There’s good news for U.S. Bank (Stock Quote: USB) customers — the financial institution will lower its overdraft fees to $10 for overdrafts of less than $20. That’s as low as most big banks will go these days, and it begs the question: will other banks play along?
As far as consumers are concerned, that answer better be “yes.” According to a November 2008 study by the Federal Deposit Insurance Corp, the median bank overdraft fee in 2009 was $27 — with some bank fees reaching $36 per overdraft. The FDIC study revealed some other telling numbers related to bank overdraft penalties:
- Eighty-six percent of banks operated at least one formal overdraft program — either automated, linked accounts, or lines of credit.
- Most banks, 75.1%, automatically enrolled customers in automated overdraft programs, although customers were usually permitted to affirmatively opt out of the program.
- Automated overdraft usage fees assessed by banks ranged from $10 to $38, with a median fee of $27. About one-fourth, 24.6%, of the surveyed banks also assessed penalties on accounts that remained overdrawn in the form of flat fees or interest charged on a percentage basis.
- The (surveyed) banks earned an estimated $1.97 billion in NSF-related fees in 2006, representing 74% of the $2.66 billion in service charges on deposit accounts reported by these banks. Banks operating automated overdraft programs earned $1.77 billion in NSF fees in 2006, accounting for 90% of total NSF-related fee income earned by the entire study population.
- About 12.5% of the banks operating automated overdraft programs received consumer complaints. By comparison, less than 1% of banks offering linked-account programs, and 1.5% of banks offering line-of-credit programs, received negative feedback from their customers.
Onerous overdraft fees are no doubt giving banks a black eye. U.S. Bank is hoping to change that image with its May 10 announcement that it will lower overdraft fees starting in August. There is a cut-off overdraft amount — $20 — that consumers should know about. If you’re a U.S. Bank customer who overdraws your account by less than $20, you’ll only pay a $10 overdraft fee. If you overdraw your account by more than $20, you’ll be charged an overdraft fee of $33 — slightly lower than U.S. Bank’s current penalty of $37.50.
The fee cut is part of an ongoing program at U.S. Bank to soften severe overdraft fee policies. Last September, the bank waived overdraft fees if the amount overdrawn was less than $10. The bank also capped overdraft charges to three in one day.
New government financial reform policies also play a part. Starting in August, by law, banks will have to give customers the option of opting out of automatic overdraft “protection” — meaning if their bank account can’t cover a purchase, that transaction will be rejected at the point of sale, but no overdraft fee will apply.
U.S. Bank isn’t alone. Bank of America (Stock Market: BAC) announced last March that it will curb overdraft fees at its automated teller machines. Bank of America ATM customers who try to draw from an account with insufficient funds will receive a warning message first: they can proceed with the transaction, but a $35 fee will apply.
The trend toward cutting bank overdraft fees is a welcome one for bank customers. Now that U.S. Bank and Bank of America have set the tone, other banks will likely follow.
If not, they’ll probably lose a lot of customers.
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