Editorial
A research paper from Moebs Services asserts that a large number of banks in the United States have quietly been adding overdraft fees throughout the last year, and could end up making about $38.5 billion extra from the practice.
Obviously those who will suffer the most from this are consumers you can least afford to, and the study concludes this will probably be, and has been the case, as the majority of people that can afford it usually don’t overdraw their accounts.
Moebs adds that fees for overdrafts account for over 75 percent of all service fees customer deposits are charged with, and that so far this year the fees for overdrafts have increased by one dollar already, to now average $26 per transaction.
It’s odd that banks rightly resist being over-regulated, and then by their actions almost beg for it by increasing fees at the very time when those least able to be hurt by it will suffer the most. Not a good public relations or marketing move, especially in the economic times we live in.
We do need to add some context to this, as pressure to survive and make a profit is heavy upon the banking industry, so they’re desperate to find ways to generate profits in an almost impossible situation.
But even so, many banks have turned profits over the last couple of quarters, and maybe we’re starting to find out the reasons they have.
Historically this has happened before, as banks in the past have went the overdraft fee route when pressured to return profits to shareholders.
But you then add the huge, guaranteed bonuses offered by banks during these difficult times (although they’re down by over 30 percent from before the crisis), and you see them in a type of catch-22 which goes round and round with nowhere to stop.
What concerns me here for the banking industry is a knee-jerk reaction from lawmakers which will cut off so many ways of generating revenue at banks that they could further hinder and harm the industry at a time when it’s struggling to survive.
I don’t mean by that that these overdraft fees should be increased and hurt people when they can least afford it, but this is generating a scenario that could weaken the banking industry all over again.
I talk about it at American Banking News all the time that there shouldn’t have been a bailout from taxpayer dollars in the first place, but because there has been, politician have to cover their rear-ends by ‘watching out for the people.’
As far as the many banks within the industry doing this, it reveals the panic they’re in, as they can’t be stupid enough to think this practice wouldn’t be found out and made known to the public.
We all know how this type of story generates anger and resentment, even when times are good, so you know this isn’t going to sit well with anybody; with the possible exception of shareholders.
It tells me that the industry needs to come up with a more viable business model, because if the only answer to profits they have in difficult times is to hit customers with increased fees, there’s something wrong in the industry which needs to be corrected.
I remember back in the savings & loan crisis where many of them survived and thrived. How did they do it? They simply kept to their expertise and business model by focusing on home mortgages people could afford to pay and made their profits primarily sticking with that.
Banks need to return to what they’re good at and their purpose, not going way beyond their expertise in dubious and unknown territory where it still isn’t known how far down the rabbit hole they’ve went. Just think derivatives and you’ll know what I mean.
