Photo: Phoebe Stein
Even as banks jacked up overdraft fees across the board last year, bank revenue from fees has dropped by billions of dollars.
It could be that fewer consumers are overdrawing their accounts these days, according to data collected by a Chicago-based economic research firm.
The number of overdrafts per household dropped by 18 per cent last year, dragging down banks’ overdraft profit from $33.1 billion in 2010 to $29.5 billion in 2011, according to Moebs $ervices.
Such a massive decline can’t completely be explained away by fewer bounced checks, especially in the wake of federal regulations imposed last summer that put new limits on overdraft fees.
At the time, banks were projected to lose $2 billion in revenue due to the new guidelines, but Moebs estimates banks took an even bigger beating – to the tune of $3.6 billion in 2011.
With a major source of revenue gone, banks have been scrambling to find other ways to break even.
Moeb analysed more than 2,500 financial institutions’ fee activity between June 2011 and November 2011 and found they raised overdraft fees by a whopping $2.50. (See the shady way banks increase overdraft fees.)
“We … were absolutely taken aback by the price increases caused by the (new overdraft regulations),” said Michael Moebs, CEO & economist at Moebs $ervices, “In almost 30 years of collecting this data we have never seen an increase as high as $2.50 at one time, especially in a five month period.”
Some attempts, such as Bank of America and Chase’s failed $5 debit card transaction charge, fell flat with consumers and resulted in massive backlash. Thousands of their customers flocked to low- and no-fee credit unions on National Bank Transfer Day last fall.
Other, quieter attempts to raise fees have gone under the radar, such as new chargers for replaced debit and credit cards, check deposits, wire transfers and monthly service fees for online account access.
As National Bank Transfer Day has already proven, banks are going to have find more creative ways to up their cash flow if they want to stay afloat.
With consumers rapidly turning to turn to low- and no-fee credit unions, Nerdwallet.com’s Anisha Sekar predicts banks will have to start shedding pricey bricks-and-mortar locations and jobs in order to meet their bottom line.