Banks collect billions in overdraft charges

U.S. banks collected more than $1.97 billion in fees for non-sufficient fund charges in 2006, according to a study released Monday (Dec. 2) by the Federal Deposit Insurance Corp.

Consumer complaints about bank fees related to overdraft charges and other automated fee programs resulted in a two-part study in 2006 by the FDIC.

The FDIC notes in its press release that the study “was undertaken in response to the recent rapid growth in the use of automated overdraft programs, defined as programs in which the bank honors a customer’s overdraft obligations using standardized procedures to determine whether the nonsufficient fund (NSF) transaction qualifies for overdraft coverage.”

The study gathered info from 1,171 FDIC-insured banks, with customer account info coming from 39 banks.

Key findings of the executive summary include:

• Automated overdraft usage fees assessed by banks ranged from $10 to $38, and the median fee assessed was $27. About one-fourth of the surveyed banks (24.6 percent) also assessed additional fees on accounts that remained in negative balance status in the form of flat fees or interest charged on a percentage basis.

• The banks earned an estimated $1.97 billion in NSF-related fees in 2006, representing 74 percent of the $2.66 billion in service charges on deposit accounts reported by these banks. Total NSF-related fee income accounted for roughly 6 percent of the total net operating revenues earned by the banks.

• Consumer complaints about automated overdraft programs were received by 12.5 percent of banks that operated these programs, compared with consumer complaints from less than 1 percent of banks offering linked-account programs (pull funds from other checking or savings accounts to cover an overdraft) and 1.5 percent of banks offering overdraft line-of-credit programs.

• Accounts held by customers in low-income areas (in some areas, median annual income of less than $30,000) were more likely than accounts in higher-income areas to incur overdraft charges. More than 38 percent of low-income accounts had at least one NSF transaction, compared with 22 percent of upper-income accounts.

• The median dollar amount of all 22.5 million transactions processed by the micro-data banks with automated overdraft programs was $36. POS/debit NSF transactions were not only the most frequent, but also the smallest, with a median dollar value of $20. The median transaction size of an ATM withdrawal and a check that resulted in an NSF transaction were $60 and $66, respectively.