By Kyle Olson
While the fast-as-a-tortoise federal regulators continue ‘looking into’ overdraft fees, banks continue to increase the dollar amounts associated with going below the $0 mark.
Earlier in the month Fifth Third Bank announced that they will be raising their overdraft fees to as high as $37, making the bank the highest issuer of these types of fees out of any bank in the nation.
Previously, the bank’s overdraft fee was $33.
U.S. Bank also announced the raising of overdraft fees to $15 and $35, up from the previous $10 and $33 respectively, according to SmartMoney.com.
Overdraft fees occur when an account holder spends more money than is in their account. The bank honors the payment but charges a fee, which can reach to almost $40 per overdraft.
New regulations have seemingly only spurred the onslaught of higher fees, according to experts.
According to SmartMoney, the median overdraft fee rose 5.4% from 2010 to 2011 to $29.
The figure is up 11.5% from 2009.
Some customers have reportedly gone into debt after multiple overdraft charges have compiled on their checking accounts.
Some banks send delinquent accounts to collection agencies in the hopes of getting back some of the lost funds.
That can affect your credit score as well as put some people into bankruptcy if these fees are sandwiched between late mortgage payments or medical bills.
Finding New Revenue Streams
Banks are dependent on fees associated with accounts, specifically overdraft fees, to turn a profit, according to experts.
In 2011 alone, banks generated $31.6 billion (that’s billion with a ‘B’).
In 2009 it was even higher, reaching the $37.1 billion mark before regulations were put in place to curb the often outrageously large fees, according to SmartMoney.
The regulations, dubbed Regulation E, went into affect in 2010 and prohibited banks from charging for overdrafts unless customers opted for coverage.
Additionally, measures were put in place to lower the amount charged to vendors who use credit card and debit card machines for transactions.
Those measures were estimated to have lost banks $6.6 billion per year in revenue.
The Consumer Financial Protection Bureau was created in part to shield consumers from excessive banking fees.
The CFPB has launched an ongoing investigation into checking account overdrafts and is currently requesting consumer comments.
According to experts, overdraft fees can be astronomical; sometimes reaching three to ten times the transaction per day.
A customer who pays a $100 overdraft fee after two weeks would incur the equivalent of a 900% to 3,000% annual percentage rate, the highest credit banks extend to customers, according to SmartMoney.
Experts are pointing to the federal regulations as the reason why the fees are reaching the highest levels ever seen. Banks are hard pressed to find new revenue streams and are taxing customers to make up for the shortcomings associated with the regulations.
In response, Fifth Third Bank and U.S. Bank say that not all customers will be charged the new fees for over-drafting. If the amount over-drafted is under $5 and $9 respectively, the customer will not be charged.