Many national banks that have been repeatedly hitting customers over the head with overdraft fees may be changing their tune.  Fees are being lowered and eliminated and policies are being relaxed; but it’s not as good of news as it seems on the surface.  Overdraft fees are a large portion of banking revenue, and that money will need to be made elsewhere now.

“Banks are going to have to get creative. Rather than generic free checking accounts, you’re going to see lots of different flavors of products,” said Bob Meara to Yahoo News. Meara is a senior analyst with Celent, a Boston-based consulting firm for the banking industry.

Customers could see service or transaction fees or minimum balance requirements coming to their banks in the near future.  Banks may also begin heavily pushing lower cost services such as online banking and debit card usage.

Automatic enrollment in overdraft protection is also coming under fire.  Most consumers believe that they can only use their debit card for purchases up to what they actually have in their account. 

In reality, many banks automatically enroll its customers in various overdraft protection plans so they can unknowingly spend more than they actually have and subsequently be slapped with a hefty fee or two. 

Most banks will charge their fee (usually around $35) each time a purchase is made while the account is overdrawn and have no limit as to how little an amount overdrawn the consumer may be.

New policies will involve customers actively choosing to sign up for overdraft protection programs; should they choose not to, banks will begin losing some big money.  In 2007 alone, banks collected over $29 billion in overdraft fees alone.  In contrast, during the same time period, consumers spent $28 billion on major home appliances.

Despite this large amount of revenue, only a small amount of customers are paying these fees.  Five percent of banking customers make up almost 68 percent of all overdraft fees.  Seventy four percent of banking customers were not charged any overdraft fees at all.

Our Take

Years and years ago, when banks first began, they made their money by loaning out money that customers would keep with them in checking, savings or certificate of deposit accounts.  It’s only in recent years that the banking industry has gotten so greedy that they will charge their customers for anything and everything.  These banks need to rework their business models in such a way that they can keep customers and provide a reasonable level of service without attaching a fee to every single activity.