Most banks and credit unions cover customers’ checks that exceed the amount of money in their accounts and charge a "courtesy” overdraft fee. What they don’t tell customers is that those fees have become a major revenue source for many financial institutions. Since 2005, the national average for overdraft fees has jumped from $27.04 for each instance to $28.95, according to Bankrate.com. U.S. banks this year could rake in $38.5 billion in overdrafts fees, according to the research firm Moebs Services. About 75 percent of banks sign up customers automatically for the service, a Federal Deposit Insurance Corp. study reported. For consumers, the manner in which banks handle overdraft payments can be just as important. The FDIC says about one in four banks submit large checks first during nightly processing, depleting the check-writer’s account, which can trigger multiple fees for smaller checks that follow. "You’re trying to gouge the customer at that point,” said one area banker who asked not to be identified. Banks contend that overdraft protection allows customers to avoid other fees and potential criminal penalties associated with bounced checks, and the fees compensate the bank for risks involved in covering the bad checks. Consumers can opt out of the service at nearly all banks, and often can sign up for cheaper services such as automatic transfers from a linked savings account to cover insufficient funds. But consumer advocates claim some overdraft fees and practices go too far. Jennifer Wallis, vice president of Consumer Credit Counseling of Oklahoma, said the banks’ courtesy fees "are not that courteous” when a customer writes a series of bad checks. "Payday lenders catch a lot of flack about how high their interest rates are, but when you annualize some of these fees that banks are charging, they’re as high as payday loans,” Wallis said. A bank charging a $27 fee to cover a $20 purchase made from an overdrawn account is loaning money at an annual percentage rate of 3,520 percent if paid back in two weeks, the FDIC said.Comments
Oklahomans pay lessEach Oklahoma household with a checking account paid an average of $257.32 in overdraft fees last year, according to an analysis by Bretton Woods Inc. That’s below the national average of $342.93. In 2008, Oklahomans paid $313 million in fees associated with not-sufficient-funds transactions, according to the Bretton Woods analysis. But overdraft fees are concentrated among those who can least afford it. An FDIC survey of 39 banks found that 84 percent of insufficient fund transactions were charged to less than 10 percent of accountholders. Lower-income customers were more likely to incur an overdraft fee and were hit more often with multiple fees, the FDIC said. Wallis said her organization has recommended that some of its clients close their accounts and operate on a cash-only basis after being billed with repeated overdraft fees. Arkansas-based Arvest Bank, Oklahoma’s third-largest deposit holder, hasn’t raised its overdraft fees in about a decade, bank spokesman Jason Kincy said. Arvest’s fees, which range from $15.93 to $17.43, cover the bank’s expenses related to the service, Kincy said. "Most bank customers would be surprised to know the variation of overdraft fees,” Kincy said. "When a customer is in a situation where they’ve incurred an overdraft fee, we’re not looking at that as an opportunity to take advantage and charge as large a fee as we can.”
Possible regulation?Gary Simpson, chairman of commercial bank management at Oklahoma State University’s Spears School of Business, said federal regulators may adopt new policies dealing with the ways that banks levy their fees or even the amount of fees charged. Banks make money through interest paid on loans and through a variety of fees and investments that produce income. In a tough economic environment, noninterest income helps boost banks’ bottom lines. Moebs reported that overdraft income outstripped profits last year at nearly half of U.S. banks and credits unions. "If you look at the noninterest income of most commercial banks, the highest fee income would be on overdrafts,” Simpson said. Overdraft fees have become a "hot-button issue” for many Oklahoma community bankers, Simpson said. "It is a controversial topic,” Simpson said. "Hopefully, there can be some kind of arrangement where banks provide some type of overdraft service and consumers see it as reasonable.”
IN OKLAHOMAOverdraft fees for Oklahoma’s five largest deposit holders. →Bank of America…$35 →Bank of Oklahoma…$28.95 →MidFirst Bank…$27.50 →BancFirst…$23 →Arvest Bank…$17.43 for free checking accounts. →Arvest Bank …$15.93 for all other accounts.