The data show that the largest banks charged customers $11.45 billion in overdraft and other similar fees, though the increase is not as steep as the $260 million increase in 2016.
According to a study released today by the Center for Responsible Lending, the FDIC data show nearly 1 million bank account holders have closed their accounts due to high or unpredictable fees.
The study also found some of the top 10 largest banks still charge sustained or extended overdraft fees in addition to per-transaction fees, or use high-to-low transaction processing for certain debit transactions among other potentially abusive practices.
“Over the last 15 to 20 years, many financial institutions have betrayed the trust of their account holders by replacing what was once an occasional accommodation with an exploitative system of routine high-cost overdraft fees that drive account holders deep into debt,” said Peter Smith, the CRL senior researcher who authored the report.
Smith said in an interview that the jump in overdraft fees is likely due to increased electronic banking by consumers and a greater focus on e-banking by banks. “It’s an easy way to make more volume for them, and it dovetails with their movement away from in-person personal relationship banking,” Smith said.
He added banks love overdraft fees because they’re often paid back within a week when account funds are replenished. “It’s a loan with very little risk,” he said.
The FDIC collected data from large banks with at least $1 billion in assets but not credit unions. Data from smaller banks also is not published, which makes the total in nationwide overdraft fees likely much higher, Smith stated.
Banks and credit unions charge overdraft fees – as well as nonsufficient funds or overdraft protection fees – when customers do not have sufficient funds in their accounts for a transaction or withdrawal.
The fees usually range from $30 to $35 per overdraft transaction – often larger than the transaction that caused the overdraft – and are typically repaid within days.
For years watchdog groups have called for greater restrictions on overdraft fees, citing problems with disclosure and clusters of consumers who pay the lion’s share of the fees.
A 2016 study by the Pew Charitable Trusts called for greater consumer protections from overdraft fees, finding nearly 80 percent of studied large banks processed overdraft fees on ATM and debit point-of-sale transactions. The study also found service charges on deposit accounts have more than doubled in the past 30 years.
Regulators have started paying greater attention to the boom in fees, with the FDIC collecting and distributing data on large banks’ overdraft fees since 2015.
In 2017, the Consumer Financial Protection Bureau analyzed overdraft fees and found nearly 80 percent were paid by only 8 percent of bank customers.
Frequent overdrafters paid nearly $450 more in fees than other account holders, according to the study which was released as part of the agency’s Know Before You Owe program aimed at simplifying overdraft disclosures.
In response to the proposed disclosures, the American Banking Association claimed further restrictions could push more consumers, particularly those with poor credit scores, out of the banking system.
A 2014 white paper by the agency also found nearly 28 percent of checking accounts among a group of large banks were considered “heavy overdrafter,” with at least 10 overdraft transactions during the study period.
The agency also sued TCF National Bank last year, claiming the Minnesota-based bank tricked customers into thinking overdraft fees were mandatory when opening new accounts.
Former bureau director Richard Cordray said banks should be allowed to charge overdraft fees but likened some of the fees to extremely short-term loans with absurd interest rates sometimes as high as 17,000 percent.
Smith said he is happy the FDIC has kept reporting overdraft fee data but noted that since Cordray left the bureau has downgraded the issue to a lower priority on the agency’s agenda.
“They were putting out a lot of high-quality research and it is disappointing to see the issue abandoned,” Smith said.
Recent legislation could pick up the slack. Legislation introduced last week by Sens. Cory Booker, D-N.J., and Sherrod Brown, D-Ohio, would limit the size of overdraft fees and ban them outright for point-of-sale and ATM debit transactions.