Banks Charged Over $36 Billion In ATM & Overdraft Fees In 2007 to Boost Revenues

Implications: Banks boosted revenues by charging over $36 billion in ATM and Overdraft fees in 2007. Banks and credit unions are netting a stream of fee revenue from ATM and debit transactions in ATM and overdraft fees as consumers continue to pay steeper penalties and fees for not having sufficient funds in their checking account or when they use another bank's ATM to withdraw cash. Debit card transactions at the POS (Point-of-Sale) and ATM transactions trigger over 43% of overdrafts, while paper checks trigger 27% of overdrafts and banks and credit unions are charging fees for each overdraft occurrence and raking in huge fee revenue at the same time. As recent as 2004, 80% of banks declined debit and ATM transactions without charging a fee when consumers' didn't have sufficient funds in their account, however, this trend has shifted and banks and credit unions now charge an overdraft fee to generate fee revenue when consumers' overdraw their accounts when conducting ATM & debit transactions.

Analysis: Punitive fees have historically posted the most consistent increases and with the average cost for a bounced check increasing and withdrawals from another bank's ATM has reached new highs. In the past, banks would not cover ATM and debit transactions unless the customer had overdraft protection or a line of credit linked to their account, however, today its customary for banks and credit unions to pay for ATM and debit transactions that would cause an "overdraft" on the account and in turn, banks and credit unions penalize the consumer for each overdraft transaction, which could pile up over time and as a result banks and credit unions raked in huge fee revenue in excess of $36 billion in 2007.

1.  Banks and credit unions increase their fee income by implementing overdraft loan programs and practices that may be unfair to consumers, such as holding deposits, manipulating the order in which they clear checks and debits or failing to alert account holders before they overdraw their account

2.  Banks and credit unions routinely process the largest check(s) or debit transactions first and may hold deposits for as long as 11 days, which may unfairly stack the deck against the consumer when they make ATM and debit transactions, which could result in overdrafts and other fees

Takeaway:  The trend towards banks and credit unions charging higher fees doesn't show any signs of a slow-down. Banks and credit unions will likely continue to charge their customers' with penalties and fees for overdrawing their account, having insufficient funds in their account and charge them a "convenience fee" when they use another bank's ATM to withdraw cash. The U.S. House of Representatives has introduced the "Consumer Overdraft Protection Fair Practices Act," and if it passes in the House and the Senate, the Act would force banks and credit unions to alert consumers' before they overdraw accounts with ATM withdrawals or debit purchases and would also give consumers' a chance to abandon the transaction. Perhaps banks and credit unions will reverse or modify their overdraft policies to avoid regulation by Congress.