Study: Largest U.S. banks still charge high overdraft fees
Most major U.S. banks continue to charge high fees when customers overdraft their accounts, according to a new report issued Tuesday.
More than two out of five banks also rearrange their processing of account holders' transactions with a procedure that maximizes overdraft fees, said the report by The Pew Charitable Trusts, an independent, non-profit organization.
A separate review of overdraft programs at a selection of smaller U.S. banks found many practices are largely comparable to those of larger banks, the report also concluded.
Some of the findings echo previous studies of the issue, including a 2008 analysis by the Federal Deposit Insurance Corp and a Consumer Financial Protection Bureau study in 2013. The new results show a need for banks to institute new policies that prevent their widely-offered "courtesy" overdraft programs "from being costly and unsustainable forms of short-term credit for many financially vulnerable consumers, said Nick Bourke, director of Pew's consumer finance project.
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"Regulators should set reasonable limits on overdraft fees and help banks create new small-credit options for those who want them," added Bourke.
The Pew findings stem from a review of disclosures from the 50 largest banks by domestic deposit volume, and revenue data they reported to the Federal Deposition Insurance Corp. Key findings include:
- The banks' collective revenue from service charges on banks' deposit accounts, including overdraft and insufficient fund fees, has more than doubled during the last three decades. Interest income paid to account holders has simultaneously declined.
- Most of the largest banks continue to charge at least $35 for each overdraft.
- More than 40% of the biggest banks process transactions from largest to smaller by dollar value. That can reduce the account balance more quickly, generate more overdrafts than other protocols.
Pew's review of financial disclosures from 45 smaller banks, those with up to $1 billion in deposits and generally no more than 30 branches, found similar results.
Forty-two of those banks allow overdrafts for customers who opt in for approval of transactions that exceed their account balances, the report found. The median fee charged by those banks is $32, the report said.
Many consumers don't find out about overdrafts for two or more days, and more than two-thirds of bank customers would prefer having banks block the transactions rather than impose a $35 fee, Pew said, citing results from a previous study conducted by the nonprofit.
Regions Bank fined $7.5M for overdraft fees
The Federal Reserve Board in 2009 announced final rules that bar financial institutions from charging consumers fees to cover overdrafts on ATMs and one-time debit card transactions unless the customers opt in for overdraft service.
The 2013 CFPB study found that consumers who opt in for overdraft protection of ATM and debit card transactions at some of the largest U.S. banks are more vulnerable to increased costs and having their accounts closed.
Alabama-based Regions Bank agreed to pay a $7.5 million in 2015 after a CFPB investigation found it improperly charged overdraft fees to hundreds of thousands of customers who had not opted in for overdraft coverage.
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Follow USA TODAY reporter Kevin McCoy on Twitter: @kmccoynyc