Bounced! Critics Call Overdraft Fees 'the Mother Lode' of Bank Penalties

Hidden overdraft fees have consumers fuming and banks cashing in.

ByABC News
July 8, 2009, 1:59 PM

July 8, 2009— -- With Americans cutting back on credit, more and more people are using their debit cards to purchase that cup of coffee, tank of gas or bag of groceries.

At the same time, banks, facing a federal crackdown on their credit practices, are tapping a new cash cow: an explosion in overdraft fees when consumers spend more than they have.

A new national survey of 2,000 U.S. banks, conducted by Moebs Services -- an economic research firm that gathers data for the banking industry and U.S. government -- shows overdraft fees climbing. And the biggest banks are packing some of the fattest fees.

"We see a big gulf between what I like to call the Wall Street banks and the community banks and credit unions," Moebs Services president Michael Moebs said. The company does work for banks, credit unions, and the U.S. government, including the Federal Reserve System.

"These guys are at $33," Moebs said, referring to the big national banks. "The community banks and credit unions are between $25 and $27."

"Overdraft fees are intended to encourage people to manage their checking accounts," said Nessa Feddis, senior counsel in the government relations division of the American Bankers Association. "It's not that different from a parking ticket. If the fee for parking in a fire lane were $5, fire trucks would have a lot harder time getting through."

All those fees, which are rising to record levels, feed a growing gusher of revenue for America's banks.

"It's $36.7 billion just in overdraft fees that they are collecting from consumers and small businesses," Moeb said. "We see this rising. If we go back to 1992, it was $11 billion. This is three times what we've seen in just 17 years."

According to Moebs, overdraft fees are "the mother lode." And it's no accident. A growing cottage industry of consultants promises to help banks dramatically boost their incomes by making it easier for customers to overdraft their accounts.

Not long ago, bouncing a check -- or overdrafting a debit card -- was, at the very least, humiliating. Those days are over.

Jake Drew, a former Bank of America executive thinks that banks want people to overdraft. If not, "then they wouldn't generate as much money," he said.

Read more about overdraft fees in USA Today.