More than six months after new federal rules went into effect that prohibit banks from charging consumers overdraft fees unless they “opt in” to such an arrangement, government data are lacking on how this has changed banks’ bottom lines.
“This is the most expensive form of credit, and consumers most likely to use it are the most vulnerable. You’d think regulators would want to know exactly how much revenue banks are taking in,” says Jean Ann Fox, director of financial services with the Consumer Federation of America.
The federal regulations came after years of controversy over banks’ practice of charging hefty overdraft fees–sometimes several times a day–when they overcharged their account even by a small amount. The example often used was the $40 cup of coffee—overdraw your account by $5, and be hit with a $35 overdraft fee. Most of the nation’s largest banks were hit with lawsuits by consumers claiming they had been charged unfairly.
But banks are not required to report to the government precisely how much they collect in overdraft fees.
They do report overdraft fees as part of a larger category–fees they charge on deposit accounts–in the quarterly "call" reports they file with their supervisory federal agencies. The category also includes a long list of fees such as charges for stop payment orders, certifying checks, general charges on checking accounts, and some ATM fees.
End-of-year call reports filed by the nation’s largest banks show that most collected less from customers in this category—known as "sevice charges on deposit accounts (in domestic offices)"—in 2010 than in 2009. For example, Bank of America, which reported income greater than any other bank, also showed the biggest decline, from $8.5 billion to $6.5 billion. PNC Financial Services, Inc., reported $1.4 billion in 2009 and $1.2 billion in 2010. U.S. Bankcorp’s reported decline was from $1.5 billion to $1.3 billion. [See chart.]
This seems to dovetail with anecdotal reports from banks that their income from overdraft fees has declined. For example, in its most recent annual report filed with the U.S. Securities and Exchange Commission (SEC) (whch is different from the call reports cited above), Bank of America said that new overdraft rules and the bank’s own policy changes cost the company some $1.6 billion in 2010.
And Moeb's Services, a private firm which surveys financial insitutions directly, last fall predicted that in 2010 banks would earn about the same amount in overdraft fees–$35.4 billion—as they did in 2008, down from $37.1 billion in 2009, largely because of the new regulations. The firm also markets a service to financial institutions seeking advice on how to price their overdraft products. News services often cite these statistics in stories about overdraft fees.
The overdraft fees are estimated to be a large portion of the fees they collect on deposit accounts. A 2008 report by the Federal Deposit Insurance Corporation (FDIC), done in the run-up to the promulgation of the new regulations, estimated that the overdraft fee income accounts for 74 percent of the fees reported in this line item, and represented some six percent of the total net operating revenues earned by banks. But the FDIC’s report was based on a survey of 1,000+ institutions, not on direct reporting by banks.
This mix, however, is expected to change as banks adjust to the new regulatory environment, and shift fees for consumer elsewhere. For example, in January, partly because of the new overdraft regulations, Bank of America announced that it would start charging new fees for customers who maintain low account balances, while customers that bank large amounts will get preferential treatment and higher interest rates, reported the Washington Post.
Banks would report income from such fees under the same category as overdrafts, making it hard to figure out exactly what practice is generating income and how.
Meanwhile, it is also hard for consumers to get the facts directly from banks about what fees they will be charged and under what circumstances. Under the Truth in Savings Act, banks are required to disclose such fees to customers when they open checking or savings accounts. But when the in 2008 General Accountability Office (GAO) sent investigators posing as customers to some 185 bank offices, they were unable to get detailed information about fees and account terms at more than one-fifth of the banks. They also could not find the information on many of the institutions’ websites.
Getting into the data weeds
When we decided to examine what government data were available on overdraft fees charged by banks, getting this simple information turned out to be a lot more complicated than it first seemed.
First, in a conversation with Federal Deposit Insurance Corporation (FDIC) experts, we were directed to the individual call reports filed by banks with the Federal Deposit Insurance Corporation (FDIC). Banks file these reports every quarter, and they are available online in pdf format and for bulk download, as well as other formats. The line item that contains overdraft fees, line item 5(b), can be pulled from these data.
However, what we consumers typically think of as a bank—such as Bank of America, or JP Morgan Chase—is really an amalgamation of several institutions, all of which file separately. For example, JP Morgan Chase has several subsidiaries, two of which—Chase Bank USA and JP Morgan Chase Bank—report income under this line item.
We wanted to consolidate these numbers by bank holding company, so that we would get one number per institution.
It’s possible to create this the long way around, by pulling the hierarchy of ownership for each financial institution here. But the hierarchy search form allows a search only for the years 2010 and 2009, and we wanted to go back to 2007.
In the end we relied on the consolidated financial statements by bank holding companies, which are available here. (However, these appear to be available only in pdf format, making it difficult to pull information into a spreadsheet.) We looked at the top ten instiituions as measured by total deposits, calculating that from data we got from the FDIC.
Service Charges on Deposits Accounts (in domestic offices)–Top Ten Bank Holding Companies (by deposits)
|Bank holding company||2007||2008||2009||2010|
|Bank of America Corporation||$9,501,906,000||$10,838,480,000||$8,451,000,000||$6,523,113,000|
|JPMorgan Chase & Co||$2,899,000,000||$3,977,000,000||$5,589,000,000||$4,656,000,000|
|Wells Fargo & Company||$3,050,000,000||$3,190,000,000||$5,741,000,000||$4,916,000,000|
|PNC Financial Services Group, Inc.||$560,569,000||$598,333,000||$1,395,383,000||$1,137,799,000|
|Bank of New York Mellon Corporation||$243,000,000||$410,000,000||$421,000,000||$409,000,000|
|US P&C Holdings ULC||$158,813,000||$376,048,000||$545,842,000||$699,900,000|
|HSBC Holdings PLC||$219,258,000||$224,630,000||$229,112,000||$190,148,000|
|Capitol One Financial Corporation||$342,746,000||$354,905,000||$405,377,000||$365,604,000|
Source: National Information Center.