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.
As a former vice president at Bank of America in Dallas, he says he implemented sophisticated computer programs to maximize bank revenue.
"Well, the last one that I worked on, the cost of the project was in the hundreds of millions of dollars and represented over a million hours of just programming alone," Drew said. "They do know what they're doing. They're very sophisticated at it. And they have the resources and the manpower to get it done."
Bank of America said it had "no comment" regarding Drew's allegations.
Banking Industry Defends Practice
Texas real estate agent Jory Walker, 25, discovered one of the new computer tactics that many banks now use. Called "transaction sorting," it means banks can clear charges in any order they choose.
"I definitely thought they were taking advantage of the situation," Walker said.
In his case, a single $100 overdraft led to multiple fees because, he says, a bank computer program cleared an $850 check ahead of several smaller charges that had occurred earlier. In short, the bank took things out of sequence.
"When I questioned them on that over the phone they said they had the right to clear whatever they choose to at whatever time in whatever order," he said. "So instead of over-drafting once, it turned out that we overdrafted almost six times. That resulted in almost $30 per hit, for items as small as a $1.50 purchase."
This resulted in about $200 in fees. The banking industry defends transaction sorting -- now standard practice at many banks -- as reflecting the preferences of most consumers.
"What people really want is you to call them up in the evening, ask them, 'Which transactions would you like to pay?' But that's not practical," Feddis said. "So some banks will pay the high-dollar transactions first on the basis that those are the most important transactions, like a mortgage or a rent."
Many consumers have no idea they are even enrolled in overdraft programs; banks can sign them up without their consent. That got unemployed truck driver Richard Breault of Waterford, Mich., into trouble. He claims a dollar overdraft for a cup of coffee on his debit card cost him $34 in fees.
"I don't want overdraft," he said. "If there's no money in my account, I don't want that card to work. I don't want to be able to go into a store and buy something if there's no money."
Courtesy or Unfair Fee?
What banks market as a customer courtesy, critics consider unwanted and outrageously expensive loans. The Consumer Federation of America describes overdraft as "deliberate, systemic attempts to hook consumers onto overdrafts as a form of high cost credit.
"I had like a pack of gum for $1.15 and I ended up paying ... about $32," Walker said. "An enormous interest rate charge on that."
The interest quickly adds up. For an average overdraft -- about $20 -- the average fee is about $27.
"If you took an average of two weeks to reconcile your account after you overdrafted it, you'd be paying about 3,500 percent interest," Drew said. "Does that seem fair to you?"
"Most consumers find it simple to avoid overdrafts by keeping track of transactions, by keeping a cushion, by linking to another account or by arranging for the bank to alert them when their balance goes below a certain threshold," Feddis said.
What seems unfair to many consumers is that some of the banks who are charging the biggest fees are the very ones taxpayers are bailing out.
"My tax dollars along with yours went to bail these banks out," Breault said. "And they're right back to business as usual. And we need to put a stop to it."
The Federal Reserve, concerned about overdraft abuses, is proposing new rules requiring banks to get consumers' consent before enrolling them in overdraft protection or to give them the opportunity to opt out. Many consumer advocates favor the first option, while the banking industry tends to prefer the second.
But overdraft, which used to be so embarrassing, has now become a rich new stream of revenue for banks that have figured out ever more ingenious ways of turning rubber into gold.