Banks are expected to bring in less from overdraft fees in 2010, study says

Study predicts lower fees from overdrafts

NEW YORK — Banks and credit unions took in more than $38 billion in overdraft and non-sufficient funds fees in 2009, but a consultant’s study predicts a new federal rule will cut that amount.

Bretton Woods Inc., a bank strategy and consulting firm based in St. Simons Island, Ga., said the rule also will reduce short-term consumer credit in the form of overdraft protection by $6.3 billion.

A non-sufficient funds, or NSF, fee is charged when a customer’s account balance is too low to cover a check. Overdraft fees are charged when a debit card transaction or ATM withdrawal puts the account’s balance below zero.

The average fee reached an all-time high of $29.58 in 2009 but had been rising consistently, the study found. Banks and credit unions nationwide collected more than $38 billion in both types, Bretton Woods estimates.

Under the new rule, called Regulation E, banks must notify customers when an ATM or debit card transaction will result in an overdraft fee. Customers who don’t have overdraft protection — automatic loans in the event of overdrafts — would not be able to complete those transactions. The rule takes effect July 1.

“Once Regulation E goes into effect, consumers will have to opt into these fees,” said Bretton Woods CEO Michael Flores. “Banks will struggle to recover that revenue, and consumers will need to replace $6.3 billion in short-term credit.”

The report’s other findings include:

— The $38 billion in overdraft and NSF fees was 10 percent more than financial institutions received in 2008 and 27 percent more than they got in 2005.

— The average U.S. household with a bank account incurred such fees 12.7 times in 2009, up from 11.9 times in 2008, a 7 percent increase, for a total average cost of $376 in 2009, up from $343 in 2008.

— Banks’ overdraft income will decline by at least $7.3 billion in 2010.