An interesting thing happened after consumer protection laws went into effect. Instead of avoiding fees, most people have opted to pay them. 75% of consumers are signing up for overdraft protection, according to Moebs, a banking industry consulting service* who surveyed 2400+ banks and credit unions. Those who habitually overdraw their accounts (10 or more times a year) have nearly all signed up.
Moebs also no longer sees the amount of overdraft fees collected as dropping significantly, now estimating the total fee income between $35 billion and $36 billion this year, compared with $37.5 billion last year. In 2011, they forecast that amount will rise to $39 billion.
And, in another bit of good news for your bottom line, Moebs points out that credit unions and smaller banks may be gaining members and customers because they typically charge a lower overdraft fee than the big banks.
Is this a victory for transparency about overdraft fees?
Probably. Previously, there was little or no choice for people, and now they have to opt in. Whether you agree with the fee or not, there are people who are willing to pay it. Yes, they may grumble about it – but apparently the convenience factor and safety net effect is more important to them than the cost of the fee.
Is it also still taking advantage of people who can least afford paying extra fees? Probably. Consumer advocates have long questioned NSF fees, saying it allows banks to profit from people who are living paycheck to paycheck. “What concerns us about it is that so often the very people who should least be opting in for overdraft protection, are those who do,” said Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling.
So is it still sleazy?
Depends on who you ask. The reason I think it passes the sleaze test now is that people are given a choice. You don’t have to like the choice they make. And you can still help your members make the right choice for themselves.
Is it necessary?
Just ask your CFO. In this day of little or no margins, any source of income has to be considered if it enables you to keep the doors open.
*In the spirit of full transparency (and for all the cynics in the crowd), Moebs does have a pony in this race since they offer consulting and packages for overdraft services. However, their approach is touted as “honoring overdrafts honorably.”
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