Banks Earned Less on Overdraft Fees Last Year

NEW YORK (MainStreet) -- Moebs Services has the goods on bank overdraft fees, and apparently there were less of them in 2011, even though the cost of the average fee rose.

Moebs says that bank deposit institutions earned $31.6 billion in overdraft fees in 2011, a 4.5% drop from 2010. The analytical firm surveyed 2,273 banks to come up with its numbers, along with data accumulated from 12,000 bank and credit union research reports.

Overall, the survey shows the median figure for overdraft fees have actually risen – to $29, from $27.50 in 2010. The larger number comes from banks hiking their overdraft fees as a result of stricter measures implemented by the U.S. government after passage of the Financial Reform Act, also known as the Dodd-Frank Act.

But evidently, more Americans are doing a better of job managing their checking accounts, and are increasingly opting out of automatic bank overdraft protection. Moebs says financial institutions lost $5.5 billion – about 14.8% – in overdraft fee revenues in 2010 and 2011.

“The average number of overdrafts per account, per year, has fallen from a peak of 10.5% in the third quarter of 2008 by 29.5%, to 7.4% almost three years later,” Moebs says. “The numbers indicate a fall off in volume, a rise in prices, and a loss of revenue, yet the overall market appears to have bottomed out.”

That doesn’t mean overdraft fees are going away. In fact, they may be taking a breather before they come creeping back into consumers' lives.

“Amazingly, given all of the polar forces at play in the overdraft market – volume, price, revenue, a slumping economy, high unemployment, regulator restraint by FDIC, and legislation by Congress – the overdraft market is rising like the mythical phoenix and coming back,” Moebs adds. “It appears that the American consumer is saying they want overdrafts, but they want them as a reasonably priced safety net overdraft, and not an old fashion high penalty priced overdraft.”

The chart below shows how overall revenues have fallen since highs were reached in 2009, but median overdraft fee costs have risen by $4 since 2007:

Year       Revenues            Median Fee
2011       $31.6 billion        $29
2010       $33.1 billion        $27.50
2009       $37.1 billion        $26
2008       $34.6 billion        $25