We now know that things worked out differently. As economist Michael Moebs, CEO of Moebs Services, puts it: "Despite regulation and legislation ... consumers' use of overdrafts shows no indication of going away." Moebs says the latest increase is fueled partly "by increases in consumer demand." But Moebs own report shows that this isn't the case. In reality, the total number of overdraft fees actually dropped by 1.4% last year. The increase in revenue happened, instead, because banks and credit unions continued to jack up fees, with the average cost per overdraft rising by 3.6%.
What the report really shows is exactly what federal regulators and consumer advocates have predicted for years: High overdraft fees are pushing millions of Americans out of the banking system entirely and into things like payday loans, which have significantly higher cost and significantly lower protection for consumers. In fact, according to an FDIC report, overdraft fees are the leading cause of involuntary bank account closures. And while it's scandalous enough to see how much money the banks are pulling in through these fees, the bigger scandal is where this money is coming from. Then and now, these fees have fallen disproportionately on the people least able to pay them: seniors, the young, minorities, the disabled, and military families. This is intolerable. It must be stopped.
The Fed's 2010 opt-in rule was a good first step. But banks have figured out ways around it to keep their pipeline of easy money flowing, with no regard for how much it hurts consumers --- or which consumers get hurt. Here are some suggestions for how federal regulators can create more protection for consumers and staunch the flow.