By Nancy Trejos
Washington Post Staff Writer
Tuesday, October 6, 2009
The revenue that banks and credit unions generate by letting customers overspend their accounts, then charging them a fee, increased 35 percent in two years, the Center for Responsible Lending reports in a study released Tuesday.
Culling figures gathered by the Federal Deposit Insurance Corp., the consumer advocacy group found that customers paid $23.7 billion in overdraft fees in 2008, up $6.2 billion from two years before.
In the past 12 months, an estimated 51 million Americans spent more than they had in their checking accounts, triggering either an overdraft or a non-sufficient-funds fee, the study found.
Such fees have sparked outrage on Capitol Hill. Members of Congress, who argue that the fees amount to high-interest loans, are pushing for legislation that would force banks to get permission from customers rather than automatically approving transactions that send their accounts into the negative.
Most banks automatically offer the loans to all account holders, according to a study released last year by the FDIC. They do not notify customers when an overdraft is about to happen, nor do they give them a chance to cancel the charge. They also typically process transactions in ways to increase the number of charges, particularly by debiting large transactions before small ones, therefore exhausting funds more rapidly. The average fee is $35.
"Wouldn't this money be better spent on productive goods and services that might actually spark the economy, or for savings for retirement?" said Kathleen Day, a spokeswoman for the Center for Responsible Lending.
The banking industry has argued that customers have many ways to keep track of the money they have in their accounts. More important, they say, they are providing customers a service they actually want.
The American Bankers Association says it has found that those who pay overdraft fees are glad the transaction was not rejected and that the payment was covered.
"Clearly, consumers who pay overdraft fees are the minority, and that number is shrinking," Nessa Feddis, ABA senior federal counsel, said in a statement in response to the study. "More importantly, most consumers want banks to pay their overdrafts so they can avoid the inconvenience, embarrassment and potential costs of having a payment or transaction rejected."
Still, several large banks, including Bank of America and J.P. Morgan Chase, last month voluntarily agreed to overhaul their overdraft programs by changing the threshold that triggers overdraft fees and lowering the total number of fees a customer can be charged in one day.
The changes came just a few days after Sen. Christopher J. Dodd (D-Conn.) and Rep. Carolyn B. Maloney (D-N.Y.) spoke out against the fees. Both members of Congress helped push through a new law earlier this year that cracks down on the credit card industry.
The Federal Reserve is also considering new rules that would restrict overdraft fees.