As Banks Lose Out On Overdraft Revenue, Do Consumers Win?
By: Brian O'Connell

NEW YORK (BankingMyWay) — Banks are experiencing big declines in overdraft revenues, but is that really as good a bit of news for consumers as it seems?

The freshest data from Moebs Services, a Lake Bluff, Ill., economic research firm shows bank checking account overdraft fees fell by $1 billion from the end of last year through the first quarter of this year. That’s about a 2.8% decrease in dollar terms from $32 billion in December to $31.1 billion through the end of March.

Maybe consumers shouldn’t get too excited — bank overdraft fees are right back to where they were a year ago, when Moebs pegged bank overdraft revenues at $31 billion.

Then there’s the big reason why Moebs says overdraft fees are down for banks.

It’s not a result of government regulations on banks and fees; it’s more the result of a tepid economy in which consumers are getting craftier and more diligent about overspending.

“Overdraft revenue is starting to act like a barometer of the sluggish economy,” says Michael Moebs, chief economist at Moebs Services. “With the net pay of Americans suffering a jolt under the Affordable Health Care Act’s provisions of increased taxes starting Jan. 1, the savvy checking account user is fine-tuning their finances and reducing expenses, especially deposit service charges.”

Believe it or not, the weather is actually a key barometer for bank consumer overdraft fees. Moebs links that trend to holiday shopping bills incurred last December.

“The tax issue coupled with the seasonal nature of overdrafts helped dampen OD revenue,” Moebs says. “February and March are historically the lowest months for OD transactions because the consumer is trying to recover from the holiday season, which can be hard on the wallet and purse. So with the reduction of net pay right after the holidays, February and March moved up a month sooner, making the first quarter of 2013 bad.”

Banks have also responded in confusing fashion over new government rules on bank overdrafts and regulations that could be coming in the next couple of years. A decision by the Consumer Financial Protection Bureau to table new regulations for two years has banks chasing their own tails on the fees.

“That threw banks and credit unions into a quandary over how to position price changes on overdrafts,” Moebs says. “So most financial institutions decided to keep the prices the same while the consumer was overdrawing less.” The median national charge for an overdraft is $29.

For consumers looking to rein in overdraft charges, Moebs advises doing a little bank shopping. Put banks that are more generous than onerous on such fees at the top of your list. Specifically, look for banks that will waive charges on the first six overdraft transactions on a annual basis and forgo charging fees on low-volume overdrafts ($5 or less.)

Credit unions and smaller banks are much more likely to offer those deals, Moebs says.

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