They're euphemistically called "courtesy overdraft" fees, and banks are jacking them up. The charges consumers incur when they overdraw their bank accounts are up 4 percent this year, according to research firm Moebs Services.
That's the first time overdraft fees have risen during a recession since the firm started collecting the data in the late-1980s. This year U.S. banks are on pace to generate a record $38.5 billion in such fees.
Banks contend that consumers willingly pay for overdraft protection. They also say it's customers' responsibility to make sure they have enough cash in their accounts.
Fair enough. But the concern with overdraft fees isn't only that they're rising to what critics say are unreasonable levels -- it's that consumers often don't know when they're in danger of getting hit with them. Most banks that provide overdraft services for ATM and point-of-sale transactions notify customers that they lack the funds to cover a withdrawal or purchase only after the deed is done, says the FDIC. Only eight percent of banks warn customers that they risk overdrawing their accounts for a POS/debit transaction, giving them a chance to cancel the purchase and avoid a fee, while roughly 24 percent of banks inform ATM users that they're short of funds.
Other findings from the Moebs survey, which looked at 2,000 commercial banks, savings institutions and credit unions:
- Wall Street banks charged the highest overdraft fees, with a median price of $35 per incident, compared with $26 for all financial institutions
- 35 percent of all financial institutions let customers overdraw their accounts at an ATM or with a debit card, charging a median of $26 for the service
- Banks in the U.S. South had the highest OD charges in the nation, with a median charge per incident of $29, compared with $25 in the rest of the country
- The U.S. Postal Service recently raised its OD fees to $35 per item
- In 2009, 54 percent of all financial institutions offered OD services, down from 69 percent in 2008