Banks made $38 BILLION from overdraft fees this year

[Mr Bean]

This year.. THIS YEAR

US banks stand to collect a record $38.5bn in fees for customer overdrafts this year, with the bulk of the revenue coming from the most financially stretched consumers amid the deepest recession since the 1930s, according to research. The fees are nearly double those reported in 2000.

The finding is likely to increase public hostility towards the financial sector, which has been under political pressure to ease the burden on consumers by increasing credit availability and lending more fairly after being bailed out by taxpayers.
EDITOR’S CHOICE
In depth: US banks - May-07
US banks’ overdraft charges under fire - Aug-09

The Federal Reserve is working on rules on overdraft fees, and rules on customer charges could be a priority of the Obama administration’s proposed Consumer Protection Agency if approved by Congress.

Data from Moebs Services, a research company, show that the crisis has prompted many banks to lift charges on overdrafts and credit cards in order to boost profits.

The median bank overdraft fee has this year rose from $25 to $26, according to Moebs, the first time it has gone up in a recession for more than 40 years.

“Banks are returning to a fee-driven model and overdraft fees are the mother lode,” said Mike Moebs, the company’s founder.

Overdraft fees accounted for more than three-quarters of service fees charged on customer deposits, he said.

The most cash-strapped customers are the hardest hit by such fees, with 90 per cent of overdraft revenues coming from 10 per cent of the 130m checking accounts in the US. Regular use of overdrafts is most common among consumers with low credit scores, Moebs discovered.

Banks say that the fees compensate for the risk they incur when they pay on behalf of customers who do not have enough money in their accounts. “Overdraft fees are there for a reason, we take on a lot of risk,” a senior banker said. “It’s a service to our customers, they want us to pay their overdrafts.”

The highest overdraft fees were charged by the largest banks, said Mr Moebs. At banks with assets greater than $50bn – a group including Citigroup, Bank of America, JPMorgan Chase and Wells Fargo – the median overdraft fee is set at $33.

At BofA, a customer overdrawn by as little as $6 could trigger a $35 penalty. If the customer does not realise they have a negative balance and continue spending, they could incur that fee as many as 10 times in a single day, for a total of $350. Failing to repay the overdraft within a few days results in an additional $35 penalty.

BofA said that the bank was “committed to ensuring that our fees are transparent and predictable. We have a range of tools and services to give customers more control over their accounts and to prevent these fees”.

Chase has tiered overdraft fees – the first overdraft within a 12-month period is charged at $25, the second to fourth at $32 and the fifth at $35.

Chase declined to comment.

SunTrust Bank charges the highest overdraft fee for a single overdraft at $36, according to the Consumer Federation of America while Citizens Bank levies a $39 fee after three overdraft items and follows with two separate “sustained overdraft fees” for repeat offenders.

SunTrust said it offered waivers and discounts as well as overdraft protection services that made it easy for customers to avoid those fees.

Citizens declined to comment.

The survey by the Consumer Federation of America found that five of the ten largest banks have raised their overdraft fees in some way in the last year.

Nessa Feddis, general counsel at the American Bankers’ Association said the higher fees are appropriate because big banks do not know their customers as well as small community banks, and need to be compensated for the higher risk.

Consumer advocacy groups point to very low loss rates on overdrafts for all banks and argue that overdrafts are the least risky form of credit, while being the most expensive for consumers.

Eric Halperin, director of the Center for Responsible Lending said: “The banks own your pay check before you do, so the only way you can default on your overdraft is if you choose to open another account and deposit your income elsewhere.”

This issue is near and dear to my heart because my old bank (5th/3rd) which is an major Ohio/Kentucky bank which I got right after I got out of the service and was unable to get access to my preferred Navy Fed account once charged me over 290$ in overdraft fee's for weekend of shopping due to their archaic rules.

To give you some background it was a Thursday and I had deposited 80$ from some computer consulting work I had done on the side the day before. I had maybe 10$ in the account at that time but I got my little deposit slip saying there was 90$'s in the bank and I left. That evening I refilled my car, made three small purchases(A soda run up separately when I filled up my car, some gum of Corner store and some fast food for lunch that night since I had not had time to go shopping.

Little did I know the bank fdecided that despite my deposit that morning to only count the 10$ as being in my account so when I spent roughly 38$ I was in fact over-drafted. And as banks will do they did the largest transaction first. So first I got hit for -10$ for the car refill plus a 25$ overcharge fee. Then a second over-draft for the fast food putting me at -61$, then hit me up for the gum and soda except the third and fourth charge were both at the boosted tier of 35$ so I went to bed 135$ in the hole. And then they processed my deposit which still left me 55$ in the hole. It gets worse because the next day despite my check had not yet switched to direct deposit, so I made two additional charges plus lunch at work putting me at 115$, or I would be except the last two overdraft jumped to their highest tier which is 45$ so I was around 220$ in debt when I deposited my check at which point the kind lady kindly told me my weeks check for 250$(I was doing shitty low pay warehouse work between jobs at the time) was now only 30$

Needless to say I was pissed and I spent the next week with just enough for gas and it took three weeks of constant bitching, complaints and escalation after escalation in order to get them to drop all charges since in total that 290$ was off of maybe 48$ worth of charges, minus the gas it was about 18$ to get 290$ of fee's, which is insane. And of course I left their damn bank so fast it's not even funny.

So yeah this whole fee shit pisses me off.

[Glocksman]

Fucking Fifth Third, as I lovingly call them, did the same thing to me a decade ago.
Thanks to their policy of deducting fees before transactions, I wound up with over $150 in cascading overdraft fees on $45 or so in outstanding checks because they didn't immediately credit my account with the entire amount of the deposited check.

The thing that really set me off was that the check was drawn on Fifth Third.
Let's not forget their old policy (since dropped) of charging non account holders a fee to cash checks at 5/3.
Sounds reasonable, right?
Until you consider that they were charging fees to non account holders to cash checks drawn on 5/3 accounts.

Fifth Third's antics are what turned me into a credit union user.
Sure, my credit union has fees but they're a lot more reasonable and are willing to rescind them if you ask and haven't made a habit of overdrawing your account.

[Darth Wong]

Don't you guys have overdraft protection on your bank accounts? It's been years since I screwed up and went negative, but I have $5000 of overdraft protection, so if I go negative (as long as it's not more than $5000) the bank just treats the negative balance as if it's a line of credit balance and charges me interest on the de facto loan until I'm in the black again.

PS. I'm a TD Bank customer. I was surprised to see numerous TD Bank branches in New York City when I visited last month. RedImperator asked what the "TD" stands for, and I told him it stands for "Toronto Dominion". It's Toronto's own megabank, dating back to the 19th century. Apparently, they don't publicize their full name much in the US. But yes, it is The Dominion.

[Vympel]

No wonder. "Toronto Dominion"?! Sounds un-American!

My personal pet peeve is ATM fees - which were this year announced to be going up by all banks, though they're being nice enough to provide you with an alert to tell you how much you're about to be ripped off for their providing a service which costs them literally fuck all.

I'm old enough to remember (when I was a kid) the ads the banks put out when ATMs were introducing, touting that there'd be no fees - now they stick you for over $2 a transaction if you use a 'foreign' ATM (i.e. one that doesn't belong to your bank), when there's simply no way it costs them that much to process those transactions.

[Mr Bean]

Don't you guys have overdraft protection on your bank accounts? It's been years since I screwed up and went negative, but I have $5000 of overdraft protection, so if I go negative (as long as it's not more than $5000) the bank just treats the negative balance as if it's a line of credit balance and charges me interest on the de facto loan until I'm in the black again.

PNC my current bank offers it free up to 100$ and I believe I could purchase more at a yearly rate of a thousand or so. However the banks that are ranking up 38 billion worth in fee's are banks like 5th/3rd who are the ONLY banks in many areas of the US thanks to massive bank merger after merger. And most of them don't offer over-draft protect insurance. When I asked at 5th 3rd for example their method is to open a second checking account which you can deposit as much as you like as "overdraft insurance' tied to your primary checking account. For awhile my only options was 5th/3rd in Ohio as the nearest other bank was a Bank of America which was over thirty miles away (Two towns over) and if anything BoA is worse than 5th/3rd requiring all kinds of minimum deposit, monthly charges and hitting you with ATM charges if you don't use their ATM's in addition to whatever the ATM charges you.

[Starglider]

Don't you guys have overdraft protection on your bank accounts? It's been years since I screwed up and went negative, but I have $5000 of overdraft protection,

Most UK banks seem to give you $2000 worth of 'arranged overdraft' (no up-front fee, reasonably low interest) just for being a customer for than a year or two. You get more if you ask for it or you've been with a bank for 5+ years (I have about $5k available on my old current account, without ever asking for it). Most high-street banks offer $2000ish of interest-free 'overdraft' for students and recent graduates, unrelated to the official student loan. Of course UK personal accounts very rarely have service charges of any sort - they have slightly lower interest rates instead.

As usual the US just excels at screwing over consumers and poor people in particular.

[Glocksman]

Don't you guys have overdraft protection on your bank accounts? It's been years since I screwed up and went negative, but I have $5000 of overdraft protection, so if I go negative (as long as it's not more than $5000) the bank just treats the negative balance as if it's a line of credit balance and charges me interest on the de facto loan until I'm in the black again.

PS. I'm a TD Bank customer. I was surprised to see numerous TD Bank branches in New York City when I visited last month. RedImperator asked what the "TD" stands for, and I told him it stands for "Toronto Dominion". It's Toronto's own megabank, dating back to the 19th century. Apparently, they don't publicize their full name much in the US. But yes, it is The Dominion.

My credit union offers just that service, though I've never used it.
What pissed me off about my 5/3 experience was that the check the withheld funds from was drawn from a 5/3 account.
In other words, as soon as I presented it the bank knew it was 'good' and yet delayed crediting me the money for several days.

I would have avoided that whole scenario by simply cashing the check and then turning right around and depositing the cash I'd just received.

However the banks that are ranking up 38 billion worth in fee's are banks like 5th/3rd who are the ONLY banks in many areas of the US thanks to massive bank merger after merger.

That's how 5/3 came to be here in Evansville.
They bought up the former Citizens Bank about 15 years ago.
That asinine 'charge non account holders fees for cashing checks drawn on our own bank' occurred soon after they moved in.
Though I will also say that after about a month of constant bitching by customers and businesses (my employer actually moved his business accounts from 5/3 because all of us were raising hell about being charged to cash our paychecks), 5/3 relented and ceased charging the fee.

[Vendetta]

My personal pet peeve is ATM fees - which were this year announced to be going up by all banks, though they're being nice enough to provide you with an alert to tell you how much you're about to be ripped off for their providing a service which costs them literally fuck all.

The last time anyone tried to introduce ATM fees here, there was almost a revolt. Some banks used to have them, but since you can use any debit card in any bank's ATM, people would just walk ten feet to one that didn't charge fees, and there's always someone who won't.

The only ATMs with fees on now are the independent ones where they have a trapped customer like in nightclubs with a pay-in.

[Dartzap]

Theres a similar problem here, but a test case has been in and out of the High Court and Supreme Court (whichever chuckle brother changed the name is a git)as to how they operate:

Banks 'face deluge of litigation'

Banks face an "appalling prospect" if the Office of Trading is allowed to rule that overdraft charges are unfair, the House of Lords has been told.

The banks would receive a deluge of litigation if the decision was made against them, the court has heard.

Five Law Lords are hearing an appeal by seven banks and one building society against judgements by two lower courts.

The lenders are challenging the right of the Office of Fair Trading to decide if overdraft charges are fair or not.

Prices

Jonathan Sumption QC, for the banks, said if the previous ruling in favour of the OFT was upheld, the banks would face a deluge of litigation with claims going back many years.



"That prospect is appalling," he said.

He said if the courts upheld the right of the OFT to scrutinise bank charges, then the charges might be deemed unenforceable for a time period dating all the way back to the 1990s.

That was because European Union regulations on unfair terms in consumer contracts had been introduced into UK law during that decade.

Alternatively, Mr Sumption argued, all personal current account contracts might become unenforceable in total.

At the core of the arguments is whether bank charges are exempt from the Unfair Terms in Consumer Contract Regulations (UTCCR) and whether the OFT can scrutinise or regulate the charges.

Mr Sumption argued that the price being paid by bank customers for the use of their overdrawn accounts was not something that fell under the above regulations.

"Does our case allow extortionate prices? Yes," he said.

"The remedy for extortionate prices lies in the domain of competition regulations, not in the domain of contract regulations."

'Consumer categories'

Mr Geoffrey Vos QC, for the Nationwide Building Society, supported the arguments of the banks.

In particular, he said, the Court of Appeal had been wrong in law to analyse the impact of overdraft charges from the point of view of consumers who stayed in the black.

He pointed out that of 54 million current account holders, 12.6 million paid overdraft fees in any one year.

That meant there were at least two categories of consumer - those who paid and those who did not pay overdraft fees.

"The typical consumer is one who pays, intends to pay, or expects to pay debit charges," said Mr Vos.

"The charges are clearly recognisable as the price for this service for the debit customers."

So, Mr Vos argued, the bank charges were necessarily exempt from the Unfair Terms in Consumer Contract Regulations (UTCCR) and the OFT could not scrutinise or regulate them.

'Consumer protection'

Mr Jonathan Crow QC, representing the OFT, spent the afternoon rejecting some of the assertions of Mr Sumption and outlining the case for the OFT.

He denied that the OFT was trying to conduct price control and said it was interested in consumer protection, which was the other side of the coin from the operation of competitive markets.

"We are looking at market failure because the consumers are not thinking about banking charges and banks can raise their charges without losing customers," he said.

He said there was no justification for the banks' suggestion that the OFT should use competition law rather than consumer contract regulations if it was worried about overdraft charges.

He pointed out that going to the Competition Commission was not a route available to ordinary consumer.

However, the consumer contract regulations did give consumers rights they could pursue in national courts.

Investigation goes on

Mr Crow went on to justify the OFT's intended use of the consumer contract regulations to scrutinise the fairness of bank overdraft charges.

"Price terms have not been given some kind of ring-fenced status," he said.

"Price clauses have not been carved out from the application of the regulations."

He went on to assert that overdraft terms could still be assessed for their fairness for reasons other than price, for instance if customers were taken by surprise.

He told the Law Lords that the OFT's current investigation into overdraft charges would continue even if it lost the current appeal.

"The OFT investigation will proceed irrespective of the outcome of this appeal because the relevant overdraft terms are still assessable to fairness," he said.

Mr Crow denied that a victory for the OFT in this appeal would lead to a disastrous upheaval for the UK's banking system.

He said the OFT was looking not only at the size of overdraft charges but how they were applied and how they affected customers. The OFT might, for instance, seek variation of bank interest rates associated with overdrafts.

The hearing is expected to end on Thursday.

[Broomstick]

Don't you guys have overdraft protection on your bank accounts?

There are no uniform rules on overdraft protection. Some banks don't even offer it, some have arcane requirements.

[Solauren]

Huh, I only have $3000 on my TD account for overdraft (last I checked), I'd better double check that.

But ye olde gods, these people needed BAIL OUTS?

Can the US please nationalize and audit the hell out of these fuckers?


Oh, and remember, it's not just TD. It's TD-Canada Trust.

Very unamerican

[The Grim Squeaker]

My personal pet peeve is ATM fees - which were this year announced to be going up by all banks, though they're being nice enough to provide you with an alert to tell you how much you're about to be ripped off for their providing a service which costs them literally fuck all.

The last time anyone tried to introduce ATM fees here, there was almost a revolt. Some banks used to have them, but since you can use any debit card in any bank's ATM, people would just walk ten feet to one that didn't charge fees, and there's always someone who won't.

Fun for you, I pay a small fee for using my own bank's ATM (something like 1.5$ for every withdrawal under a certain sum), and it's higher if I use another bank's ATM. Independents scalp us as well.

As for a withdrawal back, I have a student account and I can reach about 2,500$ in extra credit before I get hit with penalties. (I've never used any credit since I try to live in budget, but it's very convenient)

[Siege]

The last time anyone tried to introduce ATM fees here, there was almost a revolt. Some banks used to have them, but since you can use any debit card in any bank's ATM, people would just walk ten feet to one that didn't charge fees, and there's always someone who won't.

I seem to recall there's EU regulations restricting ATM fees, similar to those prohibiting banks from charging you for withdrawals abroad (within the boundaries of the EU, at least).

[tim31]

I'm old enough to remember (when I was a kid) the ads the banks put out when ATMs were introducing, touting that there'd be no fees - now they stick you for over $2 a transaction if you use a 'foreign' ATM (i.e. one that doesn't belong to your bank), when there's simply no way it costs them that much to process those transactions.

Also Vymp woe betide you if you go over your transaction limit(20 for me with CBA) for the month, then your own bank has to start stinging you.

Emily banks with Bendigo and for Tasmanian account holders they waive the monthly account fee to offset the fact that there aren't many Bendigo ATMs down here... I wonder at what point will that change?

[aerius]

When I was in university I couldn't overdraft my bank account even if I wanted to. Back then I had an account with TD since the branches were closer to the residence and a main account with RBC, every few months I'd head to the RBC branch halfway across the city and transfer a wad of cash to the TD account. One time I didn't make a transfer in time and ran the TD account down to nearly zero, then when I went to make a purchase it came up as "declined". No overdrafts, no fees, nothing, just a nice simple "declined" since I didn't have the funds to cover the debit.

And that's the fucked up part, the banks know you don't have the money in the account when they process the debit purchase from the merchant or the withdraw order from an ATM, but they'll feed it through anyway just so they can whack you with an overdraft fee. This shit should be fucking illegal under the banking laws since it qualifies as predatory lending.

[Civil War Man]

It's behavior like this that made it so John Dillinger and Bonny and Clyde were so romanticized in their time.

When banks go out of their way to screw over their customers for the sake of profit, it's hard for ordinary people not to relate to people who screw them back.

[ArmorPierce]

Don't you guys have overdraft protection on your bank accounts? It's been years since I screwed up and went negative, but I have $5000 of overdraft protection, so if I go negative (as long as it's not more than $5000) the bank just treats the negative balance as if it's a line of credit balance and charges me interest on the de facto loan until I'm in the black again.

PS. I'm a TD Bank customer. I was surprised to see numerous TD Bank branches in New York City when I visited last month. RedImperator asked what the "TD" stands for, and I told him it stands for "Toronto Dominion". It's Toronto's own megabank, dating back to the 19th century. Apparently, they don't publicize their full name much in the US. But yes, it is The Dominion.

Reason it's so popular is because it took over Commerce bank I believe.

[Darth Wong]

Don't you guys have overdraft protection on your bank accounts? It's been years since I screwed up and went negative, but I have $5000 of overdraft protection, so if I go negative (as long as it's not more than $5000) the bank just treats the negative balance as if it's a line of credit balance and charges me interest on the de facto loan until I'm in the black again.

PS. I'm a TD Bank customer. I was surprised to see numerous TD Bank branches in New York City when I visited last month. RedImperator asked what the "TD" stands for, and I told him it stands for "Toronto Dominion". It's Toronto's own megabank, dating back to the 19th century. Apparently, they don't publicize their full name much in the US. But yes, it is The Dominion.

Reason it's so popular is because it took over Commerce bank I believe.

Clearly, now that the Dominion has taken over the CardassianCommerce bank, it will be well-poised to conquer the entire Alpha Quadrant.

[Enigma]

Sorry for the slight hijack but what is the best banks to deal with in Ohio? My wife and I plus her parents have accounts with 5/3 and after reading this thread, I am most interested to change banks to one that sucks the least. Any info?

[Gil Hamilton]

There are no uniform rules on overdraft protection. Some banks don't even offer it, some have arcane requirements.

Case in point: When I opened my new bank account in my new city, the package they offer for UofA employees at Wells Fargo automatically comes with overdraft protection but the one for students, the ones you'd think would need it most, does not and you have to get it seperately. Overdraft charges are practically a scam, since banks seem to suppilement their income by leaving dozens of little traps to extract fees from people.

[Mr Bean]

Sorry for the slight hijack but what is the best banks to deal with in Ohio? My wife and I plus her parents have accounts with 5/3 and after reading this thread, I am most interested to change banks to one that sucks the least. Any info?

I have been VERY happy with my PNC account. They are more or less well know in Ohio, but mostly because PNC offers what it calls a Virtual wallet Account which odd as it sounds is three accounts in one. A Spending, a Reserve and a Saving's account all tied together so you can move money between them at will. Spending of course has next to no interest, Reserve has I just about 1% with Savings have 2% at the moment thanks to global very small interest rates.

Go to the web site, watch the 90 second video it explains it far better than I do. I love it because it's easy to use, and I can log on the account from an Iphone or Blackberry and transfer money around, or look up charges or check past charges at will. Plus the account offers exact listings of what charges have been made to your account and updates every ten minutes or so you run your card or withdraw money.

[Stormin]

I think my account is set up so I would have to pay a fee for overdraft + insurance, right now if I don't have the money in the account I will get a denied. At that point I pull out the credit card which gets paid off the instant I have money again.
When I deposit, I always remember to take into account that it takes about a week for a check put into the machine to clear, if I have a bunch of big bills that pay period I will always deposit at the bank branch itself. I try not to have to do that often since the branch is on the other side of town and ever since they took away the stop lights the crazy drivers make it pretty dangerous to go that way.

[aerius]

Case in point: When I opened my new bank account in my new city, the package they offer for UofA employees at Wells Fargo automatically comes with overdraft protection but the one for students, the ones you'd think would need it most, does not and you have to get it seperately. Overdraft charges are practically a scam, since banks seem to suppilement their income by leaving dozens of little traps to extract fees from people.

That's cause they know students are far more likely to overdraft their accounts since they're going to be out partying and getting drunk every week, plus they won't have a much money in their accounts which raises the probability of an overdraft even more. The banks will rape them for every last penny they can.

It's only going to get worse from here since the banks are flat broke these days and they'll do everything they can, legal or otherwise, to squeeze money out of their customers.

[GrandMasterTerwynn]

There are no uniform rules on overdraft protection. Some banks don't even offer it, some have arcane requirements.

Case in point: When I opened my new bank account in my new city, the package they offer for UofA employees at Wells Fargo automatically comes with overdraft protection but the one for students, the ones you'd think would need it most, does not and you have to get it seperately. Overdraft charges are practically a scam, since banks seem to suppilement their income by leaving dozens of little traps to extract fees from people.

Hilarity of hilarities, Wells Fargo's notion of overdraft protection simply means "Well, we'll just take the money out of one of your other Wells Fargo accounts, and charge you $10 for the privilege."

[Mad]

Hilarity of hilarities, Wells Fargo's notion of overdraft protection simply means "Well, we'll just take the money out of one of your other Wells Fargo accounts, and charge you $10 for the privilege."

Oh, so they'll get along well with Wachovia. Wachovia's version of "overdraft protection" is (at least, it was about a decade ago; I doubt it's changed) that the overdraft amount is pulled your linked savings account and then you get charged the overdraft fee. But, hey, at least it didn't bounce!

In cases like that, there's no excuse for it: the fee is there simply because the bank can charge it.