The Checkout

FDIC Criticizes Banks' Overdraft Fees

Nancy Trejos

Banks received an estimated $1.97 billion in overdraft protection fees in 2006, representing 74 percent of the $2.66 billion in service charges on deposit accounts that they reported, according to a Federal Deposit Insurance Corporation study released this week.

In fact, total overdraft fee income made up about 6 percent of the total net operating revenues earned by banks.

The findings confirmed that overdraft programs have become lucrative for banks even as consumer advocates have fought against them because they typically come with significant fees.

Consumer advocates, as well as the Federal Reserve, have especially criticized banks for automatically enrolling customers in such programs, which are triggered when there are insufficient funds in the account to cover a transaction. The Fed has proposed a rule that would force banks to give customers the ability to opt out of overdraft programs.

The agency gathered data from a survey of 462 FDIC-supervised banks. The FDIC also looked at customer account and transaction-level data from a smaller set of 39 financial institution.

Among the findings:

· Most banks -- 75.1 percent -- automatically enrolled customers in their automated overdraft programs.

·Automated overdraft usage fees ranged from $10 to $38. The median fee was $27. About one-fourth of the surveyed banks assessed additional fees on accounts that remained in negative balance status.

· Accounts held by customers in low-income areas 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 overdraft transaction, compared with 22 percent of upper-income accounts.

· Younger people were more likely to incur overdraft fees. Among young adult accounts, 46.4 percent triggered overdraft protection, compared with 12.2 percent of accounts held by seniors (over age 62) and 31.9 percent of accounts held by other adults.

Consumer advocates praised the report.

"The FDIC report exposes unfair banking practices, exorbitant rates for automated overdraft loans, and bank practices that maximize fee revenue from overdrawn consumers who are often struggling to make ends meet," said Jean Ann Fox, director of Financial Services for the Consumer Federation of America.

By Nancy Trejos |  December 5, 2008; 7:00 AM ET Economy Watch , Nancy Trejos
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Please email us to report offensive comments.

I read this week of the take over of Chevy Chase Bank by Capital One. That is very sad. I have been with the family chain since 1965 and the comments of over draft protection that you mention in your article is no charge at Chevy Chase for seniors. They will really be missed when a large corporation as Capital One who is really a credit card and not the neighborhood bank that I will really miss.

Posted by: shirleyreynolds | December 5, 2008 11:38 AM

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