Study Finds That People With Lowest Incomes Pay Most in Bank Overdraft Fees

April 11, 2017, 10:30AM. By Deb Hipp

Philadelphia, PAA recent study has found that the largest percentage of bank overdraft fees are collected from bank customers who earn the lowest incomes.

While banks market their overdraft programs as a service, consumers often incur unexpected overdraft fees that exceed the original transaction amount, according to a Dec. 2016 issue brief http://www.pewtrusts.org/en/research-and-analysis/issue-briefs/2016/12/consumers-need-protection-from-excessive-overdraft-costs from The Pew Charitable Trusts, a public information and public policy organization.

The brief cited the 2016 Pew Charitable Trusts’ chart book Heavy Overdrafters: A Financial Profile, which found that heavy over drafters (consumers who pay more than $100 in overdraft and non sufficient funds (NSF) fees in a year) "generally have incomes below the US average, and overdraft fees consumed nearly a full week’s worth of their household incomes on average during the past year."

In recent years, several banks have been criticized and consumers have filed lawsuits against banks over excessive overdraft fees.

In 2011, Fifth Third Bank settled a class action lawsuit for $9.5 million in which plaintiff account holders claimed that Fifth Third "re-sequenced" the order of transactions in order to maximize the number of overdraft fees.

A federal judge in 2010 awarded $203 million in a class action to Wells Fargo plaintiffs who alleged that the bank charged customers "hundreds of millions of dollars" in overdraft fees and used a bookkeeping system that could turn what would have otherwise been one overdraft into as many as ten overdrafts in order to charge more overdraft fees.

In its study, Pew analyzed bank revenue information reported to the Federal Deposit Insurance Corp. (FDIC) from 1984 to 2015 along with bank fee schedules, account agreements and supplemental disclosures of 44 of the largest US banks.

The study found that service charges on deposit accounts, which include overdraft and insufficient fund fees, have "more than doubled" while interest income over the past three decades has decreased.

Most of the largest US banks with checking account customers continue to charge "at least $35" for each overdraft, according to the study, which also found that many of the largest US banks with consumer checking accounts fail to meet Pew's recommended practices on overdraft programs.

"In 2015, US banks with assets exceeding $1 billion reported $11.16 billion in overdraft fee and NSF revenue, which constituted nearly two-thirds of all consumer deposit account fee revenue," according to the Pew brief.