A recent decision by Chase to discontinue fees for small
overdrafts may signal big banks are having a change of heart about
their fee policies.
The decision comes on the heels of a class-action lawsuit
against multiple banks regarding how those institutions process
transactions. In addition, a government agency is continuing its
investigation into overdraft fees.
Overdraft fees under microscope
The case against bank overdraft fees has been steadily growing
during the past several years. In 2009, consumers filed a class
action lawsuit in Florida against 38 banks. At issue was how the
banks processed transactions at the end of the day. The lawsuit
alleged banks reordered transactions and processed the largest
debits first in order to maximize overdraft fees.
According to
news reports
, 14 banks agreed to multi-million dollar settlements in the case
including the following institutions.
- Bank of America: $410 million
- Citizens Bank: $137 million
- Chase: $110 million
- PNC: $90 million
- TD Bank: $62 million
- US Bancorp: $55 million
In addition to the lawsuit, the federal Consumer Financial
Protection Bureau announced in February that is was
launching its own investigation
into overdraft practices and policies. Again, one of the core
concerns was the reordering of transactions to process the largest
debits first instead of applying them in chronological order.
Banks respond by adjusting policies
As part of its settlement, Chase agreed not to charge overdraft
fees for small transactions of less than $5 beginning on July 22,
2012. The bank will also now process most transactions in
chronological order.
While Chase is the largest bank to waive some overdraft fees, it
is not the first. SunTrust also waives fees when the overdraft is
less than $5.
Other banks are taking a different approach to their overdraft
fees. Huntington, a regional bank operating in six Midwest states,
rolled out what it calls "asterisk-free checking." Under its
checking policy, customers who overdraft their account can waive
any fees by making a deposit the next day to bring their balance
positive.
As government regulations have limited bank profits from
merchant swipe fees, overdraft fees appear to have become more
important to financial institutions' bottom lines. According to
independent financial research firm Moebs Services, American
consumers paid an estimated $29.5 billion in overdraft fees in
2011. A recent report from the Pew Charitable Trusts found the
median bank fee is $35.
While banks may be profiting from overdraft fees, the recent
legal and government action indicates there may be limits to
how deep financial institutions can dip into their
customers' pockets
. The new Chase policy could mark the beginning of a trend as banks
seek to walk the fine line between pleasing customers and
regulators while also satisfying their shareholders.