Banks at this retail giant rake in overdraft fees

People might visit a Walmart in search of a bargain. But when it comes to the banks inside the store, many customers are paying an arm and a leg in fees.

An analysis from The Wall Street Journal found that the five banks with the most in-store branches inside Walmart (WMT) also rank among the top U.S. banks in fee income as a percentage of deposits.

For banking customers of those branches, that means many of them are paying overdraft fees -- sometimes as much as $30 to $35 -- that, if calculated as the annual percentage-rate interest rate on a loan, would amount to a 300 percent APR, the paper said.

Some Walmart customers are effectively using the overdraft service as payday loans, opting to overdraw their accounts to cover their daily costs until their paychecks come in. One woman told The Journal that her $300 overdraft (which came with a $30 fee) was needed for urgent car repairs, and added she figured it was cheaper than a loan.

Another customer estimated he had shelled out more than $10,000 in overdraft fees to First Convenience over a decade. He started complaining after the bank added a $35 "negative balance fee" after an account remained overdrawn for more than five days, where previously he faced a $2.49 per-day fee after five days, the article notes.

For its part, Walmart told the publication that the retailer doesn't "dictate the prices our banking tenants charge."

The bottom line? The top five banks operating within Walmart stores generated more income from fees than from lenders' traditional bread-and-butter business of making loans.

It's worth noting that the banks aren't charging more for overdraft fees than those not located inside a Walmart. Instead, customers of the retail giant are more likely to use the service because many are living in or on the edge of poverty.

Almost half of Walmart customers bring in less than $35,000 in annual household income, compared with just 28 percent of Target (TGT) customers, Advertising Age found. Many Walmart customers also rely on food stamps and other government programs. With money in short supply for some store customers, they're more likely to use the banks' overdraft fees in lieu of payday loans.

Walmart told The Journal that it has a "very thorough process" for screening banks that rent store space, but said that it doesn't get involved in their operations.

The bank with the biggest presence in Walmart, Woodforest National Bank, said that through its more than 700 in-store branches it's able to provide banking services to people who may not otherwise have access to financial services.

"The CFPB recognizes the need for short-term, small-dollar credit products that do not leave consumers worse off," a bureau spokesperson said by email. "The bureau has raised concerns about the potential risk overdraft services pose to consumers and will continue to study the impact of these products."

Meanwhile, overdraft fees continue to rise, with the charge rising 45 percent to $31.26 in 2012, up from $21.57 in 1998, the CFPB noted in a 2013 report. That's creating $32 billion in overdraft revenue for banks. For its part, the bureau last year said it would continue to study the risks of overdraft programs to consumers.