in response to growing political pressure, the CRL report said
these changes “do not address some of the most abusive features of
the programmes and can easily be reversed once the spotlight
shifts”, adding that overdraft reform should be set into law as a
matter of priority.
It adds that the majority of overdraft fees
are small debit card transactions that could easily be denied at no
charge.
Other recommendations made by the report
include:
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By GlobalData• Debit card purchases and ATM withdrawals
should be denied by institutions if funds are absent, or customers
should be provided with a real-time warning and a chance to
decline;
• Overdraft fees should bear some relationship
to a lender’s cost of covering a shortfall; and
• Limits should be placed on the number of
fees charged to a customer per year (no more than six) before they
are enrolled in a ‘reasonably priced overdraft product’ such as an
overdraft line of credit.
The CRL also gave its backing to the proposed
creation of a Consumer Financial Protection Agency that would serve
to consolidate and streamline existing federal consumer
protection.
|
Fees |
||
|
Overdraft fees as a proportion of |
||
|
2006 |
2008 |
|
|
Total service charge/fee income ($bn) |
42.2 |
46.3 |
|
Share of above generated by overdraft and NSF |
60 |
74 |
|
Total overdraft and NSF fees collected |
25.3 |
34.3 |
|
Share of above attributable to overdraft fees |
69 |
69 |
|
Total attributable to overdraft fees alone |
17.5 |
23.7 |
|
(1) NSF=non-sufficient funds |
||
50m Americans going overdrawn
In total, over 50 million Americans
overdrew their checking account at least once in 2008, with 27
million account holders incurring fees for doing so five times or
more, at an average fee of $34 per overdraft.
Further, the $23.7 billion in overdraft fees
garnered by the US financial services industry in 2008 could rise
to $26.6 billion this year, according to CRL estimates.
Increased debit card usage has contributed to
this rise, the report suggested, especially as the rising
propensity to use debit cards for smaller transactions may mean
consumers are increasingly unaware of going overdrawn.
This trend means that credit extended to cover
the shortfall in customers’ accounts is often smaller than the
overdraft charge: according to the CRL, current account holders
received $21.3 billion in credit for the $23.7 billion they paid in
overdraft loan fees in 2008.
